Electronic Fund Transfers

SUMMARY: The Board is publishing a final rule to amend Regulation E,

which implements the Electronic Fund Transfer Act. The amendments are a

result of the Board's review of Regulation E under its Regulatory

Planning and Review Program, which calls for the periodic review of all

Board regulations. The final rule contains some substantive amendments,

including changes to the existing exemptions for securities or

commodities transfers. Primarily, the final amendments simplify the

language and format of the regulation, and delete obsolete provisions.

Commenters generally supported the Board's proposed amendments and

offered suggestions for additional changes, some of which were adopted

in the final rule. In conjunction with the amendments to the

regulation, the Board also has made amendments to the staff commentary,

published elsewhere in today's Federal Register.

DATES: Effective date. May 2, 1996. Compliance date. Mandatory

compliance January 1, 1997.

FOR FURTHER INFORMATION CONTACT: Jane Jensen Gell, Kyung Cho-Miller,

Natalie Taylor, or Michael Hentrel, Staff Attorneys, Division of

Consumer and Community Affairs, at (202) 452-2412 or (202) 452-3667.

For users of Telecommunications Device for the Deaf only, contact

Dorothea Thompson, at (202) 452-3544.

SUPPLEMENTARY INFORMATION:

I. Background

The Electronic Fund Transfer Act (EFTA) (15 U.S.C. 1693), enacted

in 1978, provides a basic framework establishing the rights,

liabilities, and responsibilities of participants in electronic fund

transfer (EFT) systems. The Federal Reserve Board was given rulewriting

authority to issue implementing regulations. Types of transfers covered

by the act and regulation include transfers initiated through an

automated teller machine (ATM), point-of-sale terminal, automated

clearinghouse, telephone bill-payment system, or home banking program.

The act and Regulation E (12 CFR part 205) provide rules that govern

these and other EFTs. The rules prescribe restrictions on the

unsolicited issuance of ATM cards and other access devices; disclosure

of terms and conditions of an EFT service; documentation of EFTs by

means of terminal receipts and periodic account statements; limitations

on consumer liability for unauthorized transfers; procedures for error

resolution; and certain rights related to preauthorized EFTs.

Board policy under its Regulatory Planning and Review (RPR) program

calls for the periodic review of each Board regulation. The RPR program

has four goals: to clarify and simplify regulatory language; to amend

regulations to reflect technological and other developments; to reduce

undue regulatory burden on the industry; and to delete obsolete

provisions. In keeping with that policy, the Board conducted a detailed

review of Regulation E to determine whether it can be simplified to

ease compliance burdens for financial institutions, while meeting the

Board's responsibility for implementing the consumer protections of the

EFTA. The Board issued a proposed rule on March 7, 1994 (59 FR 10684).

Based on the comments received on the proposal and on its own

further analysis, the Board has adopted a revised Regulation E. While

certain substantive revisions have been made (see the section-by-

section discussion below), the final rule leaves most of the regulatory

provisions substantively unchanged. The regulation closely follows the

statute, which contains detailed requirements in most areas; major

changes to the regulation are not possible unless the act itself is

amended. The Board solicited comment on whether specific legislative

revisions to the EFTA are necessary and achievable without imposing a

significant adverse impact on consumer protections. A number of

commenters provided recommendations. The Board plans to convey these

recommendations to the Congress, as appropriate, as part of a report

that the Board will make pursuant to section 303 of the Community

Development and Regulatory Improvement Act of 1994.

The final rule simplifies the language and format of each section

of the regulation to state the requirements more clearly. All footnotes

are either integrated into the text of the regulation or moved to the

staff commentary, making the regulation itself less cumbersome to use.

The final regulation is shorter than current Regulation E by about

fifteen percent, a reduction largely attributable to the deletion of

obsolete provisions and to the transfer of explanatory material to the

commentary. Commenters offered specific suggestions, as well as

rationale, for changes to the regulation (beyond those proposed by the

Board) that would facilitate compliance. A number of these suggestions

have been incorporated in the final rule. Also, unless otherwise

indicated below, the revisions that were proposed in March 1994 have

been adopted in the final rule.

II. Regulatory Revisions

The following discussion covers the revisions to Regulation E

section-by-section. In many cases, the changes simplify or clarify the

current text, with no substantive change in the regulatory

requirements; where the meaning of these changes is evident from

reading the text itself, they are not discussed.

Section 205.1--Authority and purpose

This section has been simplified without substantive change. The

discussion of congressional findings in former paragraph (b) and

contained in Sec. 902(a) of the act has been deleted as unnecessary.

The paragraph relating to the coverage of the act and regulation has

been moved to Sec. 205.3.

Section 205.2--Definitions

2(b) Account

This paragraph incorporates in paragraph (b)(2) the exemption for

trust accounts (former Sec. 205.3(f)) to track more closely the

statutory language contained in section 903(2) of the EFTA.

2(d) Business day

This paragraph defining business day is unchanged.

The act and regulation define business day as any day on which the

offices of the consumer's financial institution are open to the public

for carrying on substantially all business functions. This requires

that each financial institution determine when its offices are

``carrying on substantially all business functions.'' The Board

proposed to use its authority under section 904(c) of the EFTA to

change the definition to mirror the definitions used in Regulations CC

(12 CFR part 229) and DD (12 CFR part 230). Those regulations define a

business day as a calendar day other than a Saturday, Sunday, or any

legal public holiday specified in 5 U.S.C. 6103(a).

Some commenters supported the proposed change; they believed that

the change would simplify compliance by conforming the regulations

governing deposit accounts. Among these commenters, however, several

qualified their support. Some believed that a financial institution

should not be

[[Page 19663]]

required to investigate and resolve errors on a day that the

institution is not open for business. These commenters were concerned

that they could have fewer days to investigate and resolve errors; they

suggested using the definition of ``banking day'' in Regulation CC (the

current definition of ``business day'' in Regulation E) to compute the

time period for resolving disputes. Using multiple definitions--

including the existing definition for certain purposes--would seem to

further complicate the regulation. Other commenters opposed changing

the definition, mentioning the burden and cost associated with changing

disclosures without corresponding benefit. After further analysis, the

Board has retained the current definition.

2(f) Credit

The definition of credit, inadvertently deleted from the proposal,

has been retained.

2(i) Financial institution

The definition of financial institution (former Sec. 205.2(i)) has

been simplified by eliminating references to both state and federal

institutions.

2(j) Person

A definition of ``person'' has been added, incorporating language

similar to that in Regulation B (Equal Credit Opportunity, 12 CFR

202.2(x)) and Regulation Z (Truth in Lending, 12 CFR 226.2(a)(22)). The

term is used in several places in the regulation, including

Sec. 205.3(a), which defines the regulation's coverage, Sec. 205.10(e)

on compulsory use, and Sec. 205.13(b) on record retention.

Section 205.3--Coverage

This section (formerly captioned Exemptions) incorporates the

definition of an EFT (formerly in Sec. 205.2) and consolidates in one

place all the rules dealing with coverage to facilitate compliance. A

proposal regarding Regulation E coverage of stored-value products and

other emerging EFT payment systems is published separately in today's

Federal Register.

3(b) Electronic fund transfer

The definition of ``electronic fund transfer'', which is central to

determining coverage under the regulation, has been moved to paragraph

3(b). The definitions of ``preauthorized electronic fund transfer'' and

``unauthorized electronic fund transfer'' remain in the definitions

section.

3(c)(3) Wire or other similar transfers

The exemption for wire transfers in former Sec. 205.3(b) has been

revised to clarify that it exempts transfers through Fedwire (or

similar wire transfer systems, such as CHIPS or S.W.I.F.T.) and not all

transfers through the Federal Reserve Communications System such as the

automated clearinghouse. No substantive change in the scope of the

exemption is intended.

Commenters generally favored the proposed revision. One commenter

requested examples of transfers similar to those through the Federal

Reserve Communications System that are exempt from Regulation E. The

commentary addresses this issue. (See comment 205.3(c)(3)-3.)

3(c)(4) Securities and commodities transfers

The exemption for certain securities and commodities transfers

(formerly Sec. 205.3(c)) is revised to more closely parallel the

statute. As revised, transfers involving unregulated securities are

exempt from the EFTA if the purchase or sale is transacted by a broker-

dealer regulated by the Securities and Exchange Commission (SEC) or a

futures commission merchant regulated by the Commodity Futures Trading

Commission (CFTC). The Board believes that the regulation of broker-

dealers and futures commission merchants offers sufficient protection

of payment transfers for consumers and that the application of the

protections in Regulation E would only duplicate available safeguards.

Paragraph (c)(4)(iii) extends the exemption to all securities or

commodities held in book-entry form by Federal Reserve Banks on behalf

of the Treasury Department and other federal agencies (for example,

Treasury Direct issues). Previously a transfer to purchase Treasury

securities was technically covered by Regulation E because the

securities were not regulated by the SEC or the CFTC and, when

purchased from the Federal Reserve Banks, were not purchased or sold by

a registered broker-dealer. The Board believes there is adequate

regulation of transfers that involve Federal Reserve Banks and federal

agencies, offering sufficient consumer protection (see 31 CFR part 370,

regulations governing payments by the automated clearing house method

on account of United States securities).

3(c)(6) Telephone initiated transfers

Former Sec. 205.3(e) exempted any transfer of funds initiated by a

telephone conversation between a consumer and an officer or an employee

of a financial institution if the transfer is not under a prearranged

plan. To accommodate telephone transfers initiated by facsimile or

through telephone response machines, this paragraph has been revised to

replace ``conversation'' with the broader term ``communications.'' Also

the phrase ``officer and employee'' has been deleted as unnecessary.

3(c)(7) Small institutions

The asset-size cutoff for the small institution exemption (formerly

contained in Sec. 205.3(g)) has been increased from $25 million to $100

million. Section 904(c) of the EFT gives the Board authority to modify

the requirements imposed by the regulation on small financial

institutions if the Board determines that such modifications are

necessary to alleviate any undue compliance burden on small

institutions and that such modifications are consistent with the

purposes and objective of the act. In 1982, the Board exempted

preauthorized transfers to or from accounts at financial institutions

with assets of less than $25 million to reduce compliance burdens for

small institutions that did not offer any other EFT services.

The regulation exempts the preauthorized transfers as a class of

EFTs, and not the financial institutions themselves. A small financial

institution that provides EFT services besides preauthorized transfers

must comply with the regulation for those other services. For example,

a small financial institution that offers ATM services must comply with

Regulation E in regard to the issuance of debit cards, terminal

receipts, periodic statements, and other requirements. In addition, the

institution must comply with provisions of the act that apply to the

financial institution's conduct rather than to the exempted transfers.

For example, the prohibition against compulsory use of EFTs in section

913 of the act, in regard to credit or employment, remains applicable.

When the Board adopted the $25 million exemption in 1982, many

small institutions that did not offer EFT services such as ATM access

benefited from the exemption. Given the growth in assets of financial

institutions in the past ten years, increasing the asset-size cutoff of

the exemption to $100 million could reduce burden without lessening the

extent of consumer protection originally provided. Because many small

institutions now offer a variety of EFT services, it appears that only

a limited number of institutions would be

[[Page 19664]]

exempted from Regulation E under the increase.

The Board solicited comment on the proposed increase in the

exemption level and on other ways the burden on small institutions

could be reduced without sacrificing the consumer protections intended

by the act. The majority of the commenters agreed that increasing the

asset-size of the exemption would reduce burden and supported the

proposal. Most commenters supporting the proposal are credit unions

which do not offer EFTs other than preauthorized transfers such as

payroll deductions. Other commenters opposed the proposal, stating that

consumers should receive the same treatment from all institutions

regardless of asset size.

