Electronic Fund Transfers - Federal Financial Institutions ...

1 Electronic fund Transfers FIL-33-2001 April 20, 2001 TO: CHIEF EXECUTIVE OFFICER AND COMPLIANCE OFFICER SUBJECT: Revisions to the Official Staff Commentary to Regulation E ( Electronic fund transfer Act) The Board of Governors of the Federal Reserve System (FRB) has adopted the attached final rule revising the Official Staff Commentary to Regulation E, which implements the Electronic fund transfer Act (EFTA). The final rule took effect on March 15, 2001; however, the mandatory compliance date is January 1, 2002. The final rule provides guidance in three significant areas: Electronic check conversion transactions where a consumer authorizes the use of a check to capture information to initiate an Electronic debit from his or her account; computer-initiated Transfers for bill-payment services; and Electronic authorizations of recurring debits from a consumer's account.

2 The FRB also provides technical clarifications on exceptions to the periodic statement requirements, the definition of an Electronic terminal, the timing of initial disclosures, and the compulsory use prohibitions. The final rule does not address aggregation services made available to consumers through an Internet Web site; the FRB indicates that issue will be considered in a future proposal. For more information, please contact Louise Kotoshirodo Kramer, Review Examiner in the FDIC's Division of Compliance and Consumer Affairs, at (202) 942-3599. Stephen M. Cross Director Attachment: March 16, 2001, Federal Register, pages 15187-15195 Distribution: FDIC-Supervised Banks (Commercial and Savings) NOTE: Paper copies of FDIC Financial institution letters may be obtained through the FDIC's Public Information Center, 801 17th Street, NW, Room 100, Washington, DC 20434 (800-276-6003 or 202-416-6940).

3 This section of the Federal REGISTER contains regulatory documents having generalapplicability and legal effect, most of whichare keyed to and codified in the Code ofFederal Regulations, which is published under50 titles pursuant to 44 Code of Federal Regulations is sold bythe Superintendent of Documents. Prices ofnew books are listed in the first FEDERALREGISTER issue of each and RegulationsFederal Register15187 Vol. 66, No. 52 Friday, March 16, 2001 Federal RESERVE SYSTEM12 CFR Part 205[Regulation E; Docket No. R 1074] Electronic fund TransfersAGENCY: Board of Governors of theFederal Reserve : Final rule; official : The Board is adopting a finalrule revising the Official StaffCommentary to Regulation E, whichimplements the Electronic FundTransfer Act.

4 The commentaryinterprets the requirements ofRegulation E, to facilitate compliance byfinancial Institutions that offerelectronic fund transfer services toconsumers. The final rule providesguidance on Regulation E coverage ofelectronic check conversion transactionsand computer-initiated bill payments;authorization of recurring debits from aconsumer s account; telephone-initiatedtransfers; and other : The rule is effective March 15,2001; however, to allow time for anynecessary operational changes, themandatory compliance date is January1, FURTHER INFORMATION CONTACT:Natalie E. Taylor or John C. Wood,Counsel, or David A. Stein, Attorney,Division of Consumer and CommunityAffairs, Board of Governors of theFederal Reserve System, Washington,DC 20551, at (202) 452 2412 or (202)452 INFORMATION:I.

5 BackgroundThe Electronic fund transfer Act(EFTA or the act) (15 1693 etseq.), enacted in 1978, provides a basicframework establishing the rights,liabilities, and responsibilities ofparticipants in Electronic fund transfer (EFT) systems. The EFTA isimplemented by the Board s RegulationE (12 CFR part 205). Types of transferscovered by the act and regulationinclude Transfers initiated through anautomated teller machine (ATM), point-of-sale (POS) terminal, automatedclearinghouse (ACH), telephone bill-payment plan, or remote bankingprogram. The act and regulation requiredisclosure of terms and conditions of anEFT service; documentation of EFTs bymeans of terminal receipts and periodicaccount statements; limitations onconsumer liability for unauthorizedtransfers; procedures for errorresolution; and certain rights related topreauthorized EFTs.

