Communicating Electronically:
Get Ready for New Opportunities
John S. Burnett, BOL Guru
"We're a federal regulator, and we want to help you --
Dramatically reduce postage and other mailing costs
Reduce fraud by getting statements to your customers faster
Cut your costs of paper
Streamline online account and loan application processing, and more!"
That's not quoted from the latest email scam. It's implicit in a recent bundle of proposed regulatory amendments from the Federal Reserve Board. Read on to find out more!
Delivering documents digitally is cheaper and faster than providing paper copies, but when it comes to certain regulatorily-mandated disclosures and statements, the law often requires them to be "in writing." The federal E-Sign Act paved the way to substitute electronic documents for paper, but the banking regulations lagged behind. Interim rules from the Federal Reserve that were optional for a while, then had their compliance effective dates removed entirely, merely muddied the waters and left some bankers wary about wading into the digital waters.
If your bank has been waiting for "the other shoe to drop" on electronic statements, wait no more!
On April 20, 2007, the Fed proposed to clear things up, to make compliance easier, to remove barriers to innovation, and to lower the costs of compliance, as well as the costs of communicating with your customers, as it offered amendments to Regulations B, E, M, Z and DD. In this article, we summarize the proposed amendments and provide you with a list of Executive Steps to help you formulate an action plan even before the regs are finalized.
Proposed changes
The proposals, which were published in the April 30 Federal Register and are currently open for comment through June 29, 2007, would
- Eliminate restatements of E-Sign requirements. The Fed proposes simply to cite the E-Sign Act (The Electronic Signatures in Global and National Commerce Act) without listing its requirements. This change would streamline the regulations somewhat, by eliminating unnecessary verbiage.
- Withdraw requirements that financial institutions notify consumers by e-mail when disclosures (typically statements) are ready to be accessed. Removing this requirement would give banks more flexibility, allowing them to offer e-statements, for example, without having to obtain and maintain customer e-mail addresses. Bankers could allow consumers to get their statements electronically without getting notices at all, or to receive notices of statement availability when logging on to their banks' e-banking systems. This flexibility would dramatically lower the cost of deploying e-statement options. At the same time, it removes a barrier to innovation by permitting the adoption of other, potential more secure, notification methods.
- Remove specific follow-up requirements for handling returned e-mail notices. The current interim rules required banks to attempt redelivery of returned e-mail notices by using other information in its files (another e-mail address or a postal address). This renotification requirement is not mirrored in a paper notiofication environment, and would disappear if e-mail notices are not required in the rules. The costs of renotification would be eliminated.
- Eliminate a requirement that disclosures (again, usually statements) be accessible for a minimum of 90 days. The Fed acknowledged that many institutions have been providing access for longer than 90 days. It also noted that a specific period of availability of e-disclosures might not be appropriate for every type of disclosure. Removing the requirement will give banks flexibility to adopt disclosure access periods and methods that are appropriate for their customers and the nature of the disclosures themselves.
- Clarify which disclosures may be made electronically without complying with the E-Sign Act. The proposals would "specify the circumstances under which certain disclosures may be provided to a consumer in electronic form, rather than in writing ... without obtaining the consumer's consent under section 101(c) of the E-Sign Act." By doing so, the Fed would make the regulation easier to work with by defining circumstances when banks can save time and money with e-disclosures without having to jump through E-Sign authorization hoops.
Executive Steps:
The Fed's proposed amendments would make it easier and less expensive for your bank to take advantage of electronic disclosure opportunities. They would also open the door to increased innovation in disclosure delivery methods, to provide enhanced customer service. We recommend the following:
- Have your managers review the proposed amendments. If your bank does no consumer leasing, ignore Regulation M. We've provided links below.
- Forward a copy of this article to your compliance officer and your managers for consumer lending, loan operations, deposit operations and electronic banking.
- Charge these managers with studying the proposed amendments affecting their areas.
- Have the group prepare an overview of how the changes could benefit (or hurt) their compliance efforts.
- Ask your staff to compile a wish list of what they would like to see your institution do under the new regs, once finalized. For example:
- Offer a reduced fee deposit account to customers willing to accept e-statements only;
- Set up a process through which a deposit account may be applied for and opened online, with all disclosures being given electronically (you may wish to limit access, at least initially, to persons who are already existing customers of your institution to minimize the CIP hassles).
- Create an online loan application process, with disclosures being provided electronically (again, you may wish to limit this process to existing customers, although it is possible to accommodate new customers as well -- it would simply require additional steps to allow you to form a reasonable belief you know the true identity of the customer).
- Provide certain annual disclosures via email, such as the annual escrow account statement on RESPA-covered loans, annual privacy notice, Regulation E error resolution notice, etc.
- Consider drafting a comment letter to the Fed (due by June 29, 2007) offering guidance on whether the amendments should be adopted, and why.
- Watch BankersOnline for announcements on what the Fed does following the comment period.
- Make sure your managers keep abreast of third-party providers' solutions for e-disclosure and e-statements. We predict there will be a flurry of activity when the final rules are announced.
Related Links
Proposed Amendments
Interim final rules (Spring 2001)
These are rules that would essentially be replaced by the proposed amendments.
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First published on BankersOnline.com 05/17/2007
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