Based on comments and further analysis, the Board has increased the

asset-size cutoff to $100 million. In light of current concerns about

regulatory burden, the Board believes that increasing the asset-size

cutoff will provide relief to small institutions offering limited EFT

services, consistent with the principles under which the original

exemption was granted.

Questions have been raised about the impact of Article 4A of the

Uniform Commercial Code (UCC) on the small institution exemption. The

revised commentary to Regulation E clarifies that Article 4A is not

applicable to the preauthorized transfers that qualify for the small

institution exemption. (See comment 3(c)(7)-1.) Article 4A applies

primarily to large-dollar commercial wire transfers made, for example,

via Fedwire, CHIPs, SWIFT, and Telex. Section 4A-108 excludes any

transaction that is subject to the EFT from coverage under Article 4A.

The question is whether the transfers initiated by small financial

institutions that take advantage of the regulatory exemption (such as

for direct deposits) may be subject to the requirements of Article 4A

as a consequence. The Board regards these preauthorized transfers as

remaining subject to certain requirements of the EFT, and therefore not

covered by Article 4A.

Footnote 1a which refers to sections 913, 915, and 916 of the EFT

has been deleted. Section 913 places restrictions on the compulsory use

of EFTs. For example, an institution may not condition the extension of

credit on repayment by preauthorized debit. The statutory language from

section 913 has been incorporated in Sec. 205.10(e). References to

sections 915 and 916 (concerning civil and criminal liability for

violations of the EFTA) are contained in Sec. 205.3(c)(5)(ii). The

Board has added cross-references to Sec. 205.10 and sections 915 and

916 in the appropriate paragraphs to replace footnote 1a.

Section 205.4--General disclosure requirements; jointly offered

services

This section consolidates the general disclosure requirements

currently dispersed throughout the regulation in this section. In

addition to adding paragraph (a), the final rule contains various

editorial changes including a reordering of the section; no substantive

change is intended.

4(a) Form of disclosures

The format requirements for disclosures formerly found in

Secs. 205.7(a) and 205.9 are incorporated into this section. The Board

interprets these requirements as generally applying to all disclosures

and notices.

With the continuing emergence of EFT payment technologies, the

Board has received inquiries about providing disclosures required under

the EFTA and Regulation E to consumers in an electronic form, in lieu

of paper documentation. The Board has addressed this issue in the

proposed rulemaking on Regulation E published elsewhere in today's

Federal Register.

4(e) Services offered jointly

This paragraph incorporates the substance of former paragraph 4(a).

The Board has retained text concerning disclosures within an

institution's knowledge, which had been omitted in the proposal as

unnecessary. The Board did not intend to make a substantive change by

omitting this language.

Section 205.5--Issuance of access devices

The final rule makes editorial changes to this section. The

substance of footnote 1b, which provided guidance on issuance of an

access device for a joint account, has been moved to the commentary.

The final rule deletes as obsolete former Sec. 205.5(a)(3), which

grandfathered renewals of pre-1979 access devices from the requirements

of the section. The explanatory language from former Sec. 202.5(b)(4)--

providing examples of the methods a financial institution may use to

verify a consumer's identity when validating an access device--has been

moved to the commentary. (See comment 205.5(b)-4.)

The Board has moved the provisions relating to the Truth in Lending

Act (TILA) from former Sec. 205.5(c) to Sec. 205.12, to simplify the

regulation by placing all references to TILA in the same section.

Section 205.6--Liability of Consumer for Unauthorized Transfers

Section 205.6 specifies the rules governing consumer liability for

unauthorized use. To simplify the text and make it easier to

understand, the Board has moved explanatory or illustrative material to

the commentary. This includes examples of means of identification that

an institution may provide to the consumer to whom an access device is

issued; part of former Sec. 205.6(b)(3), on the relationship between

the various tiers of liability; and former Sec. 205.6(b)(4), about

extenuating circumstances that would permit delayed notification by

consumers. The provisions in former Sec. 205.6(d) concerning the

relation to the TILA now appear in Sec. 205.12.

6(a) Conditions for liability

The former regulation appeared to condition consumer liability for

unauthorized EFTs in all cases on the issuance of an accepted access

device (Sec. 205.6(a)). The former commentary, on the other hand,

stated that if the consumer failed to report an unauthorized EFT within

sixty days of transmittal of the periodic statement reflecting the

transfer, the consumer could be subject to liability for subsequent

transfers, even if the unauthorized transfer did not involve an access

device.

Paragraph 6(a) is revised to clarify that a consumer can be held

liable for unauthorized EFTs that do not involve an access device, but

only those that occur sixty days after transmittal of the periodic

statement reflecting an unauthorized transfer. Some commenters believed

that a sixty-day period was unreasonable and suggested an alternative

time period ranging from thirty to forty-five days; such a revision,

however, would require a statutory change.

Section 205.6(a)(3) requires that only three of the disclosures

from Sec. 205.7 to be provided before a consumer can be held liable for

unauthorized transfers. The Board proposed to require that a financial

institution provide all of the disclosures required by Sec. 205.7 in

order to impose liability, given that institutions must initially

provide all of the disclosures to comply with Sec. 205.7(b).

Commenters were split on whether this change would increase the

risk of liability for institutions. Some agreed with the Board that the

proposed requirement would not increase compliance burden. Others

believed that the requirement could have adverse consequences due to

inadvertent

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disclosure errors unrelated to consumers' liability. Upon further

analysis, the Board has retained the current rule.

6(b) Limitations on amount of liability

Paragraph (b) incorporates the substance of former paragraphs (b)

(limitations on amount of liability) and (c) (notice to financial

institution). The final rule more clearly sets forth each of the three

tiers of a consumer's liability ($50, $500, or unlimited).

Section 205.7--Initial disclosures

The final rule includes format and editorial changes to this

section to provide greater clarity. No substantive changes are

intended. The format requirements in former paragraph (a) have been

moved to Sec. 205.4(a).

The provision in former Sec. 205.7(a)(1), giving financial

institutions the option of informing the consumer about the

advisability of promptly reporting lost or stolen access devices, has

been moved to comment 7(b)(1)-3 of the commentary.

The Board has moved the error resolution notice from former

Sec. 205.7(a)(10) to appendix A (Model Form A-3), to streamline the

regulation and place all model disclosures together. The final rule

deletes as obsolete former Sec. 205.7(b) regarding disclosures for

accounts that predate the statute.

7(a)(3) Business days

Because the Board did not adopted the proposed definition of

business day, as discussed under Sec. 205.2(d), the disclosure

requirement has been retained.

Section 205.8--Change in terms notice; error resolution notice

The Board has restructured Sec. 205.8 and added subheadings to make

it easier to follow.

8(a)(1) Prior notice required

Section 905(b) of the EFTA requires a financial institution to

notify a consumer in writing at least 21 days before the effective date

of an adverse change in certain terms or conditions contained in the

initial disclosures. The Truth in Savings Act (TISA) (12 U.S.C. 4301)

also requires institutions to provide a change-in-terms notice for

deposit accounts. Section 266(c) of TISA requires a notice 30 days

before the effective date of any adverse change in terms or conditions.

The official staff commentary of Regulation DD (Truth in Savings)

provides that if a changed term also triggers a change in terms notice

under Regulation E, the institution may use the timing rules of

Regulation E for sending the notice to affected consumers (see 59 FR

5543, February 7, 1994).

The Board proposed to use its exception authority under the EFTA to

extend the timing of the change-in-terms notice in Regulation E from 21

to 30 days to parallel Regulation DD and facilitate compliance with

both regulations. The Board solicited comment on whether it is

preferable to retain the flexibility offered by the two different

timing requirements. Most commenters opposed extending the timing

requirement to 30 days because the extension would in many cases double

the period of notice before a change in terms could be implemented

without a special mailing. The Board believes the proposed change might

unnecessarily increase regulatory burden and, accordingly, has retained

the 21-day notice requirement.

8(a)(2) Prior notice exception

Prior notice is not required when an immediate change in terms is

needed to maintain or restore the security of an EFT system or account.

If a change is made permanent, however, a financial institution must

notify the consumer ``on or with the next regularly scheduled periodic

statement or within 30 days'' of the change if disclosure would not

raise security concerns. In certain circumstances, periodic statements

are sent on a quarterly basis, and thus the consumer might not receive

notification of a change for up to ninety days after the change occurs.

The Board proposed to require written notice within 45 days of the

change. Most commenters opposed the proposal. The majority believe the

revision would result in increased costs and regulatory burden. Where

financial institutions send quarterly periodic statements, or where no

EFT has been made during a statement cycle, notice of the change in

terms would have to be provided in a separate mailing. Some commenters

asked the Board to clarify whether the notice is triggered by the date

of the initial change or the date the change becomes permanent; it is

the latter.

Based on the comments and upon further analysis, the Board has

retained the current rule. The notice provided to consumers reflects a

change in terms that has already been made. Since many institutions

send statements monthly, in many cases consumers will obtain notice in

or around 45 days after the change. In all instances, notice will be

provided within 90 days. Given the likelihood that a section 8(a)(2)

change is rare, and that most notices will be provided within 45 days

(and all no later than 90 days), the minimal consumer benefit

associated with the change is outweighed by the potential compliance

cost to financial institutions.

8(b) Error resolution notice

To streamline the regulation and place all model disclosure forms

in one location, the abbreviated error resolution notice in former

Sec. 205.8(b)--which an institution may give with each periodic

statement in place of the longer annual notice--has been moved to

appendix A (Model Form A-3). Language has been added to clarify that

financial institutions may use a form substantially similar to the

model form.

Section 205.9--Receipts at electronic terminals; periodic statements

This section contains a number of editorial revisions and several

substantive changes. New paragraphs and headings have been added to

better organize the text concerning the content of disclosures.

Disclosure format requirements, and former paragraph (e) concerning

use of abbreviations, have been moved to Sec. 205.4. Former footnote 2,

which permits a financial institution to make receipts available

through a third party, has been moved to the commentary. Two obsolete

paragraphs, (f) and (g), which dealt with receipts from terminals

purchased prior to 1980 and delayed effective dates for certain

periodic statements have been deleted.

9(a)(1)--Amount

The former regulation allowed financial institutions other than the

account-holding institution to include a charge for the transfer in the

total amount of the transfer, provided the amount of the charge is

disclosed on the receipt and on a sign posted on or at the terminal.

The final rule permits all financial institutions (including the

account-holding institution) to include the charge in the total amount

of the transfer, if the appropriate disclosures are made; and permits

institutions to display the fee on or at the terminal--meaning either

on a sign posted at the terminal or on the terminal screen itself.

Some commenters requested clarification as to whether disclosure of

a transaction fee on the receipt or at the terminal would substitute

for disclosure of the fee under Sec. 205.7(a)(5), initial disclosures.

Institutions holding a consumer's account must continue to disclose

transaction fees under Sec. 205.7(a)(5), as well as on the receipt and

at the terminal.

The Board solicited comment on whether consumers would need

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protections if the fee is displayed on the screen, for example,

allowing the consumer to cancel the transaction after the fee is

disclosed. Commenters generally believed that displaying the fee on a

screen provided adequate notice, as long as consumers are provided with

the option to cancel the transaction after receiving notice. This

interpretation is reflected in comment 9(a)(1)-1 of the staff

commentary.

9(a)(3)--Type

The examples included in former paragraph (a)(3) have been moved to

the commentary.

