Federal Reserve Adopts E-Disclosure Rules

by Mary Beth Guard

The Federal Reserve Board adopted new interim rules, effective March 30, 2001, to establish standards for the electronic delivery of disclosures required under Regulations B, E, M, Z, and DD. The new interim rules also address electronic advertisements. Compliance was originally scheduled to be mandatory by October 1, 2001. In August, however, the Federal Reserve lifted the mandatory compliance deadline, saying that based on the comments received, the Board is considering adjustments to the rules to provide additional flexibility. Once permanent final rules are issued, the Board expects to afford institutions a reasonable period of time to comply with those rules.

New guidance on electronic disclosures was necessary because of the passage of the federal E-Sign Act (Electronic Signatures in Global and National Commerce Act), which became effective October 1, 2000. The E-Sign Act contains special rules for the use of electronic disclosures in consumer transactions. Under E-Sign, consumer disclosures may be provided in electronic form only if the consumer affirmatively consents after receiving certain information required by the statute.

The FRB's previous interim rules on electronic disclosures are expressly withdrawn.

Key points:

Disclosures may be sent by email to an electronic address designated by the consumer, or they may be made available at another location, such as a Web site. Note, however, that when they use the term "electronic address" they expressly state that a consumer's electronic address is an email address that is not limited to receiving communications transmitted solely by the bank. Some online banking programs allow consumers to communicate directly with the bank through a system that permits communication only between the consumer and the institution. This would not qualify as an email address for purposes of the e-disclosure provisions.;
If the disclosures are not sent by email, consumers must receive a notice alerting them to the availability of the disclosures;
Disclosures posted on a Web site must be available for at least 90 days. (The proposed rule would also have required the disclosures to be made available upon consumers' request for 24 months. That part of the proposal was not adopted, but your duty to retain evidence of compliance for 24 months remains unchanged.);
For disclosures that must be provided before the consumer opens an account, consumers are required to access the electronic disclosures before the account is opened;
Banks must make a good faith attempt to redeliver electronic disclosures that are returned undelivered, using the address information available in their files.

E-Sign Basics
If a law or regulation requires disclosures to be in writing, E-Sign provides that the consumer must affirmatively consent before they receive electronic disclosures "relating to a transaction".

Section 101(c) of the E-Sign Act requires institutions to provide specific information about the electronic delivery of disclosures and obtain the consumer's affirmative consent to receive electronic disclosures.

While we think of electronic disclosures as primarily being given via the Internet, it also covers, for example, an ATM or computer terminal located in the bank's lobby.

An institution must disclose the requirements for accessing and retaining disclosures in electronic format;
the consumer must demonstrate the ability to access the information electronically and affirmatively consent to electronic delivery; and
the institution must provide the disclosures in accordance with the specified requirements.

The content or timing of disclosures is governed by each regulation (such as Reg DD), rather than by the E-Sign Act.

Electronic disclosures must be clear and conspicuous and must be provided using a clear and conspicuous format.

The E-Sign Act does not affect the content or timing of disclosures.

If a regulation or statute requires disclosures to in a form the consumer can retain, electronic disclosures are subject to the same requirement. To ensure consumers have an adequate opportunity to access and retain the disclosures, the institution must send them to the consumer's designated email address or make them available at another location, such as the institution's Web site, where they can be retrieved later.

In this article, we summarize the revisions to the Truth in Savings Act. Keep in mind that compliance is not mandatory and the FRB will be amending these provisions.

TISA Account E-Disclosures
Under Regulation DD, account disclosures are required to be provided to consumers before an account is opened or a service is provided, as well as upon request. In the case of accounts being opened by electronic communication (such as over the Internet), the disclosures may not be delayed. They must be provided before accounts are opened using electronic communication.

As a practical matter, this could be accomplished by having a link to the disclosures that is set up in such a way that the consumer cannot bypass the disclosures before opening the account. Another alternative is for the disclosures to automatically appear on the screen before the account can be opened.

Posting the disclosures on your Web site will not relieve your duty to provide disclosures upon request. If a consumer who is not present in person makes a request for account disclosures (in a situation where an account is not being opened), the institution can either mail a copy in paper form or deliver them electronically within a reasonable time. In order to provide them electronically, the institution must either:

send the disclosures to the consumer's email address; or
send a notice alerting the consumer to the location of the disclosures, such as on the bank's Web site.

In order to satisfy the requirement that disclosures (both account disclosures and periodic statement disclosures) be made available in a form the consumer may keep, the electronic disclosures must be delivered in a format that is capable of being retained, such as by printing or storing electronically. Some Web designs feature pop-up boxes that do not contain browser options, such as the Print button. Avoid the use of those designs for required disclosures.

If the bank controls the equipment providing electronic disclosures (such as a computer terminal located in the bank's lobby or at a public kiosk), the bank must ensure the equipment satisfies the requirement to provide timely disclosures in a clear and conspicuous format and in a form the consumer may keep. This could be done by sending the disclosures to the consumer's email address or posting them at another location, such as the bank's Web site, or by providing a printer that automatically prints the disclosures

If you send an email to the consumer that contains an alert notice or some other disclosure and it is returned as undeliverable, you must attempt redelivery. To do so, you can, for example, send the disclosure to a different email address or postal address that you have on file for the consumer. If you do have a different address on file for the consumer (either electronic or postal), sending the disclosures a second time to the same electronic address is not sufficient to constitute redelivery.

Periodic Statement Disclosures Under TISA
An institution may electronically deliver its required periodic statement disclosures, so long as it complies with Section 101(c) of E-Sign, (which means it must follow the Act's procedures to obtain the consumer's consent and demonstrate the customer has the ability to receive the disclosures electronically and then deliver the disclosures in the manner prescribed by the E-Sign Act).

In order for periodic statement disclosures (or even change-in-terms and other notices) to be made in a timely manner by electronic means, they may be posted on a Web site. Once they are both made available and you have sent a notice alerting the consumer that the disclosures have been posted, the disclosures will be deemed to have been made.

Electronic Advertising
Just as with print advertisements, an advertisement using electronic communication that displays a Reg DD triggering term must clearly refer the consumer to the location where the additional required information begins. As an example, an electronic ad that includes a bonus or APY may feature a link that takes the consumer directly to the additional information.

An interest rate may be stated only if it is provided in conjunction with, but not more conspicuously than, the APY to which it relates. Ads using electronic communication must be designed to allow the consumer to be able to view both rates simultaneously. It is not sufficient to require the consumer to use a link to view the APY information at another location.

The Reg DD exemption for advertisements made through broadcast or electronic media does not extend to advertisements made by electronic communication, such as email ads or ads posted on the Internet.

Originally appeared in the Oklahoma Bankers Association Compliance Informer.

First published on BankersOnline.com 9/10/01