6 The act andregulation also prescribe restrictions onthe unsolicited issuance of ATM cardsand other access act s coverage is not limited totraditional Financial Institutions holdingconsumers asset accounts. For EFTservices made available by entities otherthan an account-holding financialinstitution, the act directs the Board toassure, by regulation, that thedisclosures, responsibilities, andremedies of the act are made Official Staff Commentary (12 CFR part 205 (Supp. I)) is designed tofacilitate compliance and provideprotection from civil liability, under 915(d)(1) of the act, for financialinstitutions that act in conformity withit. The commentary is updatedperiodically, as necessary, to addresssignificant questions that Summary of the Proposed and FinalRevisionsOn June 29, 2000, the Boardpublished proposed revisions to theOfficial Staff Commentary to RegulationE (65 FR 40061).

7 The most significantissues addressed by the proposal werecoverage of transactions that involveelectronic check conversion, computer-initiated bill payments, andauthorizations of recurring debits. TheBoard received more than 120 commentletters on the proposal. The majority ofcomments were from financialinstitutions, ACH associations, retailers,and their representatives. Overall, mostcommenters supported the Board sproposed revisions as necessary andhelpful Board is adopting the revisions tothe official staff commentarysubstantially as proposed. Somemodifications have been made toaddress comments about the need forconsistency in the coverage of electroniccheck conversion transactions and thestandard for Electronic authorization ofrecurring Transfers .

8 Other commentshave been modified to addresscommenters requests for Check ConversionThe proposal sought to clarifyRegulation E coverage of transactionswhere a merchant at POS uses aconsumer s blank, partially completed,or fully completed and signed check toobtain information for initiating a one-time ACH debit from the consumer saccount. The National AutomatedClearing House Association (NACHA)and other entities have, or are planning,programs that permit such one type of program, known as consumer-as-keeper, after an EFT isinitiated the merchant returns the checkto the consumer. The proposal madeclear that such Transfers are covered byRegulation E. In another type ofprogram, known as financialinstitution-as-keeper (which NACHAhas not approved), the merchant or itsfinancial institution retains the supplementary information to theproposal indicated that Regulation Ewould cover the transfer where thecheck is blank or only partiallycompleted.

9 If, however, the check isfully completed and signed and retainedby the merchant, the transfer would beexcluded from coverage underRegulation E unless the consumerauthorized an EFT. The Board solicitedcomment on this interpretation and theextent to which merchants are carryingout transactions under the financialinstitution-as-keeper supplementary information alsoaddressed Transfers resulting fromNACHA s lockbox program where apayee converts consumers checksreceived by mail to ACH debits. Underthat program, consumers are informedthat the payments will be processed asEFTs. The proposal stated that thesetransactions would not be covered byRegulation E since Transfers originatedby check are excluded from the final rule, where aconsumer authorizes a one-time EFTfrom the consumer s account usinginformation from a check to initiate thetransfer, the transaction is covered byRegulation E.

10 Application of the rule isVerDate 11<MAY>2000 13:33 Mar 15, 2001 Jkt 194001 PO 00000 Frm 00001 Fmt 4700 Sfmt 4700 E:\FR\FM\ pfrm09 PsN: 16 MRR115188 Federal Register/ Vol. 66, No. 52 / Friday, March 16, 2001 / Rules and Regulationsconsistent and the result is the samewhether the check is blank, partiallycompleted, or fully completed andsigned; whether the check is presentedat POS or mailed to a merchant orlockbox and later converted to an EFT;or whether the check is retained by theconsumer, the merchant, or themerchant s Financial institution. (Seecomment 3(b) 1(v) and supplementaryinformation under the Section-by-Section Analysis. The term check isused for ease of reference; it is intendedto include a draft.)