9(a)(4)--Identification

In a previous rulemaking, the Board deleted the requirement that a

financial institution ``uniquely'' identify the consumer. See 55 FR

15032 (March 22, 1995). The final rule, effective April 24, 1995, no

longer requires that terminal receipts uniquely identify the consumer,

the consumer's account, or the consumer's card. The change allows

institutions to truncate the number on the receipt and helps protect

consumers and financial institutions against fraudulent withdrawals.

9(a)(5)--Terminal location

This paragraph incorporates the substance of former

Sec. 205.9(b)(1)(iv), the rules regarding terminal identification on

receipts; former footnote 5 and much of the explanatory material on

describing locations has been moved to the commentary.

The Board had proposed to delete the exception in footnote 5

allowing institutions (1) to omit the name of the city and state if all

of the terminals owned or operated by the financial institution

providing the statement are located in the same city, or if the system

in which the financial institution's terminal participates is located

in the same city and (2) to omit the state if all of the terminals are

located in the same state. Since most institutions that offer ATM

access belong to networks operating on an interstate basis, the Board

believed that few, if any, financial institutions would be able to take

advantage of the exception provided by the footnote. The Board

solicited comment on whether the exception is still used by

institutions. Many commenters stated that credit unions and ``closed

systems'' frequently used at universities continue to benefit from this

exception because such institutions do not belong to interstate

networks. Thus, the Board has retained the exception but moved it to

the commentary. (See comment 205.9(a)(5)(iv)-1.)

The rules regarding terminal identification on the receipt have

been slightly modified. Former Sec. 205.9(b)(1)(iv)(C) allowed

financial institutions to identify the terminal location by using the

name of the entity at whose place of business the terminal is located

or the entity that owns or operates the terminal (such as the financial

institution). Footnote 7 required, however, that if the financial

institution owns or operates terminals at more than one location, the

terminal location must be identified on the periodic statement in

accordance with former 9(b)(1)(iv) (A) or (B) and had to provide either

a street address or a generally accepted name for the location. If an

institution owned only one terminal (and did not belong to a network),

however, it could identify the terminal using its own name under

paragraph 9(b)(1)(iv)(C). The final rule omits the footnote, removing

the limitation so that the receipt and the periodic statement may

provide the terminal location by giving the name of the institution if

it is other than the account-holding institution. The Board believes

this change makes the provision available to more institutions, since

very few institutions own and operate only one terminal and do not

belong to a network. Commenters generally believed this change would

not adversely reduce consumer information.

9(a)(6) Third party transfer

Paragraph (a)(6), which requires disclosure of the name of any

third party to or from whom funds are transferred, has been revised;

guidance on the use of codes as identification or the exception to the

requirement when the name of the payee cannot be duplicated by the

terminal has been incorporated into the commentary. (See comment

205.9(a)(6)-1.)

9(b) Periodic statements

9(b)(1)--Transaction information

For each transfer initiated at an electronic terminal, paragraph

(b)(1)(iv) requires financial institutions to disclose on the periodic

statement the location of the terminal as it appeared on the receipt

provided under Sec. 205.9(a). Under the former rule, if a code or

terminal number on the receipt was used to identify the location, both

the code and a description of the location, as specified in

Sec. 205.9(b)(1)(iv) had to be disclosed on the periodic statement. The

final rule does not require a restatement of the code in addition to

the location description. Commenters generally supported this revision,

noting that the code was of little use and that rules of the National

Association of Automated Clearing Houses already require codes to be

retained by the institution which would allow consumers to get the code

upon request. The substance of footnote 4a, which provided that a

financial institution need not identify the terminal location for

transactions that involve the deposit of cash, checks, drafts, or

similar paper instruments at electronic terminals, has been

incorporated into paragraph (b)(1)(iv).

Former footnote 4 permitted financial institutions to provide

transaction information on documents that accompany the periodic

statement; and permits the use of codes, if explained on either the

statement or the accompanying documents. Former footnote 9 allowed an

institution to omit the identification of third parties from periodic

statements if their names appear on checks, drafts, or similar paper

instruments deposited to the consumer's account at an electronic

terminal. The substance of former footnotes 4 and 9 has been moved to

the commentary. (See comments 205.9(b)-6 and 205.9(b)(1)(v)-6.)

9(b)(3)--Fees

The reference in former Sec. 205.9(b)(3) that a periodic statement

required by Regulation E need not disclose any finance charge imposed

under 12 CFR 226.7(f) has been moved to the commentary. (See comment

205.9(b)(3)-3.)

The Board solicited comment on whether regulatory compliance burden

would be eased if the fee disclosure requirements in Regulations E and

DD were identical. Many commenters preferred having the option of

complying with Regulation E or Regulation DD. The Board has retained

the existing fee disclosure requirements.

9(c) Exceptions to the periodic statement requirements for certain

accounts

The final rule incorporates current paragraphs (c), (d), (h), and

footnote 9a in Sec. 205.9(c), pertaining to intra-institutional

transfers and the circumstances in which a periodic statement for EFT

transactions is not required (for example, for a passbook account that

can be accessed electronically only by preauthorized transfers to the

account) or is not required on a monthly cycle. Some editorial changes

have been made in the final rule that differ slightly from the proposal

but no substantive change is intended.

[[Page 19667]]

9(d)--Documentation for foreign-initiated transfers

Paragraph (d) incorporates the substance of former paragraph (i)

without substantive change.

Section 205.10--Preauthorized transfers

Section 205.10 sets forth general requirements for preauthorized

transfers. The Board has reformatted and made editorial changes to this

section. Substantive changes are discussed below.

10(a) Preauthorized transfers to consumer's account

10(a)(3)--Crediting

This paragraph (formerly paragraph 10(a)(2)) provides that when a

consumer's account will be credited by a preauthorized EFT from the

same payor at least once every 60 days, an institution must credit the

funds to the account as of the day the funds for the transfer are

received. The Board believed that this provision was not necessary

since other regulations address both when funds must be made available

to the consumer and when interest must be paid on the deposit (see

Regulation CC, 12 CFR part 229; Treasury regulations, 31 CFR part 210;

and ACH association rules). The Board solicited comment on its proposed

deletion of paragraph 10(a)(2).

Most commenters agreed that Regulation CC, NACHA rules governing

automated clearing house transactions, and Treasury direct-deposit

rules adequately covered this issue and supported the Board's proposal

to delete the requirement. Several commenters requested that a

reference to the other rules and regulations be added to the paragraph

10(a)(2). One commenter distinguished the requirements under paragraph

10(a)(2) from those under other rules and regulations, noting that

paragraph 10(a)(2) addressed crediting and that the NACHA rules, for

example, address the availability of funds for withdrawal. The

commenter recommended retaining the current language.

Upon further analysis, the Board believes that the requirement

under current paragraph 10(a)(2) is, in fact, different from those

required by other regulations and has retained the current rule in

paragraph 10(a)(3).

10(b) Written authorization for preauthorized transfers from consumer's

account

Under the former rule, preauthorized EFTs from a consumer's account

may be authorized by the consumer only in writing (typically a signed

paper document); a copy of the authorization must be given to the

consumer. To address developments in electronic services such as home

banking, the Board has more broadly interpreted a written authorization

to include electronic authorizations which are ``similarly

authenticated'' by the consumer. The Board believes this broader

interpretation is consistent with the requirement in section 907 of the

EFTA that the authorization be in writing.

This change would, for example, allow preauthorized transfers in an

electronic payment system to be authenticated by a ``digital

signature'' or a security code. The Board believes that these are

options that may provide the same assurance as a signature in a paper-

based system. To meet the requirement that an authorization be in

writing, the electronic agreement would have to be displayed on a

computer screen (or other visual display) that enables the consumer to

read the communication. The person that obtains the authorization must

provide an electronic or hard copy to the consumer. These

interpretations are codified in the commentary.

10(e) Compulsory use

This paragraph incorporates section 913 of the EFTA, which places

certain restrictions on compulsory use of EFTs as a condition of

credit, employment, or receipt of government benefits. This paragraph

also clarifies that the provision applies to persons such as employers,

and not just to financial institutions. In the former regulation, the

prohibition against compulsory use was referenced in footnote 1a.

Section 205.11--Procedures for resolving errors

The Board has reformatted this section and made editorial revisions

to simplify the language and facilitate compliance. The one substantive

change, discussed below, allows a financial institution three business

days to provide notice after it has determined that an error has

occurred.

The substance of three footnotes has been moved to the commentary:

footnote 10, permitting an institution to prescribe procedures for

giving an error notice; footnote 11, defining an agreement for purposes

of Sec. 205.14; and footnote 12, allowing institutions to use a

periodic statement to inform consumers that no error has occurred.

The substance of former paragraphs (d)(1), (3); (e)(1); and (g) has

been moved to the commentary. Paragraph (e) on reasserting errors

replaces former paragraph (h). Former paragraph (i), rules relating to

the TILA, has been moved to Sec. 205.12.

11(c) Time limits and extent of investigation

Paragraph 11(c) combines former paragraphs 11(c) and 11(d)(2)

concerning investigation of errors. The regulation requires a financial

institution to provide the consumer with a written explanation, within

the prescribed time period (either 10 business days or 45 calendar

days), if an error occurred. If an error did not occur and the

financial institution is operating under the 45-day rule, the

institution has three additional days to notify the consumer of its

findings. Section 908 of the EFTA makes clear the extra time is

available when no error occurred, but is silent on the availability of

extra time when an error is found.

To facilitate compliance, the Board has used its exception

authority under section 904(c) to permit institutions to give notice

within three business days of concluding its investigation regardless

of the procedure being followed and whether or not an error has been

found. The statutory language contained in section 908(d) lends itself

to such an interpretation, and the Board believes the change will

facilitate compliance with the section without any significant loss of

consumer protection.

Commenters requested that the Board consider extending the time

periods for investigations of errors on new accounts based on concerns

about fraud and misrepresentation. The Board has published a proposed

rule elsewhere in today's Federal Register that would change the timing

for error resolution on new accounts.

11(d) Procedures if financial institution determines no error or

different error occurred

This paragraph simplifies and replaces former paragraph 11(f).

Section 205.12--Relation to other laws

This section contains the various references to the Truth in

Lending Act (TILA) and Regulation Z formerly dispersed throughout

Regulation E. The section also includes the standards applied by the

Board in granting a state law preemption or in making an exemption

determination.

12(a) Relation to Truth in Lending

All references from Secs. 205.5, 205.6, and 205.11 to compliance

with both the TILA and the EFTA are consolidated in this paragraph to

facilitate compliance.

[[Page 19668]]

12(b) Preemption of inconsistent state laws

Former Sec. 205.12 (a) and (b) are incorporated in paragraph (b).

Former Sec. 205.12(c), which establishes procedures for preemption, has

been deleted from the regulation. The procedures for requesting a

preemption determination are available from the Board upon request.

12(c) State exemptions

Paragraph (c) (formerly (d)) contains the rules the Board applies

in granting a state exemption.

Section 205.13--Administrative enforcement; record retention

Former Sec. 205.13 contained information about administrative

enforcement, issuance of staff interpretations, and record retention.

Much of this information has been moved to the appendices, with the

exception of the provision on record retention. Specifically, former

paragraph (a) listed the federal agencies charged with administrative

enforcement of the act and regulation; revised paragraph (a) merely

cross-references Appendix B, which lists the federal enforcement

agencies in greater detail. Former paragraph (b) dealt with issuance of

staff interpretations; this material has been updated to describe the

staff commentary process that replaced the old interpretation letters,

and has been moved to new Appendix C. Former paragraph (c), record

retention, has been redesignated paragraph (b).

