[Federal Register: April 30, 2007 (Volume 72, Number 82)]
[Proposed Rules]
[Page 21141-21155]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30ap07-18]
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FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Regulation Z; Docket No. R-1284]
Truth in Lending
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule; request for comments.
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SUMMARY: The Board is proposing to amend Regulation Z, which implements
the Truth in Lending Act, to withdraw portions of the interim final
rules for the electronic delivery of disclosures issued March 30, 2001.
The interim final rules address the timing and delivery of electronic
disclosures, consistent with the requirements of the Electronic
Signatures in Global and National Commerce Act (E-Sign Act). Compliance
with the 2001 interim final rules is not mandatory. Thus, removing the
interim rules from the Code of Federal Regulations would reduce
confusion about the status of the provisions and simplify the
regulation. The Board is also proposing to amend Regulation Z to
provide that when an application, solicitation, or advertisement is
accessed by a consumer in electronic form, certain disclosures must be
provided to the consumer in electronic form on or with the application,
solicitation, or advertisement, and that in these circumstances the
consumer consent and other provisions of the E-Sign Act do not apply.
The proposal would also implement certain provisions of the Bankruptcy
Abuse Prevention and Consumer Protection Act of 2005. Similar rules are
being proposed under other consumer fair lending and financial services
regulations administered by the Board.
DATES: Comments must be received on or before June 29, 2007.
ADDRESSES: You may submit comments, identified by Docket No. R-1284, by
any of the following methods:
Agency Web site: http://www.federalreserve.gov Follow the instructions for submitting comments at http://www.federalreserve.gov/.
.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: regs.comments@federalreserve.gov. Include the
docket number in the subject line of the message.
FAX: (202) 452-3819 or (202) 452-3102.
Mail: Jennifer J. Johnson, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue,
NW., Washington, DC 20551.
All public comments are available from the Board's Web site at
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted,
unless modified for technical reasons. Accordingly, your comments will
not be edited to remove any identifying or contact information. Public
comments may also be viewed electronically or in paper form in Room MP-
500 of the Board's Martin Building (20th and C Streets, NW.) between 9
a.m. and 5 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT: John C. Wood or David A. Stein,
Counsels, Division of Consumer and Community Affairs, at (202) 452-2412
or (202) 452-3667. For users of Telecommunications Device for the Deaf
(TDD) only, contact (202) 263-4869.
SUPPLEMENTARY INFORMATION:
I. Background
The purpose of the Truth in Lending Act (TILA), 15 U.S.C. 1601 et
seq., is to promote the informed use of consumer credit by requiring
disclosures about its terms and cost. The Board's Regulation Z (12 CFR
part 226) implements the act. The act requires creditors to disclose
the cost of credit as a dollar amount (the finance charge) and as an
annual percentage rate (the APR). Uniformity in creditors' disclosures
is intended to promote the informed use of credit and assist in
shopping for credit. TILA requires additional disclosures for loans
secured by consumers' homes and permits consumers to rescind certain
transactions that involve their principal dwellings. TILA and
Regulation Z require a number of disclosures to be provided in writing.
Board Proposals Regarding Electronic Disclosures
On May 2, 1996, the Board proposed to amend Regulation E
(Electronic Fund Transfers) to permit financial institutions to provide
disclosures by sending them electronically (61 FR 19,696). Based on
comments received, in 1998 the Board published an interim rule
permitting the electronic delivery of disclosures under Regulation E
(63 FR 14,528, March 25, 1998) and proposals under Regulations B (Equal
[[Page 21142]]
Credit Opportunity), M (Consumer Leasing), Z (Truth in Lending), and DD
(Truth in Savings) (63 FR 14,552, 14,538, 14,548, and 14,533,
respectively, March 25, 1998).
Based on comments received on the 1998 proposals, in September 1999
the Board published revised proposals under Regulations B, E, M, Z, and
DD (64 FR 49,688, 49,699, 49,713, 49,722 and 49,740, respectively,
September 14, 1999). At the same time, the Board published an interim
rule under Regulation DD allowing depository institutions to deliver
disclosures on periodic statements in electronic form if the consumer
agreed (64 FR 49,846, September 14, 1999). While these rulemakings were
pending, Federal legislation was enacted addressing the use of
electronic documents and records, including consumer disclosures.
Federal Legislation Addressing Electronic Commerce
On June 30, 2000, the President signed into law the Electronic
Signatures in Global and National Commerce Act (the E-Sign Act) (15
U.S.C. 7001 et seq.). The E-Sign Act provides that electronic documents
and electronic signatures have the same validity as paper documents and
handwritten signatures. The E-Sign Act contains special rules for the
use of electronic disclosures in consumer transactions. Under the E-
Sign Act, consumer disclosures required by other laws or regulations to
be provided or made available in writing may be provided or made
available, as applicable, in electronic form if the consumer
affirmatively consents after receiving a notice that contains certain
information specified in the statute, and if certain other conditions
are met.
The E-Sign Act, including the special consumer notice provisions,
became effective October 1, 2000, and did not require implementing
regulations. Thus, financial institutions are currently permitted to
provide in electronic form any disclosures that are required to be
provided or made available to the consumer in writing under Regulations
B, E, M, Z, and DD if the consumer affirmatively consents to receipt of
electronic disclosures in the manner required by section 101(c) of the
E-Sign Act.
The Interim Final Rules
On March 30, 2001, the Board published for comment interim final
rules to establish uniform standards for the electronic delivery of
disclosures required under Regulation Z (66 FR 17,329). Similar interim
final rules for Regulations B, E, M, and DD were published on March 30,
2001 (66 FR 17,322 (M)) and April 4, 2001 (66 FR 17,779 (B), 66 FR
17,786 (E), and 66 FR 17,795 (DD)). The interim final rules
incorporated most of the provisions that were part of the 1999
proposals.
Each of the interim final rules incorporated, but did not
interpret, the requirements of the E-Sign Act. Creditors and other
persons, as applicable, generally were required to obtain consumers'
affirmative consent to provide disclosures electronically, consistent
with the requirements of the E-Sign Act.
The 2001 interim final rule for Regulation Z established uniform
requirements for the timing and delivery of electronic disclosures.
Under the interim rule, disclosures could be sent to an e-mail address
designated by the consumer, or could be made available at another
location, such as an Internet Web site. If the disclosures were not
sent by e-mail, creditors would have to provide a notice to consumers
alerting them to the availability of the disclosures. Disclosures
posted on a Web site would have to be available for at least 90 days to
allow consumers adequate time to access and retain the information.
Creditors also would be required to make a good faith attempt to
redeliver electronic disclosures that were returned undelivered, using
the address information available in their files. Similar provisions
were included in the interim final rules adopted under Regulations B,
E, M, and DD.
Commenters on the interim final rules identified significant
operational and information security concerns with respect to the
requirement to send the disclosure or an alert notice to an e-mail
address designated by the consumer. For example, commenters stated that
some consumers do not have e-mail addresses or may not want personal
financial information sent to them by e-mail. Commenters also noted
that e-mail is not a secure medium for delivering confidential
information and that consumers' e-mail addresses frequently change. The
commenters also opposed the requirement for redelivery in the event a
disclosure was returned undelivered. In addition, many commenters
asserted that making the disclosures available for at least 90 days, as
required by the interim final rule, would increase costs and would not
be necessary for consumer protection.
In August 2001, in response to comments received, the Board lifted
the previously established October 1, 2001 mandatory compliance date
for all of the interim final rules. (66 FR 41,439, August 8, 2001).
Thus, institutions are not required to comply with the interim final
rules. Since that time, the Board has not taken further action with
respect to the interim final rules on electronic disclosures in order
to allow electronic commerce, including electronic disclosure
practices, to continue to develop without regulatory intervention and
to allow the Board to gather further information about such practices.
II. The Proposed Rules
The Board is proposing to amend Regulation Z and the official staff
commentary by (1) withdrawing portions of the 2001 interim final rule
on electronic disclosures that restate or cross-reference provisions of
the E-Sign Act and accordingly are unnecessary; (2) withdrawing other
portions of the interim final rule that the Board now believes may
impose undue burdens on electronic banking and commerce and may be
unnecessary for consumer protection; and (3) retaining the substance of
certain provisions of the interim final rule that provide regulatory
relief or guidance regarding electronic disclosures. (Similar
amendments are also being proposed by the Board, in today's issue of
the Federal Register, under Regulations B, E, M, and DD). In addition,
the proposal would amend the regulation to implement certain provisions
of the Bankruptcy Abuse Prevention and Consumer Protection Act.
Because compliance with the 2001 interim final rules is not
mandatory, removing most portions of the interim rules from the Code of
Federal Regulations, while finalizing other provisions, would reduce
confusion about the status of the electronic disclosure provisions and
simplify the regulation. Certain provisions in the interim final rules,
including provisions addressing foreign language disclosures, were not
affected by the lifting of the mandatory compliance date and
accordingly are now in final form; these provisions would not be
deleted. The Board is also proposing to adopt certain provisions that
are identical or similar to provisions in the 2001 interim final rules
in order to enhance the ability of consumers to shop for credit online,
minimize the information-gathering burdens on consumers, and provide
guidance or eliminate a substantial burden on the use of electronic
disclosures, as discussed further below. Finally, the Board is
proposing to implement certain provisions of the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, 119
Stat. 23 (the ``Bankruptcy Act''), that amend TILA and relate to
electronic disclosures.
[[Page 21143]]
Since 2001, industry and consumers have gained considerable
experience with electronic disclosures. During that period, the Board
has received no indication that consumers have been harmed by the fact
that compliance with the interim final rules is not mandatory. The
Board also has reconsidered certain aspects of the interim final rules,
such as sending disclosures by e-mail, in light of concerns about data
security, identity theft, and ``phishing'' (i.e., prompting consumers
to reveal confidential personal or financial information through
fraudulent e-mail requests that appear to originate from a financial
institution, government agency, or other trusted entity) that have
become more pronounced since 2001. Finally, the Board is proposing to
eliminate certain aspects of the 2001 interim final rule, such as
provisions regarding the availability and retention of electronic
disclosures, as unnecessary in light of current industry practices.
The 2001 interim final rule allowed creditors to provide certain
disclosures to consumers electronically, without regard to the consumer
consent or other provisions of the E-Sign Act, for disclosures provided
on or with an application or solicitation (the ``shopping
disclosures'') or an advertisement. The Board reasoned that these
disclosures, which would be available to the general public while
shopping for credit, did not ``relate to a transaction,'' which is a
prerequisite for triggering the E-Sign consumer consent provisions, and
thus were not subject to those provisions. Some commenters on the
interim final rules did not agree with the Board's rationale. Upon
further consideration, the Board does not believe it is necessary to
determine whether or not these disclosures are related to a
transaction. This proposal does not make such determinations.