13(b) Record retention

Only certain provisions of the act and regulation apply to persons

other than financial institutions (for example, the compulsory use

provisions of section 913, which apply to employers, creditors, and

government agencies). The proposal would have limited the record

retention requirements to financial institutions, rather than covering

``any person subject to the act and regulation.'' The majority of the

commenters addressing this issue opposed the proposed change, arguing

that the same record retention requirement should apply to all persons

subject to the regulation, and that the proposed change could adversely

affect enforcement. The Board has retained the current rule; the record

retention requirements continue to apply to all persons subject to the

act and regulation.

Section 205.14--Electronic fund transfer service provider not holding

consumer's account

Substantial editorial revisions have been made to this section to

simplify the text.

14(a) Electronic fund transfer service providers subject to regulation

Revised paragraph (a) deals expressly with the entities subject to

section 205.14, and identifies entities more clearly by setting forth

the conditions for coverage under section 205.14 in separate

subparagraphs.

14(b) Compliance by electronic fund transfer service provider

This paragraph contains much of the material that appeared in

former paragraph (a), and sets forth the compliance responsibilities of

a non-account-holding service provider. The material has been revised

and reorganized for greater clarity, without substantive change.

14(c) Compliance by account-holding institution

This paragraph sets forth the compliance responsibilities of the

account-holding institution, and is substantively unchanged from former

paragraph (b). Former footnote 13, regarding delayed effective dates,

has been deleted as obsolete. The substance of former paragraph (c),

providing guidance on when there is an agreement between a service

provider and an account-holding institution, has been moved to the

commentary.

Section 205.15--Electronic fund transfer of government benefits

In March 1994, the Board issued a final rule relating to the

coverage by the EFTA and Regulation E of government benefits that

federal, state, and local governments disburse to recipients by means

of electronic benefit transfer (EBT) programs, adding a new section

205.15 to Regulation E (59 FR 10678, March 7, 1994). This section is

unchanged from the one originally issued.

Appendix A--Model Disclosure Clauses and Forms

The model forms contained in the former regulation have been

consolidated in Appendix A. As noted earlier, the error resolution

notices in former Secs. 205.7(a)(10) and 205.8(b) have been moved from

the regulation to Appendix A to streamline the regulation (see Model

Form A-3).

Appendix B--Administrative enforcement

Appendix B lists the federal enforcement agencies responsible for

enforcing Regulation E for particular classes of institutions.

Appendix C--Issuance of staff interpretations

The final rule adds a new appendix C to replace former

Sec. 205.13(b) pertaining to staff interpretations of Regulation E. The

Board will continue to rely on the publication of interpretations in

the official staff commentary as the primary means of interpreting the

regulation. In keeping with the practice that has been in place for

years, the final rule deletes any reference to unofficial staff

interpretations that are in writing, limiting written interpretations

to those that appear in the staff commentary, as revised. The Board

believes this to be the most efficient and useful way to facilitate

compliance.

III. Regulatory Flexibility Analysis

The Board's Office of the Secretary has prepared an economic impact

statement on the amendment to Regulation E. A copy of the analysis may

be obtained from Publications Services, Board of Governors of the

Federal Reserve System, Washington, D.C. 20551, at (202) 452-3245.

IV. Paperwork Reduction Act

In accordance with section 3506 of the Paperwork Reduction Act of

1995 (44 U.S.C. Ch. 35; 5 CFR 1320 Appendix A.1), the Board reviewed

the rule under the authority delegated to the Board by the Office of

Management and Budget. No comments specifically addressing the burden

estimate were received.

The collection of information requirements in this regulation are

found in 12 CFR Part 205. This information is mandatory (15 U.S.C. 1693

et seq.) to ensure adequate disclosure of basic terms, costs, and

rights relating to electronic fund transfer (EFT) services provided to

consumers. The respondents/recordkeepers are for-profit financial

institutions, including small businesses. Records must be retained for

twenty-four months. Regulation E applies to all types of financial

institutions, not just state member banks. However, under Paperwork

Reduction Act regulations, the Federal Reserve accounts for the burden

of the paperwork associated with the regulation only for state member

banks. Other agencies account for the Regulation E paperwork burden on

their respective constituencies. Please contact the appropriate agency

[[Page 19669]]

for an estimate of this proposed regulation's affect on other

institutions.

The revisions are expected to decrease the associated paperwork

burden on state member banks. It is estimated that 25 percent of small

state member banks have no covered activities other than preauthorized

transfers. Thus the Federal Reserve estimates that raising the asset-

size cutoff from $25 million to $100 million will decrease the number

of covered state member banks from 1,000 to 873. The estimated burden

per response ranges from fifteen seconds (for an ATM receipt) to 30

minutes (for notice of revised error resolution rules). The Federal

Reserve estimates the average frequency of response to be 85,800

responses per respondent each year. Thus, the total amount of annual

burden is estimated to be 474,804 hours, a decrease of 13 percent from

543,447 hours.

List of Subjects in 12 CFR Part 205

Consumer protection, Electronic fund transfers, Federal Reserve

System, Reporting and recordkeeping requirements.

For the reasons set forth in the preamble, the Board amends 12 CFR

part 205 as set forth below:

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. The table of contents for part 205 is revised to read as

follows:

Sec.

205.1 Authority and purpose.

205.2 Definitions.

205.3 Coverage.

205.4 General disclosure requirements; jointly offered services.

205.5 Issuance of access devices.

205.6 Liability of consumer for unauthorized transfers.

205.7 Initial disclosures.

205.8 Change in terms notice; error resolution notice.

205.9 Receipts at electronic terminals; periodic statements.

205.10 Preauthorized transfers.

205.11 Procedures for resolving errors.

205.12 Relation to other laws.

205.13 Administrative enforcement; record retention.

205.14 Electronic fund transfer service provider not holding

consumer's account.

205.15 Electronic fund transfer of government benefits.

Appendix A to Part 205--Model Disclosure Clauses and Forms

Appendix B to Part 205--Federal Enforcement Agencies

Appendix C to Part 205--Issuance of Staff Interpretations

Supplement 1 to Part 205--Official Staff Interpretations

3. Sections 205.1 through 205.15 are revised to read as follows:

Sec. 205.1 Authority and purpose.

(a) Authority. The regulation in this part, known as Regulation E,

is issued by the Board of Governors of the Federal Reserve System

pursuant to the Electronic Fund Transfer Act (15 U.S.C. 1693 et seq.).

The information-collection requirements have been approved by the

Office of Management and Budget under 44 U.S.C. 3501 et seq. and have

been assigned OMB No. 7100-0200.

(b) Purpose. This part carries out the purposes of the Electronic

Fund Transfer Act, which establishes the basic rights, liabilities, and

responsibilities of consumers who use electronic fund transfer services

and of financial institutions that offer these services. The primary

objective of the act and this part is the protection of individual

consumers engaging in electronic fund transfers.

Sec. 205.2 Definitions.

For purposes of this part, the following definitions apply:

(a)(1) Access device means a card, code, or other means of access

to a consumer's account, or any combination thereof, that may be used

by the consumer to initiate electronic fund transfers.

(2) An access device becomes an accepted access device when the

consumer:

(i) Requests and receives, or signs, or uses (or authorizes another

to use) the access device to transfer money between accounts or to

obtain money, property, or services;

(ii) Requests validation of an access device issued on an

unsolicited basis; or

(iii) Receives an access device in renewal of, or in substitution

for, an accepted access device from either the financial institution

that initially issued the device or a successor.

(b)(1) Account means a demand deposit (checking), savings, or other

consumer asset account (other than an occasional or incidental credit

balance in a credit plan) held directly or indirectly by a financial

institution and established primarily for personal, family, or

household purposes.

(2) The term does not include an account held by a financial

institution under a bona fide trust agreement.

(c) Act means the Electronic Fund Transfer Act (title IX of the

Consumer Credit Protection Act, 15 U.S.C. 1693 et seq.).

(d) Business day means any day on which the offices of the

consumer's financial institution are open to the public for carrying on

substantially all business functions.

(e) Consumer means a natural person.

(f) Credit means the right granted by a financial institution to a

consumer to defer payment of debt, incur debt and defer its payment, or

purchase property or services and defer payment therefor.

(g) Electronic fund transfer is defined in Sec. 205.3.

(h) Electronic terminal means an electronic device, other than a

telephone operated by a consumer, through which a consumer may initiate

an electronic fund transfer. The term includes, but is not limited to,

point-of-sale terminals, automated teller machines, and cash dispensing

machines.

(i) Financial institution means a bank, savings association, credit

union, or any other person that directly or indirectly holds an account

belonging to a consumer, or that issues an access device and agrees

with a consumer to provide electronic fund transfer services.

(j) Person means a natural person or an organization, including a

corporation, government agency, estate, trust, partnership,

proprietorship, cooperative, or association.

(k) Preauthorized electronic fund transfer means an electronic fund

transfer authorized in advance to recur at substantially regular

intervals.

(l) State means any state, territory, or possession of the United

States; the District of Columbia; the Commonwealth of Puerto Rico; or

any political subdivision of the above in this paragraph (l).

(m) Unauthorized electronic fund transfer means an electronic fund

transfer from a consumer's account initiated by a person other than the

consumer without actual authority to initiate the transfer and from

which the consumer receives no benefit. The term does not include an

electronic fund transfer initiated:

(1) By a person who was furnished the access device to the

consumer's account by the consumer, unless the consumer has notified

the financial institution that transfers by that person are no longer

authorized;

(2) With fraudulent intent by the consumer or any person acting in

concert with the consumer; or

(3) By the financial institution or its employee.

Sec. 205.3 Coverage.

(a) General. This part applies to any electronic fund transfer that

authorizes a financial institution to debit or credit a consumer's

account. Generally, this

[[Page 19670]]

part applies to financial institutions. For purposes of Secs. 205.10

(b), (d), and (e) and 205.13, this part applies to any person.

(b) Electronic fund transfer. The term electronic fund transfer

means any transfer of funds that is initiated through an electronic

terminal, telephone, computer, or magnetic tape for the purpose of

ordering, instructing, or authorizing a financial institution to debit

or credit an account. The term includes, but is not limited to:

(1) Point-of-sale transfers;

(2) Automated teller machine transfers;

(3) Direct deposits or withdrawals of funds;

(4) Transfers initiated by telephone; and

(5) Transfers resulting from debit card transactions, whether or

not initiated through an electronic terminal.

(c) Exclusions from coverage. The term electronic fund transfer

does not include:

(1) Checks. Any transfer of funds originated by check, draft, or

similar paper instrument; or any payment made by check, draft, or

similar paper instrument at an electronic terminal.

(2) Check guarantee or authorization. Any transfer of funds that

guarantees payment or authorizes acceptance of a check, draft, or

similar paper instrument but that does not directly result in a debit

or credit to a consumer's account.

(3) Wire or other similar transfers. Any transfer of funds through

Fedwire or through a similar wire transfer system that is used

primarily for transfers between financial institutions or between

businesses.

(4) Securities and commodities transfers. Any transfer of funds the

primary purpose of which is the purchase or sale of a security or

commodity, if the security or commodity is:

(i) Regulated by the Securities and Exchange Commission or the

Commodity Futures Trading Commission;

(ii) Purchased or sold through a broker-dealer regulated by the

Securities and Exchange Commission or through a futures commission

merchant regulated by the Commodity Futures Trading Commission; or

(iii) Held in book-entry form by a Federal Reserve Bank or federal

agency.

(5) Automatic transfers by account-holding institution. Any

transfer of funds under an agreement between a consumer and a financial

institution which provides that the institution will initiate

individual transfers without a specific request from the consumer:

(i) Between a consumer's accounts within the financial institution;

(ii) From a consumer's account to an account of a member of the

consumer's family held in the same financial institution; or

(iii) Between a consumer's account and an account of the financial

institution, except that these transfers remain subject to

Sec. 205.10(e) regarding compulsory use and sections 915 and 916 of the

act regarding civil and criminal liability.

(6) Telephone-initiated transfers. Any transfer of funds that:

(i) Is initiated by a telephone communication between a consumer

and a financial institution making the transfer; and

(ii) Does not take place under a telephone bill-payment or other

written plan in which periodic or recurring transfers are contemplated.

(7) Small institutions. Any preauthorized transfer to or from an

account if the assets of the account-holding financial institution were

$100 million or less on the preceding December 31. If assets of the

account-holding institution subsequently exceed $100 million, the

institution's exemption for preauthorized transfers terminates one year

from the end of the calendar year in which the assets exceed $100

million. Preauthorized transfers exempt under this paragraph (c)(7)

remain subject to Sec. 205.10(e) regarding compulsory use and sections

915 and 916 of the act regarding civil and criminal liability.

Sec. 205.4 General disclosure requirements; jointly offered services.

(a) Form of disclosures. Disclosures required under this part shall

be clear and readily understandable, in writing, and in a form the

consumer may keep. A financial institution may use commonly accepted or

readily understandable abbreviations in complying with the disclosure

requirements of this part.

(b) Additional information; disclosures required by other laws. A

financial institution may include additional information and may

combine disclosures required by other laws (such as the Truth in

Lending Act (15 U.S.C. 1601 et seq.) or the Truth in Savings Act (12

U.S.C. 4301 et seq.)) with the disclosures required by this part.

(c) [Reserved]

(d) Multiple accounts and account holders--(1) Multiple accounts. A

financial institution may combine the required disclosures into a

single statement for a consumer who holds more than one account at the

institution.

(2) Multiple account holders. For joint accounts held by two or

more consumers, a financial institution need provide only one set of

the required disclosures and may provide them to any of the account

holders.

(e) Services offered jointly. Financial institutions that provide

electronic fund transfer services jointly may contract among themselves

to comply with the requirements that this part imposes on any or all of

them. An institution need make only the disclosures required by

Secs. 205.7 and 205.8 that are within its knowledge and within the

purview of its relationship with the consumer for whom it holds an

account.

Sec. 205.5 Issuance of access devices.

(a) Solicited issuance. Except as provided in paragraph (b) of this

section, a financial institution may issue an access device to a

consumer only:

(1) In response to an oral or written request for the device; or

(2) As a renewal of, or in substitution for, an accepted access

device whether issued by the institution or a successor.

(b) Unsolicited issuance. A financial institution may distribute an

access device to a consumer on an unsolicited basis if the access

device is:

(1) Not validated, meaning that the institution has not yet

performed all the procedures that would enable a consumer to initiate

an electronic fund transfer using the access device;

(2) Accompanied by a clear explanation that the access device is

not validated and how the consumer may dispose of it if validation is

not desired;

(3) Accompanied by the disclosures required by Sec. 205.7, of the

consumer's rights and liabilities that will apply if the access device

is validated; and

(4) Validated only in response to the consumer's oral or written

request for validation, after the institution has verified the

consumer's identity by a reasonable means.

Sec. 205.6 Liability of consumer for unauthorized transfers.

(a) Conditions for liability. A consumer may be held liable, within

the limitations described in paragraph (b) of this section, for an

unauthorized electronic fund transfer involving the consumer's account

only if the financial institution has provided the disclosures required

by Sec. 205.7(b)(1), (2), and (3). If the unauthorized transfer

involved an access device, it must be an accepted access device and the

financial institution must have provided a means to identify the

consumer to whom it was issued.

(b) Limitations on amount of liability. A consumer's liability for

an

[[Page 19671]]

unauthorized electronic fund transfer or a series of related

unauthorized transfers shall be determined as follows:

(1) Timely notice given. If the consumer notifies the financial

institution within two business days after learning of the loss or

theft of the access device, the consumer's liability shall not exceed

the lesser of $50 or the amount of unauthorized transfers that occur

before notice to the financial institution.

(2) Timely notice not given. If the consumer fails to notify the

financial institution within two business days after learning of the

loss or theft of the access device, the consumer's liability shall not

exceed the lesser of $500 or the sum of:

(i) $50 or the amount of unauthorized transfers that occur within

the two business days, whichever is less; and

(ii) The amount of unauthorized transfers that occur after the

close of two business days and before notice to the institution,

provided the institution establishes that these transfers would not

have occurred had the consumer notified the institution within that

two-day period.

(3) Periodic statement; timely notice not given. A consumer must

report an unauthorized electronic fund transfer that appears on a

periodic statement within 60 days of the financial institution's

transmittal of the statement to avoid liability for subsequent

transfers. If the consumer fails to do so, the consumer's liability

shall not exceed the amount of the unauthorized transfers that occur

after the close of the 60 days and before notice to the institution,

and that the institution establishes would not have occurred had the

consumer notified the institution within the 60-day period. When an

access device is involved in the unauthorized transfer, the consumer

may be liable for other amounts set forth in paragraphs (b)(1) or

(b)(2) of this section, as applicable.

(4) Extension of time limits. If the consumer's delay in notifying

the financial institution was due to extenuating circumstances, the

institution shall extend the times specified above to a reasonable

period.

(5) Notice to financial institution. (i) Notice to a financial

institution is given when a consumer takes steps reasonably necessary

to provide the institution with the pertinent information, whether or

not a particular employee or agent of the institution actually receives

the information.

(ii) The consumer may notify the institution in person, by

telephone, or in writing.

(iii) Written notice is considered given at the time the consumer

mails the notice or delivers it for transmission to the institution by

any other usual means. Notice may be considered constructively given

when the institution becomes aware of circumstances leading to the

reasonable belief that an unauthorized transfer to or from the

consumer's account has been or may be made.

(6) Liability under state law or agreement. If state law or an

agreement between the consumer and the financial institution imposes

less liability than is provided by this section, the consumer's

liability shall not exceed the amount imposed under the state law or

agreement.

Sec. 205.7 Initial disclosures.

(a) Timing of disclosures. A financial institution shall make the

disclosures required by this section at the time a consumer contracts

for an electronic fund transfer service or before the first electronic

fund transfer is made involving the consumer's account.

(b) Content of disclosures. A financial institution shall provide

the following disclosures, as applicable:

(1) Liability of consumer. A summary of the consumer's liability,

under Sec. 205.6 or under state or other applicable law or agreement,

for unauthorized electronic fund transfers.

(2) Telephone number and address. The telephone number and address

of the person or office to be notified when the consumer believes that

an unauthorized electronic fund transfer has been or may be made.

(3) Business days. The financial institution's business days.

(4) Types of transfers; limitations. The type of electronic fund

transfers that the consumer may make and any limitations on the

frequency and dollar amount of transfers. Details of the limitations

need not be disclosed if confidentiality is essential to maintain the

security of the electronic fund transfer system.

(5) Fees. Any fees imposed by the financial institution for

electronic fund transfers or for the right to make transfers.

(6) Documentation. A summary of the consumer's right to receipts

and periodic statements, as provided in Sec. 205.9, and notices

regarding preauthorized transfers as provided in Secs. 205.10(a), and

205.10(d).

(7) Stop payment. A summary of the consumer's right to stop payment

of a preauthorized electronic fund transfer and the procedure for

placing a stop-payment order, as provided in Sec. 205.10(c).

(8) Liability of institution. A summary of the financial

institution's liability to the consumer under section 910 of the act

for failure to make or to stop certain transfers.

(9) Confidentiality. The circumstances under which, in the ordinary

course of business, the financial institution may provide information

concerning the consumer's account to third parties.

(10) Error resolution. A notice that is substantially similar to

Model Form A-3 as set out in Appendix A of this part concerning error

resolution.

Sec. 205.8 Change in terms notice; error resolution notice.

(a) Change in terms notice--(1) Prior notice required. A financial

institution shall mail or deliver a written notice to the consumer, at

least 21 days before the effective date, of any change in a term or

condition required to be disclosed under Sec. 205.7(b) if the change

would result in:

(i) Increased fees for the consumer;

(ii) Increased liability for the consumer;

(iii) Fewer types of available electronic fund transfers; or

(iv) Stricter limitations on the frequency or dollar amount of

transfers.

(2) Prior notice exception. A financial institution need not give

prior notice if an immediate change in terms or conditions is necessary

to maintain or restore the security of an account or an electronic fund

transfer system. If the institution makes such a change permanent and

disclosure would not jeopardize the security of the account or system,

the institution shall notify the consumer in writing on or with the

next regularly scheduled periodic statement or within 30 days of making

the change permanent.

(b) Error resolution notice. For accounts to or from which

electronic fund transfers can be made, a financial institution shall

mail or deliver to the consumer, at least once each calendar year, an

error resolution notice substantially similar to the model form set

forth in Appendix A of this part (Model Form A-3). Alternatively, an

institution may include an abbreviated notice substantially similar to

the model form error resolution notice set forth in Appendix A of this

part (Model Form A-3), on or with each periodic statement required by

Sec. 205.9(b).

Sec. 205.9 Receipts at electronic terminals; periodic statements.

(a) Receipts at electronic terminals. A financial institution shall

make a receipt available to a consumer at the time the consumer

initiates an electronic fund transfer at an electronic terminal. The

[[Page 19672]]

receipt shall set forth the following information, as applicable:

(1) Amount. The amount of the transfer. A transaction fee may be

included in this amount, provided the amount of the fee is disclosed on

the receipt and displayed on or at the terminal.

(2) Date. The date the consumer initiates the transfer.

(3) Type. The type of transfer and the type of the consumer's

account(s) to or from which funds are transferred. The type of account

may be omitted if the access device used is able to access only one

account at that terminal.

(4) Identification. A number or code that identifies the consumer's

account or accounts, or the access device used to initiate the

transfer. The number or code need not exceed four digits or letters to

comply with the requirements of this paragraph (a)(4).

(5) Terminal location. The location of the terminal where the

transfer is initiated, or an identification such as a code or terminal

number. Except in limited circumstances where all terminals are located

in the same city or state, if the location is disclosed, it shall

include the city and state or foreign country and one of the following:

(i) The street address; or

(ii) A generally accepted name for the specific location; or

(iii) The name of the owner or operator of the terminal if other

than the account-holding institution.

(6) Third party transfer. The name of any third party to or from

whom funds are transferred.

(b) Periodic statements. For an account to or from which electronic

fund transfers can be made, a financial institution shall send a

periodic statement for each monthly cycle in which an electronic fund

transfer has occurred; and shall send a periodic statement at least

quarterly if no transfer has occurred. The statement shall set forth

the following information, as applicable:

(1) Transaction information. For each electronic fund transfer

occurring during the cycle:

(i) The amount of the transfer;

(ii) The date the transfer was credited or debited to the

consumer's account;

(iii) The type of transfer and type of account to or from which

funds were transferred;

(iv) For a transfer initiated by the consumer at an electronic

terminal (except for a deposit of cash or a check, draft, or similar

paper instrument), the terminal location described in paragraph (a)(5)

of this section; and

(v) The name of any third party to or from whom funds were

transferred.

(2) Account number. The number of the account.

(3) Fees. The amount of any fees assessed against the account

during the statement period for electronic fund transfers, for the

right to make transfers, or for account maintenance.

(4) Account balances. The balance in the account at the beginning

and at the close of the statement period.