Instead, pursuant to the Board's authority under section 105(a) of
TILA, as well as under section 104(d) of the E-Sign Act,\1\ the Board
is proposing to specify the circumstances under which certain
disclosures may be provided to a consumer in electronic form, rather
than in writing as generally required by Regulation Z, without
obtaining the consumer's consent under section 101(c) of the E-Sign
Act. The proposed rule would also amend various sections of Regulation
Z, discussed in detail below, to clarify that certain disclosures must
be provided to the consumer in electronic form on or with an
application, solicitation, or advertisement that is accessed by the
consumer in electronic form.
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\1\ Section 105(a) of TILA provides that regulations prescribed
by the Board under TILA ``may provide for such adjustments and
exceptions * * * as in the judgment of the Board, are necessary or
proper to effectuate the purposes of [TILA], * * * or to facilitate
compliance [with the requirements of TILA].'' Section 104(d) of the
E-Sign Act authorizes federal agencies to adopt exemptions for
specified categories of disclosures from the E-Sign notice and
consent requirements, ``if such exemption is necessary to eliminate
a substantial burden on electronic commerce and will not increase
the material risk of harm to consumers.'' For the reasons stated in
this Federal Register notice, the Board believes that these criteria
are met in the case of the application, solicitation, and
advertising disclosures. In addition, the Board believes TILA
section 105(a) authorizes the Board to permit institutions to
provide disclosures electronically, rather than in paper form,
independent of the E-Sign Act.
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The Board continues to believe that creditors should not be
required to obtain the consumer's consent in order to provide shopping
or advertising disclosures to the consumer in electronic form if the
consumer accesses an application, solicitation, or advertisement
containing those disclosures in electronic form, such as at an Internet
Web site. The Board believes consumers would not be harmed, and in fact
would benefit, by having timely access to shopping and advertising
disclosures in electronic form when they are shopping for credit online
or viewing online credit advertising. Conversely, consumers who choose
to apply for credit online would be unduly burdened if they had to
consent in accordance with the E-Sign Act in order to access
application forms that must be accompanied by disclosures. The Board
also believes that consumers' ability to shop for credit online and
compare the terms of various credit offers could be substantially
diminished if consumers had to consent in accordance with the E-Sign
Act in order to access solicitations and advertisements that must be
accompanied by disclosures. Applying the consumer consent provisions of
the E-Sign Act to these disclosures could impose substantial burdens on
electronic commerce and make it more difficult for consumers to gather
information and shop for credit.
At the same time, the Board recognizes that consumers who shop or
apply for credit online may not want to receive other disclosures
electronically. Therefore, with respect to, for example, account-
opening disclosures, periodic statements, and change-in-terms notices,
creditors would be required to provide written disclosures or obtain
the consumer's consent in accordance with the E-Sign Act to provide
such disclosures in electronic form.
Finally, the Board is proposing to delete, as unnecessary, certain
provisions that restate or cross-reference the E-Sign Act's general
rules regarding electronic disclosures (including the consumer consent
provisions) and electronic signatures because the E-Sign Act is a self-
effectuating statute. The proposed revisions to Regulation Z and the
official staff commentary are described more fully below in the
Section-by-Section Analysis.
The Board solicits comment on all aspects of this proposal.
Specifically, the Board seeks comment on the appropriateness of
eliminating certain provisions and retaining other provisions contained
in the 2001 interim final rule.
III. Section-by-Section Analysis
12 CFR Part 226 (Regulation Z)
Subpart B Open-End Credit
Section 226.5 General Disclosure Requirements
Section 226.5(a) prescribes the form of disclosures required for
open-end credit plans. Section 226.5(a)(1) generally requires creditors
to provide open-end credit disclosures in writing and in a form that
the consumer may keep. The Board proposes to revise Sec. 226.5(a)(1)
to clarify that creditors may provide open-end credit disclosures to
consumers in electronic form, subject to compliance with the consumer
consent and other applicable provisions of the E-Sign Act. Some
creditors may provide open-end credit disclosures to consumers both in
paper and electronic form and rely on the paper form of the disclosures
to satisfy their compliance obligations. For those creditors, the
duplicate electronic form of the open-end credit disclosures may be
provided to consumers without regard to the consumer consent or other
provisions of the E-Sign Act because the electronic form of the
disclosure is not used to satisfy the regulation's open-end credit
disclosure requirements.
Section 226.5(a)(1) would also be revised to provide that the open-
end credit disclosures required by Sec. Sec. 226.5a, 226.5b, and
226.16 may be provided to the consumer in electronic form, under the
circumstances set forth in those sections, without regard to the
consumer consent or other provisions of the E-Sign Act. The Board
believes that, for an application, solicitation, or advertisement
accessed by the consumer in electronic form, permitting creditors to
provide credit and charge card application and solicitation
disclosures, application disclosures for home equity lines of credit
(HELOCs), and open-end credit advertising disclosures in electronic
form without regard to the consumer consent and other provisions
[[Page 21144]]
of the E-Sign Act will eliminate a potential significant burden on
electronic commerce without increasing the risk of harm to consumers.
This approach will facilitate shopping for credit by enabling consumers
to receive important disclosures at the same time they access an
application, solicitation, or advertisement without first having to
provide consent in accordance with the requirements of the E-Sign Act.
Requiring consumers to follow the consent procedures set forth in the
E-Sign Act in order to access an online application, solicitation, or
advertisement, or complete an online application is potentially
burdensome and could discourage consumers from shopping for credit
online. Moreover, because these consumers are viewing the application,
solicitation, or advertisement online, there appears to be little, if
any, risk that the consumer will be unable to view the disclosures
online as well.
Section 226.5(a)(5) in the 2001 interim final rule refers to Sec.
226.36, the section of the interim final rule setting forth general
rules for electronic disclosures. Because the Board is proposing to
delete Sec. 226.36, as discussed further below, the Board also
proposes to delete Sec. 226.5(a)(5).
The 2001 interim final rule revised comment 5(b)(2)(ii)-3 to
reference the E-Sign Act's consumer consent requirements. The Board
proposes to delete this language as unnecessary because the E-Sign Act
is a self-effectuating statute.
Section 226.5a Credit and Charge Card Applications and Solicitations
5a(a) General Rules
Section 226.5a(a)(2) prescribes the form of disclosures required
with credit and charge card applications and solicitations. The Board
proposes to amend Sec. 226.5a(a)(2) by adding a new paragraph (v) to
provide that if a consumer accesses an application or solicitation for
a credit or charge card in electronic form, the disclosures required on
or with an application or solicitation for a credit or charge card must
be provided to the consumer in electronic form on or with the
application or solicitation. A consumer accesses an application or
solicitation in electronic form when, for example, the consumer views
the application or solicitation on his or her home computer. On the
other hand, if a consumer receives an application or solicitation in
the mail, the creditor would not satisfy its obligation to provide
Sec. 226.5a disclosures at that time by including a reference in the
application or solicitation to the Web site where the disclosures are
located. Comment 5a(a)(2)-9 would be added to clarify this point.
Comment 5a(a)(2)-8 of the 2001 interim final rule states that a
consumer must be able to access the electronic disclosures at the time
the application form or solicitation reply form is made available by
electronic communication. The Board proposes to revise this comment to
describe alternative methods for presenting electronic disclosures,
which are examples rather than an exhaustive list. Comment 5a(a)(2)-
2.ii., which was added in 2000, specifies how the tabular disclosures
required by Sec. 226.5a can be ``prominently located'' if provided on
or with electronic applications and solicitations, and is similar to
revised comment 5a(a)(2)-8. Revised comment 5a(a)(2)-8 reminds
creditors that for disclosures required to be provided in tabular form,
the electronic form of the table must satisfy the requirements of
comment 5a(a)(2)-2.ii.
Section 1304 of the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005, Pub. L. 109-8, 119 Stat. 23 (the ``Bankruptcy
Act''), amends Section 127(c) of TILA to require that credit card
application and solicitation disclosures provided ``using the Internet
or other interactive computer service'' must be ``readily accessible to
consumers in close proximity'' to the solicitation. 15 U.S.C.
1637(c)(7). In connection with the Board's ongoing review of Regulation
Z, the Board issued an Advance Notice of Proposed Rulemaking (70 FR
60235, October 17, 2005) (October 2005 ANPR), soliciting comments on
how these Bankruptcy Act amendments should be implemented.
The Bankruptcy Act provision applies to solicitations to open a
card account ``using the Internet or other interactive computer
service.'' The term ``Internet'' is defined as the international
computer network of both Federal and non-Federal interoperable packet
switched data networks. The term ``interactive computer service'' is
defined as any information service, system or access software provider
that provides or enables computer access by multiple users to a
computer server, including specifically a service or system that
provides access to the Internet and such systems operated or services
offered by libraries or educational institutions. 15 U.S.C. 1637(c)(7).
Based on the definitions of ``Internet'' and ``interactive computer
service,'' the Board believes that Congress intended to cover all card
offers that are provided to consumers in electronic form. In the
October 2005 ANPR, the Board solicited comment on what guidance the
Board should provide regarding when disclosures are ``readily
accessible to consumers in close proximity'' to an application or
solicitation that is made in electronic form. In particular, the Board
asked whether additional or different guidance is needed from the
guidance previously issued by the Board.
Most commenters stated that the Board should retain the existing
guidance in comment 5a(a)(2)-2.ii on ``prominent location'' to
interpret the ``close proximity'' standard. A few commenters stated
that the 2000 guidance should not apply, and that, for example, it
should suffice to provide a link to the disclosures that the consumer
could choose to access or not. Some commenters urged the Board
generally to allow maximum flexibility to creditors regarding the
display of electronic disclosures, and stated that no guidance or
specific rules were necessary.
The Board intends to interpret the Bankruptcy Act's ``close
proximity'' standard in its ongoing review of the credit card
provisions of Regulation Z. Based on comments received on the October
2005 ANPR, the Board is considering how to apply the ``close
proximity'' standard to electronic applications and solicitations,
including whether to retain the existing guidance in comment 5a(a)(2)-
2.ii. The Board anticipates issuing a proposal addressing these and
other Regulation Z issues within the next few months.
5a(b) Required Disclosures
5a(c) Direct-Mail and Electronic Applications and Solicitations
Section 226.5a(b)(1) sets forth rules for accuracy of the annual
percentage rate (APR) disclosure in an application or solicitation for
a variable-rate credit card plan. Section 226.5a(b)(1)(ii) provides, in
part, that direct mail APR disclosures are accurate if the rate was in
effect within 60 days before mailing the disclosures. The 2001 interim
final rule added a new Sec. 226.5a(b)(1)(iii) to provide that, in the
case of electronic disclosures, the variable APR disclosure is
considered accurate if the disclosed rate was in effect within 30 days
before the disclosure was sent by electronic mail to a consumer or made
available at another location, such as the card issuer's Internet Web
site, and amended Sec. 226.5a(b)(1)(ii) to reference the new section.
Preparing revised electronic disclosures when the index rate for a
variable APR changes should require less time than revising printed
materials in preparation for a direct mail
[[Page 21145]]
campaign. Thus, specifying a shorter time frame for accuracy of
electronic disclosures than for printed disclosures appeared
reasonable. The 2001 interim final rule did not contain specific
guidance on accuracy requirements for other disclosures provided
electronically, such as fee disclosures.