(5) Address and telephone number for inquiries. The address and

telephone number to be used for inquiries or notice of errors, preceded

by ``Direct inquiries to'' or similar language. The address and

telephone number provided on an error resolution notice under

Sec. 205.8(b) given on or with the statement satisfies this

requirement.

(6) Telephone number for preauthorized transfers. A telephone

number the consumer may call to ascertain whether preauthorized

transfers to the consumer's account have occurred, if the financial

institution uses the telephone-notice option under

Sec. 205.10(a)(1)(iii).

(c) Exceptions to the periodic statement requirement for certain

accounts--(1) Preauthorized transfers to accounts. For accounts that

may be accessed only by preauthorized transfers to the account the

following rules apply:

(i) Passbook accounts. For passbook accounts, the financial

institution need not provide a periodic statement if the institution

updates the passbook upon presentation or enters on a separate document

the amount and date of each electronic fund transfer since the passbook

was last presented.

(ii) Other accounts. For accounts other than passbook accounts, the

financial institution must send a periodic statement at least

quarterly.

(2) Intra-institutional transfers. For an electronic fund transfer

initiated by the consumer between two accounts of the consumer in the

same institution, documenting the transfer on a periodic statement for

one of the two accounts satisfies the periodic statement requirement.

(3) Relationship between paragraphs (c)(1) and (c)(2) of this

section. An account that is accessed by preauthorized transfers to the

account described in paragraph (c)(1) of this section and by intra-

institutional transfers described in paragraph (c)(2) of this section,

but by no other type of electronic fund transfers, qualifies for the

exceptions provided by paragraph (c)(1) of this section .

(d) Documentation for foreign-initiated transfers. The failure by a

financial institution to provide a terminal receipt for an electronic

fund transfer or to document the transfer on a periodic statement does

not violate this part if:

(1) The transfer is not initiated within a state; and

(2) The financial institution treats an inquiry for clarification

or documentation as a notice of error in accordance with Sec. 205.11.

Sec. 205.10 Preauthorized transfers.

(a) Preauthorized transfers to consumer's account--(1) Notice by

financial institution. When a person initiates preauthorized electronic

fund transfers to a consumer's account at least once every 60 days, the

account-holding financial institution shall provide notice to the

consumer by:

(i) Positive notice. Providing oral or written notice of the

transfer within two business days after the transfer occurs; or

(ii) Negative notice. Providing oral or written notice, within two

business days after the date on which the transfer was scheduled to

occur, that the transfer did not occur; or

(iii) Readily-available telephone line. Providing a readily

available telephone line that the consumer may call to determine

whether the transfer occurred and disclosing the telephone number on

the initial disclosure of account terms and on each periodic statement.

(2) Notice by payor. A financial institution need not provide

notice of a transfer if the payor gives the consumer positive notice

that the transfer has been initiated.

(3) Crediting. A financial institution that receives a

preauthorized transfer of the type described in paragraph (a)(1) of

this section shall credit the amount of the transfer as of the date the

funds for the transfer are received.

(b) Written authorization for preauthorized transfers from

consumer's account. Preauthorized electronic fund transfers from a

consumer's account may be authorized only by a writing signed or

similarly authenticated by the consumer. The person that obtains the

authorization shall provide a copy to the consumer.

(c) Consumer's right to stop payment--(1) Notice. A consumer may

stop payment of a preauthorized electronic fund transfer from the

consumer's account by notifying the financial institution orally or in

writing at least three business days before the scheduled date of the

transfer.

(2) Written confirmation. The financial institution may require the

consumer to give written confirmation of a stop-payment order within 14

days of an oral notification. An institution that requires written

confirmation shall inform the consumer of the requirement

[[Page 19673]]

and provide the address where confirmation must be sent when the

consumer gives the oral notification. An oral stop-payment order ceases

to be binding after 14 days if the consumer fails to provide the

required written confirmation.

(d) Notice of transfers varying in amount--(1) Notice. When a

preauthorized electronic fund transfer from the consumer's account will

vary in amount from the previous transfer under the same authorization

or from the preauthorized amount, the designated payee or the financial

institution shall send the consumer written notice of the amount and

date of the transfer at least 10 days before the scheduled date of

transfer.

(2) Range. The designated payee or the institution shall inform the

consumer of the right to receive notice of all varying transfers, but

may give the consumer the option of receiving notice only when a

transfer falls outside a specified range of amounts or only when a

transfer differs from the most recent transfer by more than an agreed-

upon amount.

(e) Compulsory use--(1) Credit. No financial institution or other

person may condition an extension of credit to a consumer on the

consumer's repayment by preauthorized electronic fund transfers, except

for credit extended under an overdraft credit plan or extended to

maintain a specified minimum balance in the consumer's account.

(2) Employment or government benefit. No financial institution or

other person may require a consumer to establish an account for receipt

of electronic fund transfers with a particular institution as a

condition of employment or receipt of a government benefit.

Sec. 205.11 Procedures for resolving errors.

(a) Definition of error--(1) Types of transfers or inquiries

covered. The term error means:

(i) An unauthorized electronic fund transfer;

(ii) An incorrect electronic fund transfer to or from the

consumer's account;

(iii) The omission of an electronic fund transfer from a periodic

statement;

(iv) A computational or bookkeeping error made by the financial

institution relating to an electronic fund transfer;

(v) The consumer's receipt of an incorrect amount of money from an

electronic terminal;

(vi) An electronic fund transfer not identified in accordance with

Secs. 205.9 or 205.10(a); or

(vii) The consumer's request for documentation required by

Secs. 205.9 or 205.10(a) or for additional information or clarification

concerning an electronic fund transfer, including a request the

consumer makes to determine whether an error exists under paragraphs

(a)(1) (i) through (vi) of this section.

(2) Types of inquiries not covered. The term error does not

include:

(i) A routine inquiry about the consumer's account balance;

(ii) A request for information for tax or other recordkeeping

purposes; or

(iii) A request for duplicate copies of documentation.

(b) Notice of error from consumer--(1) Timing; contents. A

financial institution shall comply with the requirements of this

section with respect to any oral or written notice of error from the

consumer that:

(i) Is received by the institution no later than 60 days after the

institution sends the periodic statement or provides the passbook

documentation, required by Sec. 205.9, on which the alleged error is

first reflected;

(ii) Enables the institution to identify the consumer's name and

account number; and

(iii) Indicates why the consumer believes an error exists and

includes to the extent possible the type, date, and amount of the

error, except for requests described in paragraph (a)(1)(vii) of this

section.

(2) Written confirmation. A financial institution may require the

consumer to give written confirmation of an error within 10 business

days of an oral notice. An institution that requires written

confirmation shall inform the consumer of the requirement and provide

the address where confirmation must be sent when the consumer gives the

oral notification.

(3) Request for documentation or clarifications. When a notice of

error is based on documentation or clarification that the consumer

requested under paragraph (a)(1)(vii) of this section, the consumer's

notice of error is timely if received by the financial institution no

later than 60 days after the institution sends the information

requested.

(c) Time limits and extent of investigation--(1) Ten-day period. A

financial institution shall investigate promptly and, except as

otherwise provided in this paragraph (c), shall determine whether an

error occurred within 10 business days of receiving a notice of error.

The institution shall report the results to the consumer within three

business days after completing its investigation. The institution shall

correct the error within one business day after determining that an

error occurred.

(2) Forty-five day period. If the financial institution is unable

to complete its investigation within 10 business days, the institution

may take up to 45 days from receipt of a notice of error to investigate

and determine whether an error occurred, provided the institution does

the following:

(i) Provisionally credits the consumer's account in the amount of

the alleged error (including interest where applicable) within 10

business days of receiving the error notice. If the financial

institution has a reasonable basis for believing that an unauthorized

electronic fund transfer has occurred and the institution has satisfied

the requirements of Sec. 205.6(a), the institution may withhold a

maximum of $50 from the amount credited. An institution need not

provisionally credit the consumer's account if:

(A) The institution requires but does not receive written

confirmation within 10 business days of an oral notice of error; or

(B) The alleged error involves an account that is subject to

Regulation T (Securities Credit by Brokers and Dealers, 12 CFR part

220);

(ii) Informs the consumer, within two business days after the

provisional crediting, of the amount and date of the provisional

crediting and gives the consumer full use of the funds during the

investigation;

(iii) Corrects the error, if any, within one business day after

determining that an error occurred; and

(iv) Reports the results to the consumer within three business days

after completing its investigation (including, if applicable, notice

that a provisional credit has been made final).

(3) Extension of time periods. The applicable time periods in this

paragraph (c)(3) are 20 business days in place of 10 business days, and

90 days in place of 45 days, if a notice of error involves an

electronic fund transfer that:

(i) Was not initiated within a state; or

(ii) Resulted from a point-of-sale debit card transaction.

(4) Investigation. With the exception of transfers covered by

Sec. 205.14, a financial institution's review of its own records

regarding an alleged error satisfies the requirements of this section

if:

(i) The alleged error concerns a transfer to or from a third party;

and

(ii) There is no agreement between the institution and the third

party for the type of electronic fund transfer involved.

(d) Procedures if financial institution determines no error or

different error

[[Page 19674]]

occurred. In addition to following the procedures specified in

paragraph (c) of this section, the financial institution shall follow

the procedures set forth in this paragraph (d) if it determines that no

error occurred or that an error occurred in a manner or amount

different from that described by the consumer:

(1) Written explanation. The institution's report of the results of

its investigation shall include a written explanation of the

institution's findings and shall note the consumer's right to request

the documents that the institution relied on in making its

determination. Upon request, the institution shall promptly provide

copies of the documents.

(2) Debiting provisional credit. Upon debiting a provisionally

credited amount, the financial institution shall:

(i) Notify the consumer of the date and amount of the debiting;

(ii) Notify the consumer that the institution will honor checks,

drafts, or similar instruments payable to third parties and

preauthorized transfers from the consumer's account (without charge to

the consumer as a result of an overdraft) for five business days after

the notification. The institution shall honor items as specified in the

notice, but need honor only items that it would have paid if the

provisionally credited funds had not been debited.

(e) Reassertion of error. A financial institution that has fully

complied with the error resolution requirements has no further

responsibilities under this section should the consumer later reassert

the same error, except in the case of an error asserted by the consumer

following receipt of information provided under paragraph (a)(1)(vii)

of this section.

Sec. 205.12 Relation to other laws.

(a) Relation to Truth in Lending. (1) The Electronic Fund Transfer

Act and this part govern:

(i) The addition to an accepted credit card, as defined in

Regulation Z (12 CFR 226.12(a)(2), footnote 21), of the capability to

initiate electronic fund transfers;

(ii) The issuance of an access device that permits credit

extensions (under a preexisting agreement between a consumer and a

financial institution) only when the consumer's account is overdrawn or

to maintain a specified minimum balance in the consumer's account; and

(iii) A consumer's liability for an unauthorized electronic fund

transfer and the investigation of errors involving an extension of

credit that occurs under an agreement between the consumer and a

financial institution to extend credit when the consumer's account is

overdrawn or to maintain a specified minimum balance in the consumer's

account.

(2) The Truth in Lending Act and Regulation Z (12 CFR part 226),

which prohibit the unsolicited issuance of credit cards, govern:

(i) The addition of a credit feature to an accepted access device;

and

(ii) Except as provided in paragraph (a)(1)(ii) of this section,

the issuance of a credit card that is also an access device.

(b) Preemption of inconsistent state laws--(1) Inconsistent

requirements. The Board shall determine, upon its own motion or upon

the request of a state, financial institution, or other interested

party, whether the act and this part preempt state law relating to

electronic fund transfers. Only state laws that are inconsistent with

the act and this part are preempted and then only to the extent of the

inconsistency. A state law is not inconsistent with the act and this

part if it is more protective of consumers.

(2) Standards for determination. State law is inconsistent with the

requirements of the act and this part if it:

(i) Requires or permits a practice or act prohibited by the federal

law;

(ii) Provides for consumer liability for unauthorized electronic

fund transfers that exceeds the limits imposed by the federal law;

(iii) Allows longer time periods than the federal law for

investigating and correcting alleged errors, or does not require the

financial institution to credit the consumer's account during an error

investigation in accordance with Sec. 205.11(c)(2)(i); or

(iv) Requires initial disclosures, periodic statements, or receipts

that are different in content from those required by the federal law

except to the extent that the disclosures relate to consumer rights

granted by the state law and not by the federal law.

(c) State exemptions--(1) General rule. Any state may apply for an

exemption from the requirements of the act or this part for any class

of electronic fund transfers within the state. The Board shall grant an

exemption if it determines that:

(i) Under state law the class of electronic fund transfers is

subject to requirements substantially similar to those imposed by the

federal law; and

(ii) There is adequate provision for state enforcement.

(2) Exception. To assure that the federal and state courts continue

to have concurrent jurisdiction, and to aid in implementing the act:

(i) No exemption shall extend to the civil liability provisions of

section 915 of the act; and

(ii) When the Board grants an exemption, the state law requirements

shall constitute the requirements of the federal law for purposes of

section 915 of the act, except for state law requirements not imposed

by the federal law.

Sec. 205.13 Administrative enforcement; record retention.

(a) Enforcement by federal agencies. Compliance with this part is

enforced by the agencies listed in Appendix B of this part.

(b) Record retention. (1) Any person subject to the act and this

part shall retain evidence of compliance with the requirements imposed

by the act and this part for a period of not less than two years from

the date disclosures are required to be made or action is required to

be taken.

(2) Any person subject to the act and this part having actual

notice that it is the subject of an investigation or an enforcement

proceeding by its enforcement agency, or having been served with notice

of an action filed under sections 910, 915, or 916(a) of the act, shall

retain the records that pertain to the investigation, action, or

proceeding until final disposition of the matter unless an earlier time

is allowed by court or agency order.

Sec. 205.14 Electronic fund transfer service provider not holding

consumer's account.

(a) Provider of electronic fund transfer service. A person that

provides an electronic fund transfer service to a consumer but that

does not hold the consumer's account is subject to all requirements of

this part if the person:

(1) Issues a debit card (or other access device) that the consumer

can use to access the consumer's account held by a financial

institution; and

(2) Has no agreement with the account-holding institution regarding

such access.

(b) Compliance by service provider. In addition to the requirements

generally applicable under this part, the service provider shall comply

with the following special rules:

(1) Disclosures and documentation. The service provider shall give

the disclosures and documentation required by Secs. 205.7, 205.8, and

205.9 that are within the purview of its relationship with the

consumer. The service provider need not furnish the periodic statement

required by Sec. 205.9(b) if the following conditions are met:

[[Page 19675]]

(i) The debit card (or other access device) issued to the consumer

bears the service provider's name and an address or telephone number

for making inquiries or giving notice of error;

(ii) The consumer receives a notice concerning use of the debit

card that is substantially similar to the notice contained in Appendix

A of this part;

(iii) The consumer receives, on or with the receipts required by

Sec. 205.9(a), the address and telephone number to be used for an

inquiry, to give notice of an error, or to report the loss or theft of

the debit card;

(iv) The service provider transmits to the account-holding

institution the information specified in Sec. 205.9(b)(1), in the

format prescribed by the automated clearinghouse system used to clear

the fund transfers;

(v) The service provider extends the time period for notice of loss

or theft of a debit card, set forth in Sec. 205.6(b) (1) and (2), from

two business days to four business days after the consumer learns of

the loss or theft; and extends the time periods for reporting

unauthorized transfers or errors, set forth in Secs. 205.6(b)(3) and

205.11(b)(1)(i), from 60 days to 90 days following the transmittal of a

periodic statement by the account-holding institution.

(2) Error resolution. (i) The service provider shall extend by a

reasonable time the period in which notice of an error must be

received, specified in Sec. 205.11(b)(1)(i), if a delay resulted from

an initial attempt by the consumer to notify the account-holding

institution.

(ii) The service provider shall disclose to the consumer the date

on which it initiates a transfer to effect a provisional credit in

accordance with Sec. 205.11(c)(2)(ii).

(iii) If the service provider determines an error occurred, it

shall transfer funds to or from the consumer's account, in the

appropriate amount and within the applicable time period, in accordance

with Sec. 205.11(c)(2)(i).

(iv) If funds were provisionally credited and the service provider

determines no error occurred, it may reverse the credit. The service

provider shall notify the account-holding institution of the period

during which the account-holding institution must honor debits to the

account in accordance with Sec. 205.11(d)(2)(ii). If an overdraft

results, the service provider shall promptly reimburse the account-

holding institution in the amount of the overdraft.

(c) Compliance by account-holding institution. The account-holding

institution need not comply with the requirements of the act and this

part with respect to electronic fund transfers initiated through the

service provider except as follows:

(1) Documentation. The account-holding institution shall provide a

periodic statement that describes each electronic fund transfer

initiated by the consumer with the access device issued by the service

provider. The account-holding institution has no liability for the

failure to comply with this requirement if the service provider did not

provide the necessary information; and

(2) Error resolution. Upon request, the account-holding institution

shall provide information or copies of documents needed by the service

provider to investigate errors or to furnish copies of documents to the

consumer. The account-holding institution shall also honor debits to

the account in accordance with Sec. 205.11(d)(2)(ii).

Sec. 205.15 Electronic fund transfer of government benefits.

(a) Government agency subject to regulation. (1) A government

agency is deemed to be a financial institution for purposes of the act

and this part if directly or indirectly it issues an access device to a

consumer for use in initiating an electronic fund transfer of

government benefits from an account. The agency shall comply with all

applicable requirements of the act and this part except as provided in

this section.

(2) For purposes of this section, the term account means an account

established by a government agency for distributing government benefits

to a consumer electronically, such as through automated teller machines

or point-of-sale terminals.

(b) Issuance of access devices. For purposes of this section, a

consumer is deemed to request an access device when the consumer

applies for government benefits that the agency disburses or will

disburse by means of an electronic fund transfer. The agency shall

verify the identity of the consumer receiving the device by reasonable

means before the device is activated.

(c) Alternative to periodic statement. A government agency need not

furnish the periodic statement required by Sec. 205.9(b) if the agency

makes available to the consumer:

(1) The consumer's account balance, through a readily available

telephone line and at a terminal (such as by providing balance

information at a balance-inquiry terminal or providing it, routinely or

upon request, on a terminal receipt at the time of an electronic fund

transfer); and

(2) A written history of the consumer's account transactions that

is provided promptly in response to an oral or written request and that

covers at least 60 days preceding the date of a request by the

consumer.

(d) Modified requirements. A government agency that does not

furnish periodic statements, in accordance with paragraph (c) of this

section, shall comply with the following special rules:

(1) Initial disclosures. The agency shall modify the disclosures

under Sec. 205.7(b) by disclosing:

(i) Account balance. The means by which the consumer may obtain

information concerning the account balance, including a telephone

number. The agency provides a notice substantially similar to the

notice contained in paragraph A-5 in Appendix A of this part.

(ii) Written account history. A summary of the consumer's right to

receive a written account history upon request, in place of the

periodic statement required by Sec. 205.7(b)(6), and the telephone

number to call to request an account history. This disclosure may be

made by providing a notice substantially similar to the notice

contained in paragraph A-5 in Appendix A of this part.

(iii) Error resolution. A notice concerning error resolution that

is substantially similar to the notice contained in paragraph A-5 in

Appendix A of this part, in place of the notice required by

Sec. 205.7(b)(10).

(2) Annual error resolution notice. The agency shall provide an

annual notice concerning error resolution that is substantially similar

to the notice contained in paragraph A-5 in appendix A, in place of the

notice required by Sec. 205.8(b).

(3) Limitations on liability. For purposes of Sec. 205.6(b)(3),

regarding a 60-day period for reporting any unauthorized transfer that

appears on a periodic statement, the 60-day period shall begin with

transmittal of a written account history or other account information

provided to the consumer under paragraph (c) of this section.

(4) Error resolution. The agency shall comply with the requirements

of Sec. 205.11 in response to an oral or written notice of an error

from the consumer that is received no later than 60 days after the

consumer obtains the written account history or other account

information, under paragraph (c) of this section, in which the error is

first reflected.

4. Appendices A and B are revised and Appendix C is added to read

as follows:

[[Page 19676]]

Appendix A to Part 205--Model Disclosure Clauses and Forms

Table of Contents

A-1--MODEL CLAUSES FOR UNSOLICITED ISSUANCE (Sec. 205.5(b)(2))

A-2--MODEL CLAUSES FOR INITIAL DISCLOSURES (Sec. 205.7(b))

A-3--MODEL FORMS FOR ERROR RESOLUTION NOTICE (Secs. 205.7(b)(10) and

205.8(b))

A-4--MODEL FORM FOR SERVICE-PROVIDING INSTITUTIONS

(Sec. 205.14(b)(1)(ii))

A-5--MODEL FORMS FOR GOVERNMENT AGENCIES (Sec. 205.15(d) (1) and

(2))

A-1--MODEL CLAUSES FOR UNSOLICITED ISSUANCE (Sec. 205.5(b)(2))

(a) Accounts using cards. You cannot use the enclosed card to

transfer money into or out of your account until we have validated

it. If you do not want to use the card, please (destroy it at once

by cutting it in half).

[Financial institution may add validation instructions here.]

(b) Accounts using codes. You cannot use the enclosed code to

transfer money into or out of your account until we have validated

it. If you do not want to use the code, please (destroy this notice

at once).

[Financial institution may add validation instructions here.]

A-2--MODEL CLAUSES FOR INITIAL DISCLOSURES (Sec. 205.7(b))

(a) Consumer Liability (Sec. 205.7(b)(1)). (Tell us AT ONCE if

you believe your [card] [code] has been lost or stolen. Telephoning

is the best way of keeping your possible losses down. You could lose

all the money in your account (plus your maximum overdraft line of

credit). If you tell us within 2 business days, you can lose no more

than $50 if someone used your [card][code] without your permission.

(If you believe your [card] [code] has been lost or stolen, and you

tell us within 2 business days after you learn of the loss or theft,

you can lose no more than $50 if someone used your [card] [code]

without your permission.)

If you do NOT tell us within 2 business days after you learn of

the loss or theft of your [card] [code], and we can prove we could

have stopped someone from using your [card] [code] without your

permission if you had told us, you could lose as much as $500.

Also, if your statement shows transfers that you did not make,

tell us at once. If you do not tell us within 60 days after the

statement was mailed to you, you may not get back any money you lost

after the 60 days if we can prove that we could have stopped someone

from taking the money if you had told us in time.

If a good reason (such as a long trip or a hospital stay) kept

you from telling us, we will extend the time periods.

(b) Contact in event of unauthorized transfer

(Sec. 205.7(b)(2)). If you believe your [card] [code] has been lost

or stolen or that someone has transferred or may transfer money from

your account without your permission, call:

[Telephone number]

or write:

[Name of person or office to be notified]

[Address]

(c) Business days (Sec. 205.7(b)(3)). For purposes of these

disclosures, our business days are (Monday through Friday) (Monday

through Saturday) (any day including Saturdays and Sundays).

Holidays are (not) included.