Section 226.5a(c) requires that certain disclosures be included on
or with a credit card application or solicitation that is sent to
consumers by direct mail. The 2001 interim final rule revised Sec.
226.5a(c) to apply the direct mail rules to applications and
solicitations provided to consumers electronically.
More recently, section 1304 of the Bankruptcy Act amended Section
127(c) of TILA to require that solicitations to open a card account
using the Internet or other interactive computer service must contain
the same disclosures as those made for applications or solicitations
sent by direct mail. Although this Bankruptcy Act provision refers to
credit card solicitations (where no application is required), the Board
requested comment in the October 2005 ANPR on whether the provision
should be interpreted also to include applications provided
electronically. Almost all commenters on this issue stated that there
is no reason to treat electronic applications differently from
electronic solicitations in applying the Bankruptcy Act provision. The
Board concurs. With respect to both electronic applications and
solicitations, it is important for consumers who are shopping for a
card to receive accurate cost information about the card before
submitting an electronic application or responding to an electronic
solicitation. Thus, the Board proposes to use its authority in section
105(a) of TILA to apply the Bankruptcy Act provision relating to
electronic offers to both electronic solicitations and applications, as
necessary to effectuate the informed use of credit, a primary purpose
of TILA. 15 U.S.C. 1601(a), 1604(a).
The Bankruptcy Act also provides that the disclosures for
electronic credit card offers must be ``updated regularly to reflect
the current policies, terms, and fee amounts.'' In the October 2005
ANPR, the Board solicited comment on how that standard should be
implemented.
The majority of commenters to the October 2005 ANPR who addressed
the accuracy of variable rates agreed that a 30-day standard would be
appropriate to implement the ``updated regularly'' standard in the
Bankruptcy Act. Some commenters advocated longer periods such as 60
days, or shorter periods such as daily or weekly updating, or suggested
that the Board should not provide specific guidance or rules, instead
allowing maximum flexibility in this area.
The Board proposes to revise Sec. Sec. 226.5a(b)(1) and 226.5a(c)
to make the direct-mail provision of Sec. 226.5a applicable to
electronic applications and solicitations and to implement the
``updated regularly'' standard in the Bankruptcy Act with regard to the
accuracy of variable APRs. Current Sec. 226.5a(c) would be revised and
renumbered as new Sec. 226.5a(c)(1). A new Sec. 226.5a(c)(2) would be
added to address the accuracy of a variable APR in direct mail
solicitations. This new section would require issuers to update
variable APRs disclosed on mailed applications and solicitations every
60 days and variable APRs disclosed on applications and solicitations
provided in electronic form every 30 days, and to update other terms
when they change. The Board believes the 30-day and 60-day accuracy
requirements for variable APRs strike an appropriate balance between
seeking to ensure consumers receive updated information and avoiding
imposing undue burdens on creditors. The Board does not believe it is
necessary for creditors to disclose to consumers the exact variable APR
in effect on the date the application or solicitation is accessed by
the consumer because consumers should understand that variable APRs are
subject to change. Moreover, it could be costly and operationally
burdensome for creditors to comply with a requirement to disclose the
exact variable APR in effect at the time the application or
solicitation is accessed. The obligation to update the other terms when
they change ensures that consumers receive information that is
reasonably accurate and current, and should not impose significant
burdens on issuers. Based on discussions with industry concerning
operational issues, the Board understands that issuers typically change
other terms infrequently, perhaps once or twice a year.
Section 226.5a(c)(2) consists of two subsections. Section
226.5a(c)(2)(i) would provide that Sec. 226.5a disclosures mailed to a
consumer must be accurate as of the time the disclosures are mailed.
This section would also provide that an accurate variable APR is one
that is in effect within 60 days before mailing. Section
226.5a(c)(2)(ii) would provide that Sec. 226.5a disclosures provided
in electronic form (except for a variable APR) must be accurate as of
the time they are sent to a consumer's e-mail address, or as of the
time they are viewed by the public on a web site. For the reasons
discussed above, this section would provide that a variable APR is
accurate if it is in effect within 30 days before it is sent, or viewed
by the public, as applicable. Presently, variable APRs on most credit
cards may change on a monthly basis, so the Board believes the 30-day
accuracy requirement for variable APRs is appropriate.
Many of the provisions included in proposed Sec. 226.5a(c)(2) have
been incorporated from Sec. 226.5a(b)(1). To eliminate redundancy, the
Board proposes to revise Sec. 226.5a(b)(1) by deleting Sec.
226.5a(b)(1)(ii) and (iii) and comment 5a(c)-1. The portion of Sec.
226.5a(b)(1)(ii) that relates to the accuracy of APRs provided in
``take-ones'' would be incorporated in new Sec. 226.5a(e)(5).
Section 226.5b Requirements for Home-Equity Plans
Section 226.5b(a) sets forth requirements for the form of
disclosures required to be made on or with applications for HELOCs. The
Board proposes to amend Sec. 226.5b(a) by adding a new paragraph (3)
to provide that if a consumer accesses a HELOC application in
electronic form, the disclosures required on or with an application for
a HELOC must be provided to the consumer in electronic form on or with
the application. A consumer accesses a HELOC application in electronic
form when, for example, the consumer views the application on his or
her home computer. On the other hand, if a consumer receives a HELOC
application in the mail, the creditor would not satisfy its obligation
to provide Sec. 226.5b disclosures at that time by including a
reference in the application to the web site where the disclosures are
located. Comment 5b(a)(3)-1 would be added to clarify this point.
Section 226.5b(c) states that persons other than the creditor that
provide HELOC applications to consumers must provide the required home
equity disclosures in certain cases. The 2001 interim final rule added
a new Sec. 226.5b(c)(2) to clarify that such third parties may use
electronic disclosures. The Board is proposing to delete this provision
as unnecessary because the E-Sign Act is a self-effectuating statute
and permits any person to use electronic records subject to the
conditions set forth in the Act.
Comment 5b(b)-7 of the 2001 interim final rule states that a
consumer must be able to access the electronic disclosures at the time
the application form or solicitation reply form is made available by
electronic communication. This comment is substantially similar to
[[Page 21146]]
comment 5a(a)(2)-8 of the 2001 interim final rule, discussed above.
The Board proposes to delete comment 5b(b)-7 and substitute a new
comment 5b(a)(1)-5 in its place, which generally parallels the content
of the revised comment 5a(a)(2)-8. The new comment would describe
alternative methods for presenting electronic disclosures, which are
examples rather than an exhaustive list. Comment 5b(a)(1)-5 would omit
all references to reply forms to recognize that the HELOC disclosures
are application disclosures. The renumbering of the comment reflects
the Board's belief that the focus of this comment is the form of
electronic disclosures, rather than the timing of those disclosures.
Section 226.15 Right of Rescission
Section 226.15 gives consumers the right to rescind certain open-
end credit plans secured by their principal dwelling. Under Sec.
226.15(b), creditors must provide two copies of a notice of this right
to each consumer entitled to rescind. For written (paper) disclosures,
this allows consumers to return one copy to the creditor if they
exercise the right of rescission and retain the second copy. For
rescission notices provided in electronic form, the 2001 interim final
rule added language permitting creditors to provide only one copy of
the electronic notice to each consumer when the notice is provided in
electronic form in accordance with the consumer consent and other
applicable provisions of the E-Sign Act. The Board proposes to retain
this provision. It does not appear that consumers would benefit by
receiving two electronic copies of rescission notices because a second
electronic ``copy'' is unnecessary for purposes of consumer retention.
In the 2001 interim final rule, comment 15(b)-1 was revised to
state that if there is more than one property owner, a single
rescission notice may be sent to each consumer if electronic
communication is used, that each co-owner must consent to electronic
disclosures, and that each must designate an electronic (e-mail)
address to be used for this purpose. The Board believes, as discussed
above, that provisions requiring the use of e-mail are no longer
appropriate; comment 15(b)-1 would be revised accordingly. The Board
also proposes to delete the statement that each co-owner must consent
to electronic disclosures.
Section 226.16 Advertising
Section 226.16 contains requirements for advertisements for open-
end credit, and in particular requires that if an advertisement
includes certain ``trigger terms'' (such as an APR), the advertisement
must also include certain required disclosures (such as minimum finance
charge and transaction charges and annual fees).
Section 226.16(c) relates to catalogs and other multiple-page
advertisements and to electronic advertisements. The Board proposes to
add a new paragraph (3) to Sec. 226.16(c) to clarify that if a
consumer accesses an advertisement for open-end credit in electronic
form, the disclosures required on or with the open-end credit
advertisement must be provided to the consumer in electronic form on or
with the advertisement. A consumer accesses an advertisement in
electronic form when, for example, the consumer views the advertisement
on his or her home computer. On the other hand, if a consumer receives
a written advertisement in the mail, the creditor would not satisfy its
obligation to provide Sec. 226.16 disclosures at that time by
including a reference in the advertisement to the web site where the
disclosures are located. Comment 16(c)(3)-1 would be added to clarify
this point.
Section 226.16(c) provides that in a catalog or other multiple-page
advertisement, the required disclosures need not be shown on each page
where a ``trigger term'' appears, as long as each such page includes a
cross-reference to the page where the required disclosures appear. The
2001 interim final rule clarified that this multiple-page rule also
applies to credit advertisements in electronic form. For example, if a
``trigger term'' appears on a particular web page, the additional
disclosures may appear in a table or schedule on another web page and
still be considered part of a single advertisement if there is a clear
reference to the page or location where the table or schedule begins
(which may be accomplished, for example, by including a link). The
Board proposes to retain the rule (in Sec. 226.16(c)(1) and (2))
allowing the use of links or other cross-references in electronic
credit advertisements to provide guidance on how the advertising rules
apply to Web sites.
The 2001 interim final rule revised comment 16(c)(1)-1 and added
comment 16(c)(1)-2 to provide guidance on multiple-page advertisements
in electronic form. Because the Board is proposing to retain the
changes to Sec. 226.16(c)(1) with minor wording changes, the Board is
also proposing to retain comments 16(c)(1)-1 and 2 as revised by the
2001 interim final rule with corresponding wording changes.
Subpart C Closed-end Credit
Section 226.17 General Disclosure Requirements
Section 226.17(a) prescribes the form of disclosures required for
closed-end credit. Section 226.17(a)(1) requires creditors to provide
closed-end credit disclosures in writing and in a form that the
consumer may keep. The Board proposes to revise Sec. 226.17(a)(1) to
clarify that creditors may provide the closed-end credit disclosures to
consumers in electronic form, subject to compliance with the consumer
consent and other applicable provisions of the E-Sign Act. Some
creditors may provide closed-end credit disclosures to consumers both
in paper and electronic form and rely on the paper form of the
disclosures to satisfy their compliance obligations. For those
creditors, the duplicate electronic form of the closed-end credit
disclosures may be provided to consumers without regard to the consumer
consent and other provisions of the E-Sign Act because the electronic
form of the disclosure is not used to satisfy the regulation's closed-
end credit disclosure requirements.
Section 226.17(a)(1) would also be revised to provide that the
closed-end credit disclosures required by Sec. Sec. 226.19(b) and
226.24 may be provided to the consumer in electronic form, and that the
disclosures required by Sec. 226.17(g) may be made available to the
consumer or to the public in electronic form, under the circumstances
set forth in those sections, without regard to the consumer consent or
other provisions of the E-Sign Act. The Board believes that, for an
application or advertisement accessed by the consumer in electronic
form, permitting creditors to provide disclosures relating to
applications for adjustable-rate mortgage (ARM) loans secured by the
consumer's principal dwelling (Sec. 226.19(b)) and closed-end credit
advertising (Sec. 226.24) in electronic form, without regard to the
consumer consent and other provisions of the E-Sign Act, will eliminate
a potential significant burden on electronic commerce without
increasing the risk of harm to consumers. This approach will assist
consumers in shopping for credit by enabling them to receive important
disclosures at the same time they access an application or
advertisement without first having to provide consent in accordance
with the requirements of the E-Sign Act. Requiring consumers to follow
the consent procedures set forth in the E-Sign Act in order to access
an online application or advertisement, or complete an online
application is
[[Page 21147]]
potentially burdensome and could discourage consumers from shopping for
credit online. Moreover, because these consumers are viewing the
application or advertisement online, there appears to be little, if
any, risk that the consumer will be unable to view the disclosures
online as well.
Section 227.17(g) applies where a creditor receives a request for
credit by mail, telephone, or electronic communication without face-to-
face or direct telephone solicitation. In these circumstances, the
creditor may delay making the TILA disclosures for the credit
transaction until the due date of the first payment, provided certain
disclosures (specified in Sec. 226.17(g)(1)-(5)) have been made
available to the consumer or to the public generally (such as in a
catalog or advertisement). For example, a retailer may mail catalogs to
consumers, or provides advertising inserts in newspapers, containing
information for ordering merchandise by telephone or mail. If a
consumer calls the retailer, orders an item, and agrees to pay for the
item by obtaining a closed-end extension of credit from the retailer,
the TILA closed-end disclosures would normally be required to be
provided to the consumer before the consummation of the transaction.
Since this is impracticable where the transaction is consummated by
telephone, however, Sec. 226.17(g) permits the retailer to delay
providing the specific disclosures for the transaction, as long as the
disclosures in Sec. 226.17(g)(1)-(5), for representative amounts or
ranges of credit, are included in the catalog or newspaper insert.
In the 2001 interim final rule, the Board replaced the term
``electronic communication'' in Sec. 226.17(g) with ``facsimile
machine.'' The Board explained that the rule in Sec. 226.17(g)
predated Internet commerce, and the term ``electronic communication''
was intended to cover credit requests by facsimile or telegram. The
rationale underlying the rule was that creditors are unable to provide
written transaction-specific disclosures at the time of the consumer's
credit request where the request is made by facsimile or telegram, no
less than in the case of requests made by telephone or mail. That
practical problem does not exist, however, where a consumer requests
credit at a web site. Therefore, the Board believes it would be
inappropriate to extend the application of Sec. 226.17(g) to
electronic requests for credit made at an Internet Web site.
Accordingly, the Board proposes to retain the amendment to Sec.
226.17(g) from the 2001 interim final rule.
Where Sec. 226.17(g) does apply, i.e., where the consumer requests
credit by telephone, mail, or facsimile machine, the regulation
requires the creditor to make available in written form to the consumer
or the public the disclosures set forth in Sec. 226.17(g)(1)-(5)
before the actual purchase order or request. The Board believes that
these disclosures can appropriately be made available to the consumer
or to the public either in electronic form (for example, on the
creditor's web site) or in paper form. Accordingly, the Board proposes
to amend Sec. 226.17(g) to provide that the requirement to make
available the Sec. 226.17(g)(1)-(5) disclosures in written form to the
consumer or to the public may be satisfied by making the disclosures
available in electronic form, such as at a creditor's Web site. Thus,
for example, a consumer might see information about a product on a
retailer's web site and order the product by telephone using closed-end
credit; the transaction-specific disclosures could be delayed, provided
the Sec. 226.17(g)(1)-(5) disclosures are set forth on the Web site.
In this situation, the E-Sign consent procedures would not have to be
followed in order for the Sec. 226.17(g)(1)-(5) disclosures to be
provided in electronic form. On the other hand, if the consumer ordered
the product via the web site itself, the transaction-specific
disclosures could not be delayed and would be required to be provided
before consummation of the transaction. For the disclosures to be
provided in electronic form in this situation, the E-Sign consent
procedures would have to be followed.
Section 226.17(a)(3) in the interim final rule cross-references
Sec. 226.36, the section of the interim final rule setting forth
general rules for electronic disclosures. Because the Board is
proposing to delete Sec. 226.36, as discussed further below, the Board
also proposes to delete Sec. 226.17(a)(3).
Section 226.19 Certain Residential Mortgage and Variable-Rate
Transactions
Section 226.19(b) requires creditors to provide certain disclosures
relating to ARM loans secured by the consumer's principal dwelling when
an application form is provided to the consumer or before the consumer
pays a nonrefundable fee, whichever is earlier. The Board proposes to
amend Sec. 226.19 by adding a new paragraph (c) to provide that if a
consumer accesses a ARM application in electronic form, the disclosures
required on or with an application for an ARM must be provided to the
consumer in electronic form on or with the application. A consumer
accesses an ARM application in electronic form when, for example, the
consumer views the ARM application on his or her home computer. On the
other hand, if a consumer receives an ARM application in the mail, the
creditor would not satisfy its obligation to provide Sec. 226.19
disclosures at that time by including a reference in the application to
the web site where the disclosures are located. Comment 19(c)-1 would
be added to clarify this point.
Comment 19(b)-2 of the 2001 interim final rule states that a
consumer must be able to access the electronic disclosures at the time
the blank application form for ARMs is made available by electronic
communication. The Board proposes to revise comment 19(b)-2 in a manner
substantially similar to proposed comment 5b(a)(1)-5, discussed above.
The revised comment would describe alternative methods for presenting
electronic disclosures, which are examples rather than an exhaustive
list.
Section 226.23 Right of Rescission
Section 226.23 gives consumers the right to rescind certain closed-
end mortgage loans secured by their principal dwelling. Under Sec.
226.23(b), creditors must provide two copies of a notice of this right
to each consumer entitled to rescind. For written (paper) disclosures,
this allows consumers to return one copy to the creditor if they
exercise the right of rescission and retain the second copy. For
rescission notices provided in electronic form, the 2001 interim final
rule added language permitting creditors to provide only one copy of
the electronic notice to each consumer when the notice is provided in
electronic form in accordance with the consumer consent and other
applicable provisions of the E-Sign Act. The Board proposes to retain
this provision. It does not appear that consumers would benefit by
receiving two electronic copies of rescission notices because a second
electronic ``copy'' is unnecessary for purposes of consumer retention.
In the 2001 interim final rule, comment 23(b)-1 was revised to
state that if there is more than one property owner, a single
rescission notice may be sent to each consumer if electronic
communication is used, that each co-owner must consent to electronic
disclosures, and that each must designate an electronic (e-mail)
address to be used for this purpose. The Board believes, as discussed
above, that provisions requiring the use of e-mail are no longer
appropriate; comment 23(b)-1 would be revised accordingly.
[[Page 21148]]
The Board also proposes to delete the statement that each co-owner must
consent to electronic disclosures. The proposed revisions are
consistent with the proposed revisions to comment 15(b)-1, discussed
above, which relates to rescission in the context of open-end credit.
Section 226.24 Advertising
Section 226.24 contains requirements for advertisements for closed-
end credit and requires that if an advertisement includes certain
``trigger terms'' (such as the payment amount), the advertisement must
also include certain required disclosures (such as the APR, the amount
or percentage of any downpayment, and the terms of repayment, as
applicable).
Section 226.24(d) relates to catalogs and other multiple-page
advertisements and to electronic advertisements. The Board is proposing
to add a new paragraph (3) to Sec. 226.24(d) (comparable to proposed
new paragraph (3) to Sec. 226.16(c) for open-end credit advertising)
to clarify that if a consumer accesses an advertisement for closed-end
credit in electronic form, the disclosures required on or with the
closed-end credit advertisement must be provided to the consumer in
electronic form on or with the advertisement. A consumer accesses an
advertisement in electronic form when, for example, the consumer views
the advertisement on his or her home computer. On the other hand, if a
consumer receives a written advertisement in the mail, the creditor
would not satisfy its obligation to provide Sec. 226.24 disclosures at
that time by including a reference in the advertisement to the web site
where the disclosures are located. Comment 24(d)-5 would be added to
clarify this point.
Section 226.24(d) provides that in a catalog or other multiple-page
advertisement, the required disclosures need not be shown on each page
where a ``trigger term'' appears, as long as each such page includes a
cross-reference to the page where the required disclosures appear. As
it did for open-end credit advertising, the 2001 interim final rule
clarified that the multiple-page rule for closed-end credit advertising
also applies to credit advertisements in electronic form. For example,
if a ``trigger term'' appears on a particular Web page, the additional
disclosures may appear in a table or schedule on another Web page and
still be considered part of a single advertisement if there is a clear
reference to the page or location where the table or schedule begins
(which may be accomplished, for example, by including a link). The
Board proposes to retain the rule (in Sec. 226.24(d)(1) and (2))
allowing the use of links or other cross-references in electronic
credit advertisements to provide guidance on how the advertising rules
apply to Web sites.
The 2001 interim final rule revised comment 24(d)-2 and added
comment 24(d)-4 to provide guidance on multiple-page advertisements in
electronic form. Because the Board is proposing to retain the changes
to Sec. 226.24(d) with minor wording changes, the Board is also
proposing to retain comments 24(d)-2 and 24(d)-4 as revised by the 2001
interim final rule with corresponding wording changes.
Section 226.24(b) permits creditors to state a simple annual rate
of interest or periodic rate in addition to the APR, as long as the
rate is stated in conjunction with, but not more conspicuously than,
the APR. In the 2001 interim final rule, comment 24(b)-6 was added to
state that in an advertisement using electronic communication, the
consumer must be able to view both rates simultaneously, and that this
requirement is not satisfied if the consumer can view the APR only by
use of a link that takes the consumer to another Web location. The
Board proposes to delete comment 24(b)-6 as unnecessary. The
requirement to state the simple annual rate or periodic rate in
conjunction with, and not more conspicuously than, the APR, applies to
electronic advertisements no less than to advertisements in other
media. Requiring the consumer to scroll to another part of the page, or
access a link, in order to view the APR would likely not satisfy this
requirement.
Subpart E Special Rules for Certain Home Mortgage Transactions
Section 226.31 General Rules
Subpart E implements the Home Ownership and Equity Protection Act
(HOEPA) and sets forth special rules, including disclosure
requirements, for certain mortgage loans with rates or fees above
specified thresholds (HOEPA loans) and for reverse mortgage loans.