(d) Transfer types and limitations (Sec. 205.7(b)(4))--(1)

Account access. You may use your [card][code] to:

(i) Withdraw cash from your [checking] [or] [savings] account.

(ii) Make deposits to your [checking] [or] [savings] account.

(iii) Transfer funds between your checking and savings accounts

whenever you request.

(iv) Pay for purchases at places that have agreed to accept the

[card] [code].

(v) Pay bills directly [by telephone] from your [checking] [or]

[savings] account in the amounts and on the days you request.

Some of these services may not be available at all terminals.

(2) Limitations on frequency of transfers.--(i) You may make

only [insert number, e.g., 3] cash withdrawals from our terminals

each [insert time period, e.g., week].

(ii) You can use your telephone bill-payment service to pay

[insert number] bills each [insert time period] [telephone call].

(iii) You can use our point-of-sale transfer service for [insert

number] transactions each [insert time period].

(iv) For security reasons, there are limits on the number of

transfers you can make using our [terminals] [telephone bill-payment

service] [point-of-sale transfer service].

(3) Limitations on dollar amounts of transfers--(i) You may

withdraw up to [insert dollar amount] from our terminals each

[insert time period] time you use the [card] [code].

(ii) You may buy up to [insert dollar amount] worth of goods or

services each [insert time period] time you use the [card] [code] in

our point-of-sale transfer service.

(e) Fees (Sec. 205.7(b)(5))--(1) Per transfer charge. We will

charge you [insert dollar amount] for each transfer you make using

our [automated teller machines] [telephone bill-payment service]

[point-of-sale transfer service].

(2) Fixed charge. We will charge you [insert dollar amount] each

[insert time period] for our [automated teller machine service]

[telephone bill-payment service] [point-of-sale transfer service].

(3) Average or minimum balance charge. We will only charge you

for using our [automated teller machines] [telephone bill-payment

service] [point-of-sale transfer service] if the [average] [minimum]

balance in your [checking account] [savings account] [accounts]

falls below [insert dollar amount]. If it does, we will charge you

[insert dollar amount] each [transfer] [insert time period].

(f) Confidentiality (Sec. 205.7(b)(9)). We will disclose

information to third parties about your account or the transfers you

make:

(i) Where it is necessary for completing transfers, or

(ii) In order to verify the existence and condition of your

account for a third party, such as a credit bureau or merchant, or

(iii) In order to comply with government agency or court orders,

or

(iv) If you give us your written permission.

(g) Documentation (Sec. 205.7(b)(6))--(1) Terminal transfers.

You can get a receipt at the time you make any transfer to or from

your account using one of our [automated teller machines] [or]

[point-of-sale terminals].

(2) Preauthorized credits. If you have arranged to have direct

deposits made to your account at least once every 60 days from the

same person or company, (we will let you know if the deposit is

[not] made.) [the person or company making the deposit will tell you

every time they send us the money] [you can call us at (insert

telephone number) to find out whether or not the deposit has been

made].

(3) Periodic statements. You will get a [monthly] [quarterly]

account statement (unless there are no transfers in a particular

month. In any case you will get the statement at least quarterly).

(4) Passbook account where the only possible electronic fund

transfers are preauthorized credits. If you bring your passbook to

us, we will record any electronic deposits that were made to your

account since the last time you brought in your passbook.

(h) Preauthorized payments (Sec. 205.7(b) (6), (7) and (8);

Sec. 205.10(d))--(1) Right to stop payment and procedure for doing

so. If you have told us in advance to make regular payments out of

your account, you can stop any of these payments. Here's how:

Call us at [insert telephone number], or write us at [insert

address], in time for us to receive your request 3 business days or

more before the payment is scheduled to be made. If you call, we may

also require you to put your request in writing and get it to us

within 14 days after you call. (We will charge you [insert amount]

for each stop-payment order you give.)

(2) Notice of varying amounts. If these regular payments may

vary in amount, [we] [the person you are going to pay] will tell

you, 10 days before each payment, when it will be made and how much

it will be. (You may choose instead to get this notice only when the

payment would differ by more than a certain amount from the previous

payment, or when the amount would fall outside certain limits that

you set.)

(3) Liability for failure to stop payment of preauthorized

transfer. If you order us to stop one of these payments 3 business

days or more before the transfer is scheduled, and we do not do so,

we will be liable for your losses or damages.

(i) Financial institution's liability (Sec. 205.7(b)(8)). If we

do not complete a transfer to or from your account on time or in the

correct amount according to our agreement with you, we will be

liable for your losses or damages. However, there are some

exceptions. We will not be liable, for instance:

(1) If, through no fault of ours, you do not have enough money

in your account to make the transfer.

(2) If the transfer would go over the credit limit on your

overdraft line.

(3) If the automated teller machine where you are making the

transfer does not have enough cash.

[[Page 19677]]

(4) If the [terminal] [system] was not working properly and you

knew about the breakdown when you started the transfer.

(5) If circumstances beyond our control (such as fire or flood)

prevent the transfer, despite reasonable precautions that we have

taken.

(6) There may be other exceptions stated in our agreement with

you.

A-3--MODEL FORMS FOR ERROR RESOLUTION NOTICE (Secs. 205.7(b)(10) and

205.8(b))

(a) Initial and annual error resolution notice (Secs. 205.7(b)(10)

and 205.8(b))

In Case of Errors or Questions About Your Electronic Transfers,

Telephone us at [insert telephone number] or Write us at [insert

address] as soon as you can, if you think your statement or receipt

is wrong or if you need more information about a transfer listed on

the statement or receipt. We must hear from you no later than 60

days after we sent the FIRST statement on which the problem or error

appeared.

(1) Tell us your name and account number (if any).

(2) Describe the error or the transfer you are unsure about, and

explain as clearly as you can why you believe it is an error or why

you need more information.

(3) Tell us the dollar amount of the suspected error.

If you tell us orally, we may require that you send us your

complaint or question in writing within 10 business days.

We will tell you the results of our investigation within 10

business days after we hear from you and will correct any error

promptly. If we need more time, however, we may take up to 45 days

to investigate your complaint or question. If we decide to do this,

we will credit your account within 10 business days for the amount

you think is in error, so that you will have the use of the money

during the time it takes us to complete our investigation. If we ask

you to put your complaint or question in writing and we do not

receive it within 10 business days, we may not credit your account.

If we decide that there was no error, we will send you a written

explanation within three business days after we finish our

investigation. You may ask for copies of the documents that we used

in our investigation.

(b) Error resolution notice on periodic statements Sec. 205.8(b)

In Case of Errors or Questions About Your Electronic Transfers,

Telephone us at [insert telephone number] or Write us at [insert

address] as soon as you can, if you think your statement or receipt

is wrong or if you need more information about a transfer on the

statement or receipt. We must hear from you no later than 60 days

after we sent you the FIRST statement on which the error or problem

appeared.

(1) Tell us your name and account number (if any).

(2) Describe the error or the transfer you are unsure about, and

explain as clearly as you can why you believe it is an error or why

you need more information.

(3) Tell us the dollar amount of the suspected error.

We will investigate your complaint and will correct any error

promptly. If we take more than 10 business days to do this, we will

credit your account for the amount you think is in error, so that

you will have the use of the money during the time it takes us to

complete our investigation.

A-4--MODEL FORM FOR SERVICE-PROVIDING INSTITUTIONS

(Sec. 205.14(b)(1)(ii))

ALL QUESTIONS ABOUT TRANSACTIONS MADE WITH YOUR (NAME OF CARD)

CARD MUST BE DIRECTED TO US (NAME OF SERVICE PROVIDER), AND NOT TO

THE BANK OR OTHER FINANCIAL INSTITUTION WHERE YOU HAVE YOUR ACCOUNT.

We are responsible for the [name of service] service and for

resolving any errors in transactions made with your [name of card]

card.

We will not send you a periodic statement listing transactions

that you make using your [name of card] card. The transactions will

appear only on the statement issued by your bank or other financial

institution. SAVE THE RECEIPTS YOU ARE GIVEN WHEN YOU USE YOUR [NAME

OF CARD] CARD, AND CHECK THEM AGAINST THE ACCOUNT STATEMENT YOU

RECEIVE FROM YOUR BANK OR OTHER FINANCIAL INSTITUTION. If you have

any questions about one of these transactions, call or write us at

[telephone number and address] [the telephone number and address

indicated below].

IF YOUR [NAME OF CARD] CARD IS LOST OR STOLEN, NOTIFY US AT ONCE

by calling or writing to us at [telephone number and address].

A-5--MODEL FORMS FOR GOVERNMENT AGENCIES (Sec. 205.15(d) (1) and (2))

(1) Disclosure by government agencies of information about

obtaining account balances and account histories Sec. 205.15(d)(1)

(i) and (ii)

You may obtain information about the amount of benefits you have

remaining by calling [telephone number]. That information is also

available [on the receipt you get when you make a transfer with your

card at (an ATM) (a POS terminal)] [when you make a balance inquiry

at an ATM][when you make a balance inquiry at specified locations].

You also have the right to receive a written summary of

transactions for the 60 days preceding your request by calling

[telephone number]. [Optional: Or you may request the summary by

contacting your caseworker.]

(2) Disclosure of error resolution procedures for government

agencies that do not provide periodic statements (Sec. 205.15

(d)(1)(iii) and (d)(2))

In Case of Errors or Questions About Your Electronic Transfers

Telephone us at [telephone number] or Write us at [address] as soon

as you can, if you think an error has occurred in your

[EBT][agency's name for program] account. We must hear from you no

later than 60 days after you learn of the error. You will need to

tell us:

Your name and [case] [file] number.

Why you believe there is an error, and the dollar

amount involved.

Approximately when the error took place.

If you tell us orally, we may require that you send us your

complaint or question in writing within 10 business days. We will

generally complete our investigation within 10 business days and

correct any error promptly. In some cases, an investigation may take

longer, but you will have the use of the funds in question after the

10 business days. If we ask you to put your complaint or question in

writing and we do not receive it within 10 business days, we may not

credit your account during the investigation.

For errors involving transactions at point-of-sale terminals in

food stores, the periods referred to above are 20 business days

instead of 10 business days.

If we decide that there was no error, we will send you a written

explanation within three business days after we finish our

investigation. You may ask for copies of the documents that we used

in our investigation.

If you need more information about our error resolution

procedures, call us at [telephone number][the telephone number shown

above].

Appendix B to Part 205--Federal Enforcement Agencies

The following list indicates which Federal agency enforces

Regulation E (12 CFR part 205) for particular classes of

institutions. Any questions concerning compliance by a particular

institution should be directed to the appropriate enforcing agency.

Terms that are not defined in the Federal Deposit Insurance Act (12

U.S.C. 1813(s)) shall have the meaning given to them in the

International Banking Act of 1978 (12 U.S.C. 3101).

National banks, and Federal branches and Federal agencies of

foreign banks

District office of the Office of the Comptroller of the Currency

where the institution is located.

State member banks, branches and agencies of foreign banks (other

than Federal branches, Federal agencies, and insured state branches

of foreign banks), commercial lending companies owned or controlled

by foreign banks, and organizations operating under section 25 or

25(a) of the Federal Reserve Act

Federal Reserve Bank serving the District in which the

institution is located.

Nonmember insured banks and insured state branches of foreign banks

Federal Deposit Insurance Corporation regional director for the

region in which the institution is located.

Savings institutions insured under the Savings Association

Insurance Fund of the FDIC and federally-chartered savings banks

insured under the Bank Insurance Fund of the FDIC (but not

including state-chartered savings banks insured under the Bank

Insurance Fund)

Office of Thrift Supervision Regional Director for the region in

which the institution is located.

[[Page 19678]]

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