Section 226.31(b) prescribes the form of disclosures required under
subpart E. Section 226.31(b)(1) requires creditors to provide the HOEPA
and reverse mortgage disclosures in writing and in a form that the
consumer may keep. Section 226.31(b)(1) would be renumbered as Sec.
226.31(b) and revised to clarify that the HOEPA and reverse mortgage
disclosures may be provided to the consumer in electronic form, subject
to compliance with the consumer consent and other applicable provisions
of the E-Sign Act. Some creditors may provide the HOEPA and reverse
mortgage disclosures to consumers both in paper and electronic form and
rely on the paper form of the disclosures to satisfy their compliance
obligations. For those creditors, the duplicate electronic form of the
HOEPA and reverse mortgage disclosures may be provided to consumers
without regard to the consumer consent and other provisions of the E-
Sign Act because the electronic form of the disclosure is not used to
satisfy the regulation's HOEPA and reverse mortgage disclosure
requirements.
Section 226.31(b)(2) in the interim final rule cross-references
Sec. 226.36, the section of the interim final rule setting forth
general rules for electronic disclosures. Because the Board is
proposing to delete Sec. 226.36, as discussed further below, the Board
also proposes to delete Sec. 226.31(b)(2).
Subpart F Electronic Communication
Section 226.36 Requirements for Electronic Communication
Section 226.36 was added by the 2001 interim final rule to address
the general requirements for electronic communications. The Board
proposes to delete Sec. 226.36 (which constitutes all of subpart F)
from Regulation Z and the accompanying sections of the staff
commentary.
In the interim rule, Sec. 226.36(a) defines the term ``electronic
communication'' to mean a message transmitted electronically that can
be displayed on equipment as visual text, such as a message displayed
on a personal computer monitor screen. The deletion of Sec. 226.36(a)
would not change applicable legal requirements under the E-Sign Act.
Sections 226.36(b), (c) and (f) incorporate by reference provisions
of the E-Sign Act, such as the provision allowing disclosures to be
provided in electronic form, the requirement to obtain the consumer's
affirmative consent before providing disclosures in electronic form,
and the provision allowing electronic signatures. The deletion of these
provisions will have no impact on the general applicability of the E-
Sign Act to Regulation Z disclosures.
Sections 226.36(d) and (e) address specific timing and delivery
requirements for electronic disclosures under Regulation Z, such as the
requirement to send disclosures to a consumer's e-mail address (or post
the disclosures on a Web site and send a notice alerting the consumer
to the disclosures). The Board no longer believes that these additional
provisions
[[Page 21149]]
are necessary or appropriate. Electronic disclosures have evolved since
2001, as industry and consumers have gained experience with them.
Although many institutions offer e-mail alert notices to consumers in
connection with online services, some consumers may choose not to
receive notifications by e-mail and the Board sees no reason to require
e-mail alert notices in all cases. In addition, the Board has
reconsidered certain aspects of the interim final rules, such as
sending disclosures by e-mail, in light of concerns about data
security, identity theft, and phishing that have become more pronounced
since 2001.
With regard to the requirement to attempt to redeliver returned
electronic disclosures, as the commenters noted, creditors would be
required to search their files for an additional e-mail address to use,
and might be required to use a postal mail address for redelivery if no
additional e-mail address was available. The Board believes that both
requirements would likely be unduly burdensome. In addition, the
concerns that have been raised about the requirement to use e-mail for
the initial delivery of a disclosure or notice apply equally to the use
of e-mail for an attempted redelivery.
Under the proposed rule, the Board would not require creditors to
maintain disclosures posted on a Web site for at least 90 days as
provided in the 2001 interim final rule for several reasons. First,
based on a review of industry practices, it appears that many
institutions maintain disclosures posted on an Internet web site for
several months, and, in a number of cases, for more than a year. For
example, it appears that credit card issuers that offer online periodic
statements to consumers typically make those statements available
without charge for six months or longer in electronic form. This
practice has developed even though Regulation Z does not currently
require institutions to maintain disclosures for any specific period of
time. Second, the Board believes that an appropriate time period
consumers may want electronic disclosures to be available may vary
depending upon the type of disclosure, and is reluctant to establish
specific time periods depending on the disclosures. Nevertheless, while
the Board is not proposing to require disclosures to be maintained on
an Internet web site for any specific time period, the general
requirements of Regulation Z continue to apply to electronic
disclosures, such as the requirement to provide disclosures to
consumers at certain specified times and in a form that the consumer
may keep. Although these general requirements apply to electronic
disclosures, the Board does not believe that the 90-day time period set
out in Sec. 226.36(d) of the 2001 interim final rule is needed to
ensure that creditors satisfy these requirements when they provide
electronic disclosures. The Board, however, will monitor creditors'
electronic disclosure practices with regard to the ability of consumer
to retain Regulation Z disclosures and will consider further regulatory
action if it appears necessary.
The official staff commentary to Sec. 226.36 of the interim final
rule provides guidance on the provisions set forth in Sec. 226.36 such
as delivery of disclosures or alert notices by e-mail, redelivery if
disclosures or a notice is returned undelivered, and retention of
disclosures on a Web site for 90 days. As noted above, because the
Board is proposing to delete Sec. 226.36 (which constitutes all of
subpart F) of the regulation, the Board also proposes to delete the
accompanying provisions of the official staff commentary.
IV. Solicitation of Comments Regarding the Use of ``Plain Language''
Section 722 of the Gramm-Leach-Bliley Act of 1999 requires the
Board to use ``plain language'' in all proposed and final rules
published after January 1, 2000. The Board invites comments on whether
the proposed rules are clearly stated and effectively organized, and
how the Board might make the proposed text easier to understand.
V. Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA)
generally requires an agency to perform an assessment of the impact a
rule is expected to have on small entities.
However, under section 605(b) of the RFA, 5 U.S.C. 605(b), the
regulatory flexibility analysis otherwise required under section 604 of
the RFA is not required if an agency certifies, along with a statement
providing the factual basis for such certification, that the rule will
not have a significant economic impact on a substantial number of small
entities. Based on its analysis and for the reasons stated below, the
Board believes that this proposed rule will not have a significant
economic impact on a substantial number of small entities. A final
regulatory flexibility analysis will be conducted after consideration
of comments received during the public comment period.
1. Statement of the objectives of the proposal. The Board is
proposing revisions to Regulation Z to withdraw the 2001 interim final
rule on electronic communication and to allow creditors to provide
certain disclosures to consumers in electronic form on or with an
application, solicitation, or advertisement that is accessed by the
consumer in electronic form without regard to the consumer consent and
other provisions of the E-Sign Act. The Board is also proposing to
clarify that other Regulation Z disclosures may be provided to
consumers in electronic form in accordance with the consumer consent
and other applicable provisions of the E-Sign Act.
TILA was enacted to enhance economic stabilization and competition
for credit by strengthening the informed use of credit, including an
awareness of the cost of credit by consumers. The purpose of TILA is to
assure a meaningful disclosure of credit terms so that the consumer can
compare the various credit terms available and avoid the uninformed use
of credit, and to protect the consumer against inaccurate and unfair
credit billing and credit card practices. 15 U.S.C. 1601. TILA
authorized the Board to prescribe regulations to carry out the purposes
of the statute. 15 U.S.C. 1604(a). The Act expressly states that the
Board's regulations may contain ``such classifications,
differentiations, or other provisions, * * *, as in the judgment of the
Board are necessary or proper to effectuate the purposes of [the Act],
to prevent circumvention or evasion of [the Act], or to facilitate
compliance with [the Act].'' 15 U.S.C. 1604(a). The Board believes that
the revisions to Regulation Z discussed above are within Congress's
broad grant of authority to the Board to adopt provisions that carry
out the purposes of the statute. These revisions facilitate the
informed use of credit by consumers in circumstances where a consumer
accesses a credit application, solicitation, or advertisement in
electronic form.
2. Small entities affected by the proposal. The ability to provide
shopping and advertising disclosures in electronic form on or with an
application, solicitation, or advertisement that is accessed by the
consumer in electronic form applies to all creditors, regardless of
their size. Accordingly, the proposed revisions would reduce burden and
compliance costs for small entities by providing relief, to the extent
the E-Sign Act applies in these circumstances. The number of small
entities affected by this proposal is unknown.
3. Other Federal rules. The Board believes no Federal rules
duplicate, overlap, or conflict with the proposed revisions to
Regulation Z.
[[Page 21150]]
4. Significant alternatives to the proposed revisions. The Board
solicits comment on any significant alternatives that may provide
additional ways to reduce regulatory burden associated with this
proposed rule.
VI. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (PRA) (44
U.S.C. 3506; 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 (OMB). The collection of information that is required by
this proposed rule is found in 12 CFR 226. The Federal Reserve may not
conduct or sponsor, and an organization is not required to respond to,
this information collection unless it displays a currently valid OMB
control number. The OMB control number is 7100-0199.
Title I of the Consumer Credit Protection Act authorizes the
Federal Reserve to issue regulations to carry out the provisions of
that Act. 15 U.S.C. 1601, 1604(a). This information collection is
mandatory. Since the Federal Reserve does not collect any information,
no issue of confidentiality normally arises. However, the information
may be protected from disclosure under the exemptions (b)(4), (6), and
(8) of the Freedom of Information Act (5 U.S.C. 522(b)). Transaction-
or account-specific disclosures and billing error allegations are not
publicly available and are confidential between the creditor and the
consumer. General disclosures of credit terms that appear in
advertisements or take-one applications are available to the public.
TILA and Regulation Z ensure adequate disclosure of the costs and
terms of credit to consumers. For open-end credit, creditors are
required to disclose information about the initial costs and terms and
to provide periodic statements of account activity, notices of changes
in terms, and statements of rights concerning billing error procedures.
The regulation also requires specific types of disclosures for credit
and charge card accounts, and home-equity plans. For closed-end loans,
such as mortgage and installment loans, cost disclosures are required
to be provided prior to consummation. Special disclosures are required
of certain products, such as reverse mortgages, certain variable-rate
loans, and certain mortgages with rates and fees above specified
thresholds. TILA and Regulation Z also contain rules concerning credit
advertising. To ease the burden and cost of complying with Regulation Z
(particularly for small entities), the Federal Reserve provides model
forms, which are appended to the regulation. Creditors are required to
retain evidence of compliance for twenty-four months (subpart D,
section 226.25), but the regulation does not specify the types of
records that must be retained.
Under the PRA, the Federal Reserve accounts for the paperwork
burden associated with Regulation Z for the State member banks and
other creditors supervised by the Federal Reserve that engage in
lending covered by Regulation Z and, therefore, are respondents under
the PRA. Appendix I of Regulation Z defines the Federal Reserve-
regulated institutions as: 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 25A of the Federal Reserve Act. Other Federal agencies
account for the paperwork burden on other creditors. The annual burden
is estimated to be 552,398 hours for the 1,172 Federal Reserve-
regulated institutions that are deemed to be respondents for the
purposes of the PRA.
As mentioned in the Preamble, Sec. 226.5 would be revised to
clarify the disclosure requirements in Sec. Sec. 226.5a and 226.5b.
The Federal Reserve estimates that 279 respondents would take
approximately 8 hours per month to comply with the existing disclosure
requirements in Sec. 226.5a and estimates the annual burden to be
26,784 hours; and 632 respondents would take approximately 4.5 minutes
per transaction to comply with the existing disclosure requirements in
Sec. 226.5b and estimates the annual burden to be 12,798 hours.
Sections 226.17 and 226.19 would be revised to clarify the existing
disclosure requirements in Sec. Sec. 226.17(g) and 226.19(b). The
Federal Reserve estimates that 1,172 respondents would take
approximately 6.5 minutes per transaction to comply with the existing
disclosure requirements in Sec. Sec. 226.17(g) and 226.19(b), and
estimates the annual burden to be 313,765 hours. Sections 226.5 and
226.17 would also be revised to clarify the disclosure requirements in
Sec. Sec. 226.16 and 226.24 respectively. The Federal Reserve
estimates that 1,172 respondents would take approximately 25 minutes
per transaction to comply with the existing disclosure requirements in
Sec. 226.16 and 226.24, and estimates the annual burden to be 2,442
hours, collectively. The Federal Reserve requests specific comment on
whether the revisions in this proposed rule would change the burden on
respondents.
Comments are invited on: (a) Whether the collection of information
is necessary for the proper performance of the Federal Reserve's
functions; including whether the information has practical utility; (b)
the accuracy of the Federal Reserve's estimate of the burden of the
information collection, including the cost of compliance; (c) ways to
enhance the quality, utility, and clarity of the information to be
collected; and (d) ways to minimize the burden of information
collection on respondents, including through the use of automated
collection techniques or other forms of information technology.
Comments on the collections of information should be sent to Secretary,
Board of Governors of the Federal Reserve System, Washington, DC 20551,
with copies of such comments to be sent to the Office of Management and
Budget, Paperwork Reduction Project (7100-0199), Washington, DC 20503.
List of Subjects in 12 CFR Part 226
Advertising, Federal Reserve System, Mortgages, Reporting and
recordkeeping requirements, Truth in Lending.
Text of Proposed Revisions
Certain conventions have been used to highlight the proposed
changes to Regulation Z. New language is shown inside bold-faced
arrows, while language that would be removed is set off with bold-faced
brackets.
For the reasons set forth in the preamble, the Board proposes to
amend Regulation Z, 12 CFR part 226, as set forth below:
PART 226--TRUTH IN LENDING (REGULATION Z)
1. The authority citation for part 226 continues to read as
follows:
Authority: 12 U.S.C. 3806; 15 U.S.C. 1604 and 1637(c)(5).
Subpart B--Open-End Credit
2. Section 226.5 would be amended by revising paragraph (a)(1) and
removing paragraph (a)(5), to read as follows:
Sec. 226.5 General disclosure requirements.
(a) Form of disclosures. (1) The creditor shall make the
disclosures required by this subpart clearly and conspicuously in
writing,\7\ in a form
[[Page 21151]]
that the consumer may keep.\8\ [rtrif]The disclosures required by this
subpart may be provided to the consumer in electronic form, subject to
compliance with the consumer consent and other applicable provisions of
the Electronic Signatures in Global and National Commerce Act (E-Sign
Act) (15 U.S.C. 7001 et seq.). The disclosures required by Sec. Sec.
226.5a, 226.5b, and 226.16 may be provided to the consumer in
electronic form without regard to the consumer consent or other
provisions of the E-Sign Act in the circumstances set forth in those
sections.[ltrif]
* * * * *
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\7\ The disclosure required by section 226.9(d) when a finance
charge is imposed at the time of a transaction need not be written.
\8\ The disclosures required under Sec. 226.5a for credit and
charge card applications and solicitations, the home equity
disclosures required under Sec. 226.5b(d), the alternative summary
billing rights statement provided for in Sec. 226.9(a)(2), the
credit and charge card renewal disclosures required under Sec.
226.9(e), and the disclosures made under Sec. 226.10(b) about
payment requirements need not be in a form that the consumer can
keep.
---------------------------------------------------------------------------
[lsqbb](5) Electronic communication. For rules governing the
electronic delivery of disclosures, including the definition of
electronic communication, see Sec. 226.36.[rsqbb]
* * * * *
3. Section 226.5a would be amended by adding a new paragraph
(a)(2)(v), removing paragraphs (b)(1)(ii) and (b)(1)(iii), revising
paragraph (c), and adding new paragraph (e)(5), to read as follows:
Sec. 226.5a Credit and charge card applications and solicitations.
* * * * *
(a) General rules. * * *
(2) Form of disclosures. * * *
[rtrif](v) For an application or a solicitation that is accessed by
the consumer in electronic form, the disclosures required under this
section must be provided to the consumer in electronic form on or with
the application or solicitation.[ltrif]
(b) Required disclosures. * * *
(1) Annual percentage rate. * * *
[lsqbb](ii) When variable rate disclosures are provided under
paragraph (c) of this section, an annual percentage rate disclosure is
accurate if the rate was in effect within 60 days before mailing the
disclosures. When variable rate disclosures are provided under
paragraph (e) of this section, an annual percentage rate disclosure is
accurate if the rate was in effect within 30 days before printing the
disclosures. Disclosures provided by electronic communication are
subject to paragraph (b)(1)(iii) of this section.[rsqbb]
[lsqbb](iii) When variable rate disclosures are provided by
electronic communication, an annual percentage rate disclosure is
accurate if the rate was in effect within 30 days before mailing the
disclosures to a consumer's electronic mail address. If disclosures are
made available at another location such as the card issuer's Internet
Web site, the annual percentage rate must be one in effect within the
last 30 days.[rsqbb]
* * * * *
(c) Direct-mail and electronic applications and solicitations.
[rtrif](1) General.[ltrif] The card issuer shall disclose the
applicable items in paragraph (b) of this section on or with an
application or solicitation that is mailed to consumers [lsqbb]or
provided by electronic communication[rsqbb] [rtrif]or provided to
consumers in electronic form[ltrif].
[rtrif](2) Accuracy. (i) Disclosures in direct mail applications
and solicitations must be accurate as of the time the disclosures are
mailed. An accurate variable annual percentage rate is one in effect
within 60 days before mailing.
(ii) Disclosures provided in electronic form must be accurate as of
the time they are sent, in the case of disclosures sent to a consumer's
electronic mail address, or as of the time they are viewed by the
public, in the case of disclosures made available at a location such as
a card issuer's Internet Web site. An accurate variable annual
percentage rate provided in electronic form is one in effect within 30
days before it is sent to a consumer's electronic mail address, or
viewed by the public, as applicable.[ltrif]
* * * * *
(e) Applications and solicitations made available to general
public. * * *
[rtrif](5) Accuracy. The disclosures given pursuant to paragraph
(e)(1) of this section must be accurate as of the date of printing. An
accurate annual percentage rate is one in effect within 30 days before
printing.[ltrif]
* * * * *
4. Section 226.5b would be amended by adding a new paragraph
(a)(3), removing the heading for paragraph (c)(1), redesignating
paragraph (c)(1) as paragraph (c), and removing paragraph (c)(2), to
read as follows:
Sec. 226.5b Requirements for home equity plans.
* * * * *
(a) Form of disclosures. * * *
[rtrif](3) For an application that is accessed by the consumer in
electronic form, the disclosures required under this section must be
provided to the consumer in electronic form on or with the
application.[ltrif]
* * * * *
(c) Duties of third parties. [lsqbb](1) General.[rsqbb] * * *
[lsqbb](2) Electronic communication. Persons other than the
creditor that are required to comply with paragraphs (d) and (e) of
this section may use electronic communication in accordance with the
requirements of Sec. 226.36, as applicable.[rsqbb]
* * * * *
5. Section 226.15 would be amended by revising the first sentence
of the introductory text of paragraph (b), to read as follows:
Sec. 226.15 Right of rescission.
* * * * *
(b) Notice of right to rescind. In any transaction or occurrence
subject to rescission, a creditor shall deliver two copies of the
notice of the right to rescind to each consumer entitled to rescind
(one copy to each if the notice is delivered [rtrif]in electronic form
in accordance with the consumer consent and other applicable provisions
of the E-Sign Act[ltrif] [lsqbb]by electronic communication as provided
in Sec. 226.36(b)[rsqbb]). * * *
* * * * *
6. Section 226.16 would be amended by revising paragraph (c) to
read as follows:
Sec. 226.16 Advertising.
* * * * *
(c) Catalogs or other multiple-page advertisements; electronic
advertisements. (1) If a catalog or other multiple-page advertisement,
or an [rtrif]electronic[ltrif] advertisement [rtrif](such as an
advertisement appearing on an Internet web site)[ltrif] [lsqbb]using
electronic communication[rsqbb], gives information in a table or
schedule in sufficient detail to permit determination of the
disclosures required by paragraph (b) of this section, it shall be
considered a single advertisement if:
(i) The table or schedule is clearly and conspicuously set forth;
and
(ii) Any statement of terms set forth in Sec. 226.6 appearing
anywhere else in the catalog or advertisement clearly refers to the
page or location where the table or schedule begins.
(2) A catalog or other multiple-page advertisement or an
[rtrif]electronic[ltrif] advertisement [rtrif](such as an advertisement
appearing on an Internet Web site)[ltrif] [lsqbb]using electronic
communication[rsqbb] complies with this paragraph if the table or
schedule of terms includes all appropriate disclosures for a
representative scale of amounts up to the level of the more commonly
sold higher-priced property or services offered.
[[Page 21152]]
[rtrif](3) For an advertisement that is accessed by the consumer in
electronic form, the disclosures required under this section must be
provided to the consumer in electronic form on or with the
advertisement.[ltrif]
* * * * *
Subpart C--Closed-End Credit
7. Section 226.17 would be amended by revising paragraph (a)(1),
removing paragraph (a)(3), and revising paragraph (g) introductory
text, to read as follows:
Sec. 226.17 General disclosure requirements.
(a) Form of disclosures. (1) The creditor shall make the
disclosures required by this subpart clearly and conspicuously in
writing, in a form that the consumer may keep. [rtrif]The disclosures
required by this subpart may be provided to the consumer in electronic
form, subject to compliance with the consumer consent and other
applicable provisions of the Electronic Signatures in Global and
National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). The
disclosures required by Sec. Sec. 226.17(g), 226.19(b), and 226.24 may
be provided to the consumer in electronic form without regard to the
consumer consent or other provisions of the E-Sign Act in the
circumstances set forth in those sections.[ltrif] The disclosures shall
be grouped together, shall be segregated from everything else, and
shall not contain any information not directly related \37\ to the
disclosures required under Sec. 226.18.\38\ The itemization of the
amount financed under Sec. 226.18(c)(1) must be separate from the
other disclosures under that section.
---------------------------------------------------------------------------
\37\ The disclosures may include an acknowledgment of receipt,
the date of the transaction, and the consumer's name, address, and
account number.
\38\ The following disclosures may be made together with or
separately from other required disclosures: The creditor's identity
under Sec. 226.18(a), the variable rate example under Sec.
226.18(f)(1)(iv), insurance or debt cancellation under Sec.
226.18(n), and certain security interest charges under Sec.
226.18(o).
---------------------------------------------------------------------------
* * * * *
[lsqbb](3) Electronic communication. For rules governing the
electronic delivery of disclosures, including a definition of
electronic communication, see Sec. 226.36.[rsqbb]
* * * * *
(g) Mail or telephone orders--delay in disclosures. If a creditor
receives a purchase order or a request for an extension of credit by
mail, telephone, or facsimile machine without face-to-face or direct
telephone solicitation, the creditor may delay the disclosures until
the due date of the first payment, if the following information for
representative amounts or ranges of credit is made available in written
form [rtrif]or in electronic form[ltrif] to the consumer or to the
public before the actual purchase order or request:
* * * * *
8. Section 226.19 would be amended by adding a new paragraph (c),
to read as follows:
Sec. 226.19 Certain residential mortgage and variable-rate
transactions.
* * * * *
[rtrif](c) Electronic disclosures. For an application that is
accessed by the consumer in electronic form, the disclosures required
by paragraph (b) of this section must be provided to the consumer in
electronic form on or with the application.[ltrif]
9. Section 226.23 would be amended by revising the first sentence
of paragraph (b)(1), to read as follows:
Sec. 226.23 Right of rescission.
* * * * *
(b)(1) Notice of right to rescind. In a transaction subject to
rescission, a creditor shall deliver two copies of the notice of the
right to rescind to each consumer entitled to rescind (one copy to each
if the notice is delivered [rtrif]in electronic form in accordance with
the consumer consent and other applicable provisions of the E-Sign
Act[ltrif] [lsqbb]by electronic communication as provided in Sec.
226.36(b)[rsqbb]). * * *
* * * * *
10. Section 226.24 would be amended by revising paragraphs (d)(1)
and (d)(2) and adding a new paragraph (d)(3), to read as follows:
Sec. 226.24 Advertising.
* * * * *
(d) Catalogs or other multiple-page advertisements; electronic
advertisements. (1) If a catalog or other multiple-page advertisement,
or an [rtrif]electronic[ltrif] advertisement [rtrif](such as an
advertisement appearing on an Internet Web site)[ltrif] [lsqbb]using
electronic communication[rsqbb], gives information in a table or
schedule in sufficient detail to permit determination of the
disclosures required by paragraph (c)(2) of this section, it shall be
considered a single advertisement if:
(i) The table or schedule is clearly and conspicuously set forth;
and
(ii) Any statement of terms of the credit terms in paragraph (c)(1)
of this section appearing anywhere else in the catalog or advertisement
clearly refers to the page or location where the table or schedule
begins.
(2) A catalog or other multiple-page advertisement or an
[rtrif]electronic[ltrif] advertisement [rtrif](such as an advertisement
appearing on an Internet Web site)[ltrif] [lsqbb]using electronic
communication[rsqbb] complies with paragraph (c)(2) of this section if
the table or schedule of terms includes all appropriate disclosures for
a representative scale of amounts up to the level of the more commonly
sold higher-priced property or services offered.
[rtrif](3) For an advertisement that is accessed by the consumer in
electronic form, the disclosures required under this section must be
provided to the consumer in electronic form on or with the
advertisement.[ltrif]
Subpart E--Special Rules for Certain Home Mortgage Transactions
11. Section 226.31 would be amended by revising paragraph (b) to
read as follows:
Sec. 226.31 General rules.
* * * * *
(b) Form of disclosures. [lsqbb](1) General.[rsqbb] The creditor
shall make the disclosures required by this subpart clearly and
conspicuously in writing, in a form that the consumer may keep.
[rtrif]The disclosures required by this subpart may be provided to the
consumer in electronic form, subject to compliance with the consumer
consent and other applicable provisions of the Electronic Signatures in
Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et
seq.).[ltrif]
[lsqbb](2) Electronic communication. For rules governing the
electronic delivery of disclosures, including a definition of
electronic communication, see Sec. 226.36.[rsqbb]
* * * * *
12. Subpart F to part 226 would be removed.
13. In Supplement I to part 226, the following amendments would be
made:
a. In Section 226.5--General Disclosure Requirements, under
Paragraph 5(b)(2)(ii), paragraph 3. would be revised.
b. In Section 226.5a--Credit and Charge Card Applications and
Solicitations, under 5a(a)(2) Form of Disclosures, paragraph 8. would
be revised and new paragraph 9. would be added.
c. In Section 226.5a--Credit and Charge Card Applications and
Solicitations, under 5a(c) Direct Mail Applications or Solicitations,
the heading would be revised to read 5a(c) Direct Mail and Electronic
Applications or Solicitations, paragraph 1. would be removed, and
paragraph 2. would be redesignated as paragraph 1.
[[Page 21153]]
d. In Section 226.5b--Requirements for Home Equity Plans, under
5b(a) Form of Disclosures, under Paragraph 5b(a)(1), new paragraph 5.
would be added.
e. In Section 226.5b--Requirements for Home Equity Plans, under
5b(a) Form of Disclosures, new heading Paragraph 5b(a)(3) and new
paragraph 1. would be added.
f. In Section 226.5b--Requirements for Home Equity Plans, under
5b(b) Time of Disclosures, paragraph 7. would be removed.
g. In Section 226.15--Right of Rescission, under 15(b) Notice of
Right to Rescind., paragraph 1. would be revised.
h. In Section 226.16--Advertising, under Paragraph 16(c)(1),
paragraphs 1. and 2. would be revised.
i. In Section 226.16--Advertising, new heading Paragraph 16(c)(3)
and new paragraph 1. would be added.
j. In Section 226.19--Certain Residential Mortgage and Variable-
Rate Transactions, under 19(b) Certain variable-rate transactions.,
paragraph 2.v. would be revised.
k. In Section 226.19--Certain Residential Mortgage and Variable-
Rate Transactions, new heading 19(c) Electronic disclosures and new
paragraph 1. would be added.
l. In Section 226.23--Right of Rescission, under 23(b) Notice of
Right to Rescind., paragraph 1. would be revised.
m. In Section 226.24--Advertising, under 24(b) Advertisement of
Rate of Finance Charge, paragraph 6. would be removed.
n. In Section 226.24--Advertising, under 24(d), paragraphs 2. and
4. would be revised, and new paragraph 5. would be added.
o. Subpart F would be removed.
The amendments read as follows:
Supplement I To Part 226--Official Staff Interpretations
* * * * *
Subpart B--Open-End Credit
Section 226.5--General Disclosure Requirements
* * * * *
5(b)(2) Periodic statements.
* * * * *
Paragraph 5(b)(2)(ii).
* * * * *
3. Calling for periodic statements. When the consumer initiates
a request, the creditor may permit, but may not require, consumers
to pick up their periodic statements. If the consumer wishes to pick
up the statement and the plan has a free-ride period, the statement
must be made available in accordance with the 14-day rule. [lsqbb]If
the consumer wishes to receive the statement by electronic
communication, the creditor must comply with the consumer consent
requirements as provided in Sec. 226.36(b).[rsqbb]
* * * * *
Section 226.5a--Credit and Charge Card Applications and
Solicitations
* * * * *
5a(a) General rules.
5a(a)(2) Form of disclosures.
* * * * *
8. [lsqbb]Timing of disclosures for[rsqbb][rtrif] Form of
electronic disclosures provided on or with[ltrif] electronic
applications or solicitations. [rtrif]Card issuers must provide the
disclosures required by this section on or with a blank application
or reply form that is made available to the consumer in electronic
form, such as on a card issuer's Internet web site. Card issuers
have flexibility in satisfying this requirement. For example, the
disclosures could automatically appear on the screen when the
application or reply form appears. Alternatively, the disclosures
could be located on the same web ``page'' as the application or
reply form without necessarily appearing on the initial screen, if
the application or reply form contains a clear and conspicuous
reference to the location of the disclosures and indicates that the
disclosures contain rate, fee, and other cost information, as
applicable. Or, card issuers could provide a link to the electronic
disclosures on or with the application (or reply form) as long as
consumers cannot bypass the disclosures before submitting the
application or reply form. Whatever method is used, a card issuer
need not confirm that the consumer has read the disclosures. For
disclosures required to be provided in tabular form, card issuers
must satisfy the requirements with respect to electronic disclosures
set forth in comment 5a(a)(2)-2(ii).[ltrif] [lsqbb]In all cases, a
consumer must be able to access the disclosures at the time the
blank application or reply form is made available by electronic
communication such as on a card issuer's Internet web site. Card
issuers have flexibility in satisfying this requirement. For
example, if a link is not used, the application or reply form must
clearly and conspicuously refer to the fact that rate, fee, and
other cost information either precedes or follows the application or
reply form. Alternatively, card issuers may provide a link to
electronic disclosures on or with the application (or reply form) as
long as consumers cannot bypass the disclosures before submitting
the application or reply form. Or the disclosures could
automatically appear on the screen when the application or reply
form appears. A card issuer need not confirm that the consumer has
read the disclosures.[rsqbb]
[rtrif]9. Form of disclosures. If a consumer accesses an
application or solicitation in electronic form, the required
disclosures must be provided to the consumer in electronic form on
or with the application or solicitation; providing the disclosures
at a different time or place, or in paper form, would not comply.
Conversely, if a consumer is provided with a paper application or
solicitation, the required disclosures must be provided in paper
form on or with the application or solicitation. For example, if a
consumer receives an application or solicitation in the mail, the
creditor would not satisfy its obligation to provide Sec. 226.5a
disclosures at that time by including a reference in the application
or solicitation to the web site where the disclosures are
located.[ltrif]
* * * * *
5a(c) Direct-Mail [rtrif]and Electronic[ltrif] Applications and
Solicitations
[lsqbb]1. Accuracy. In general, disclosures in direct mail
applications and solicitations must be accurate as of the time of
mailing. (An accurate variable annual percentage rate is one in
effect within 60 days before mailing.)[rsqbb]
[lsqbb]2.[rsqbb] [rtrif]1.[ltrif] Mailed publications.
Applications or solicitations contained in generally available
publications mailed to consumers (such as subscription magazines)
are subject to the requirements applicable to ``take-ones'' in Sec.
226.5a(e), rather than the direct mail requirements of Sec.
226.5a(c). However, if a primary purpose of a card issuer's mailing
is to offer credit or charge card accounts--for example, where a
card issuer ``prescreens'' a list of potential cardholders using
credit criteria, and then mails to the targeted group its catalog
containing an application or a solicitation for a card account--the
direct mail rules apply. In addition, a card issuer may use a single
application form as a ``take-one'' (in racks in public locations,
for example) and for direct mailings, if the card issuer complies
with the requirements of Sec. 226.5a(c) even when the form is used
as a ``take-one''--that is, by presenting the required Sec. 226.5a
disclosures in a tabular format. When used in a direct mailing, the
credit term disclosures must be accurate as of the mailing date
whether or not the Sec. 226.5a(e)(1) (ii) and (iii) disclosures are
included; when used in a take-one, the disclosures must be accurate
for as long as the take-one forms remain available to the public if
the Sec. 226.5a(e)(1) (ii) and (iii) disclosures are omitted. (If
those disclosures are included in the take-one, the credit term
disclosures need only be accurate as of the printing date)
* * * * *
Section 226.5b--Requirements for Home Equity Plans
* * * * *
5b(a) Form of disclosures.
5b(a)(1) General.
* * * * *
[rtrif]5. Form of electronic disclosures provided on or with
electronic applications. Creditors must provide the disclosures
required by this section (including the brochure) on or with a blank
application that is made available to the consumer in electronic
form, such as on a creditor's Internet Web site. Creditors have
flexibility in satisfying this requirement. For example, the
disclosures could automatically appear on the screen when the
application appears. Alternatively, the disclosures could be located
on the same Web ``page'' as the application without necessarily
appearing on the initial screen, if the application contains a clear
and conspicuous reference to the
[[Page 21154]]
location of the disclosures and indicates that the disclosures
contain rate, fee, and other cost information, as applicable. Or,
creditors could instead provide a link to the electronic disclosures
as long as consumers cannot bypass the disclosures before submitting
the application. Whatever method is used, a creditor need not
confirm that the consumer has read the disclosures or
brochure.[ltrif]
* * * * *
[rtrif]Paragraph 5b(a)(3).
1. Form of disclosures. If a consumer accesses an application in
electronic form, the required disclosures must be provided to the
consumer in electronic form on or with the application; providing
the disclosures at a different time or place, or in paper form,
would not comply. Conversely, if a consumer is provided with a paper
application, the required disclosures must be provided in paper form
on or with the application. For example, if a consumer receives an
application in the mail, the creditor would not satisfy its
obligation to provide Sec. 226.5b disclosures at that time by
including a reference in the application to the Web site where the
disclosures are located.[ltrif]
5b(b) Time of disclosures.
* * * * *
[lsqbb]7. Applications available by electronic communication. In
all cases, a consumer must be able to access the disclosures
(including the brochure) at the time the blank application or reply
form is made available by electronic communication, such as on a
creditor's Internet web site. Creditors have flexibility in
satisfying this requirement. For example, if a link is not used, the
application or reply form must clearly and conspicuously refer the
consumer to the fact that rate, fee, and other cost information
either precedes or follows the application or reply form.
Alternatively, creditors may provide a link to electronic
disclosures as long as consumers cannot bypass the disclosures
before submitting the application or reply form. Or the disclosures
could automatically appear on the screen when the application or
reply form appears. A creditor need not confirm that the consumer
has read the disclosures or brochure.[rsqbb]
* * * * *
Section 226.15--Right of Rescission
* * * * *
15(b) Notice of right to rescind.
1. Who receives notice. Each consumer entitled to rescind must
be given:
Two copies of the rescission notice.
The material disclosures.
In a transaction involving joint owners, both of whom are
entitled to rescind, both must receive the notice of the right to
rescind and disclosures. For example, if both spouses are entitled
to rescind a transaction, each must receive two copies of the
rescission notice [rtrif](one copy if the notice is provided in
electronic form in accordance with the consumer consent and other
applicable provisions of the E-Sign Act)[ltrif] and one copy of the
disclosures. [lsqbb]If e-mail is used, the creditor complies with
Sec. 226.15(b)(1) if one notice is sent to each co-owner. Each co-
owner must consent to receive electronic disclosures and each must
designate an electronic address for receiving the disclosure.[rsqbb]
* * * * *
Section 226.16--Advertising
* * * * *
16(c) Catalogs or other multiple-page advertisements; electronic
advertisements.
* * * * *
Paragraph 16(c)(1).
1. General. Section 226.16(c)(1) permits creditors to put credit
information together in one place in a catalog or other multiple-
page advertisement or an electronic advertisement [rtrif](such as an
advertisement appearing on an Internet Web site)[ltrif]. The rule
applies only if the advertisement contains one or more of the
triggering terms from Sec. 226.16(b).
2. Electronic [rtrif]advertisement[ltrif]
[lsqbb]communication[rsqbb]. If an [rtrif]electronic advertisement
(such as an advertisement appearing on an Internet Web site)[ltrif]
[lsqbb]advertisement using electronic communication[rsqbb] contains
the table or schedule permitted under Sec. 226.16(c)(1), any
statement of terms set forth in Sec. 226.6 appearing anywhere else
in the advertisement must clearly direct the consumer to the
location where the table or schedule begins. For example, a term
triggering additional disclosures may be accompanied by a link that
directly takes the consumer to the additional information.
* * * * *
[rtrif]Paragraph 16(c)(3).
1. Form of disclosures. If a consumer accesses an advertisement
in electronic form, the required disclosures must be provided to the
consumer in electronic form on or with the advertisement; providing
the disclosures at a different time or place, or in paper form,
would not comply. Conversely, if a consumer views a paper
advertisement, the required disclosures must be provided in paper
form on or with the advertisement. For example, if a consumer
receives an advertisement in the mail, the creditor would not
satisfy its obligation to provide Sec. 226.16 disclosures at that
time by including a reference in the advertisement to the Web site
where the disclosures are located.[ltrif]
* * * * *
Subpart C--Closed-End Credit
Section 226.19--Certain Residential Mortgage and Variable-Rate
Transactions
* * * * *
19(b) Certain variable-rate transactions.
* * * * *
2. Timing. * * *
v. [lsqbb]Electronic applications.[rsqbb] [rtrif]Form of
electronic disclosures provided on or with electronic applications.
Creditors must provide the disclosures required by this section
(including the brochure) on or with a blank application that is made
available to the consumer in electronic form, such as on a
creditor's Internet Web site. Creditors have flexibility in
satisfying this requirement. For example, the disclosures could
automatically appear on the screen when the application appears.
Alternatively, the disclosures could be located on the same Web
``page'' as the application without necessarily appearing on the
initial screen, if the application contains a clear and conspicuous
reference to the location of the disclosures and indicates that the
disclosures contain rate, fee, and other cost information, as
applicable. Or, creditors could instead provide a link to the
electronic disclosures as long as consumers cannot bypass the
disclosures before submitting the application. Whatever method is
used, a creditor need not confirm that the consumer has read the
disclosures or brochure.[ltrif]
[lsqbb]In all cases, a consumer must be able to access the
disclosures (including the brochure) at the time the blank
application form is made available by electronic communication, such
as on a creditor's Internet Web site. Creditors have flexibility in
satisfying this requirement. For example, if a link is not used, the
application form must clearly and conspicuously refer the consumer
to the fact that rate, fee, and other cost information either
precedes or follows the application or reply form. Alternatively,
creditors may provide a link to electronic disclosures as long as
consumers cannot bypass the disclosures before submitting the
application form. Or the disclosures could automatically appear on
the screen when the application form appears. A creditor need not
confirm that the consumer has read the disclosures or
brochure.[rsqbb]
* * * * *
[rtrif]19(c) Electronic disclosures.
1. Form of disclosures. If a consumer accesses an ARM
application in electronic form, the required disclosures must be
provided to the consumer in electronic form on or with the
application; providing the disclosures at a different time or place,
or in paper form, would not comply. Conversely, if a consumer is
provided with a paper ARM application, the required disclosures must
be provided in paper form on or with the application. For example,
if a consumer receives an application in the mail, the creditor
would not satisfy its obligation to provide the ARM disclosures at
that time by including a reference in the application to the Web
site where the disclosures are located.[ltrif]
* * * * *
Section 226.23--Right of Rescission
* * * * *
23(b) Notice of right to rescind.
1. Who receives notice. Each consumer entitled to rescind must
be given:
Two copies of the rescission notice.
The material disclosures.
In a transaction involving joint owners, both of whom are
entitled to rescind, both must receive the notice of the right to
rescind and disclosures. For example, if both spouses are entitled
to rescind a transaction, each must receive two copies of the
rescission notice [rtrif](one copy if the notice is provided in
electronic form in accordance with the consumer consent and other
applicable provisions of the E-Sign Act)[ltrif] and one copy of the
disclosures. [lsqbb]If e-mail is used, the creditor complies with
Sec. 226.23(b)(1) if one notice is sent to each co-owner. Each co-
owner must consent to receive electronic
[[Page 21155]]
disclosures and each must designate an electronic address for
receiving the disclosure.[rsqbb]
* * * * *
Section 226.24--Advertising
* * * * *
24(b) Advertisement of rate of finance charge.
* * * * *
[lsqbb]6. Electronic communication. A simple annual rate or
periodic rate that is applied to an unpaid balance may be stated
only if it is provided in conjunction with an annual percentage
rate. In an advertisement using electronic communication, the
consumer must be able to view both rates simultaneously. This
requirement is not satisfied if the consumer can view annual
percentage rate only by use of a link that takes the consumer to
information appearing at another location.[rsqbb]
* * * * *
24(d) Catalogs or other multiple-page advertisements; electronic
advertisements.
* * * * *
2. General. Section 226.24(d) permits creditors to put credit
information together in one place in a catalog or other multiple-
page advertisement, or in an electronic advertisement [rtrif](such
as an advertisement appearing on an Internet Web site)[ltrif]. The
rule applies only if the advertisement contains one or more of the
triggering terms from Sec. 226.24(c)(1). A list of different annual
percentage rates applicable to different balances, for example, does
not trigger further disclosures under Sec. 226.24(c)(2) and so is
not covered by Sec. 226.24(d).
* * * * *
4. Electronic [rtrif] advertisement[ltrif]
[lsqbb]communication[rsqbb]. If an [rtrif]electronic advertisement
(such as an advertisement appearing on an Internet Web site)[ltrif]
[lsqbb]advertisement using electronic communication[rsqbb] contains
the table or schedule permitted under Sec. 226.24(d)(1), any
statement of terms set forth in Sec. 226.24(c)(1) appearing
anywhere else in the advertisement must clearly direct the consumer
to the location where the table or schedule begins. For example, a
term triggering additional disclosures may be accompanied by a link
that directly takes the consumer to the additional information
[lsqbb](but see comment 24(b)-6)[rsqbb].
[rtrif]5. Form of disclosures. If a consumer accesses an
advertisement in electronic form, the required disclosures must be
provided to the consumer in electronic form on or with the
advertisement; providing the disclosures at a different time or
place, or in paper form, would not comply. Conversely, if a consumer
views a paper advertisement, the required disclosures must be
provided in paper form on or with the advertisement. For example, if
a consumer receives an advertisement in the mail, the creditor would
not satisfy its obligation to provide Sec. 226.16 disclosures at
that time by including a reference in the advertisement to the Web
site where the disclosures are located.[ltrif]
By order of the Board of Governors of the Federal Reserve
System, April 20, 2007.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E7-7878 Filed 4-27-07; 8:45 am]
BILLING CODE 6210-01-P