Fed issues electronic disclosure rules

Get to know the significant provisions and variations among regulations

With the Federal Reserve Board's March issuance of final rules for electronic disclosures, credit unions (and other financial institutions) are a step closer to allowing members to obtain share and loan products electronically, from account opening to signing loan documents, without visiting a credit union office or speaking to an employee.

The Fed published interim final rules to establish uniform standards for the electronic delivery of disclosures required by Regulations B (Equal Credit Opportunity Act), E (Electronic Funds Transfer Act), M (Consumer Leasing Act), Z (Truth in Lending Act), and DD (Truth in Savings Act). Under these five regulations, financial institutions, creditors, lessors, and others may deliver disclosures electronically if they first obtain consumers' consent in accordance with the Electronic Signatures in Global and National Commerce Act (E-Sign), enacted in June 2000 and effective Oct. 1, 2000.

The interim final rules provide guidance on the timing and delivery of electronic disclosures that are consistent with the Fed's August 1999 proposed rules to ensure consumers have adequate opportunity to access and retain the information. The interim rules include most of the 1999 proposed rules that weren't affected by E-Sign. Although the interim rules became effective March 30, 2001, compliance isn't mandatory until Oct. 1, 2001.

SIGNIFICANT SIMILAR PROVISIONS

There are slight variations among the five regulations with regard to electronic disclosures, but the significant provisions for each regulation are substantially similar. Those provisions are as follows:

1) Disclosures required by any of the five regulations may be provided in electronic form only if the creditor complies with section 101 (c) of the E-Sign Act. Before conducting business electronically, E-Sign requires consumers to consent to receive disclosures, records, or contracts electronically if they're required by law or regulation to be in writing. Additionally, prior to receiving the consumer's consent, the institution must provide a clear and conspicuous statement informing the consumer of the following:

* The right or option to have the disclosure or contract provided on paper and the right to withdraw consent for the provision of electronic disclosures, records, or contracts, as well as the consequences or fees in the event of such withdrawal;

* Whether the consent applies only to this particular transaction or to all future transactions;

* The procedure for withdrawing consent and how to update information needed to contact the consumer electronically;

* How to request a paper copy of the electronic disclosure, record, or contract, and whether a fee will be charged for the copy; and

* The hardware and software requirements for access to and retention of the electronic disclosures, records, or contracts.

After receiving this information, consumers must consent electronically (or confirm their consent electronically) in a manner that demonstrates that they can access information electronically in the same form that information will be provided.

2) Electronic disclosures may be sent to a consumer's e-mail address or they may be made available at another location, such as a Web site. If disclosures are made available at such a location, financial institutions must send a notice to the consumer's e-mail or postal address, alerting the consumer to the availability of the disclosures.

3) Disclosures posted at a location, such as a Web site, must be available for at least go days to give consumers adequate time to access and retain the information. During this 90-day period, the actual disclosures must be available to the consumer. But the financial institution may determine whether the disclosures will be available at the same location for the entire period.

4) Electronic disclosures are subject to each of the regulation's existing format, timing, and retainability rules and the clear and readily understandable standard for Reg E.

5) Providing timely disclosures. Generally, disclosures must be provided or the consumer must be required to access the disclosures before the consumer becomes obligated under the transaction. A link to the disclosures satisfies the timing rule if the consumer can't bypass the disclosures before becoming obligated. Disclosures provided by e-mail are timely if they're sent by the required time. Disclosures posted on a Web site are timely if, by the required time, the financial institution makes the disclosures available at that location and also sends a notice alerting the consumer that it has posted the disclosures.

If a financial institution posts a change-in-terms notice on the Internet, it must notify consumers about the availability of this notice within the required time frame (i.e., 15 days for Reg Z, 21 days for Reg E, and 30 days for Reg DD).

6) When electronic disclosures are returned undelivered, a financial institution must make a reasonable attempt to redeliver them either electronically or to a postal address based on information in the institution's files.

SPECIFIC REQUIREMENTS

Slight individual variations exist within the regulations:

* Reg B (Equal Credit Opportunity). Pursuant to section 202.9(g), when an application for credit is submitted through a third party to more than one creditor and no credit is offered, accepted or used, each creditor must provide an adverse-action notice. They may do so through a third party. Third parties may use electronic communication to provide the required notice.

A consumer's affirmative consent (pursuant to E-Sign) isn't required before a financial institution provides disclosures relating to "notice of right to copy of appraisal," "notice of right to a statement of reasons," and "request for monitoring information" on or with an application.

* Reg E (Electronic Funds Transfer). Advance written notice is required where preauthorized electronic funds transfer from a consumer's account are recurring but will vary in amount each time. Such notice may be given electronically by the designated payee instead of the financial institution.

* Reg M (Consumer Leasing). For advertisements that are provided electronically to satisfy the prominence rule in section 213.(b)(i), both the triggering terms and the required disclosures must appear in the same location so they can be viewed simultaneously. In addition, when a lease rate appears in an electronic advertisement, to comply with the proximity rule, both the rate and notice required by section 213.4(s) must appear in the same location so they can be viewed simultaneously.

* Reg Z (Truth in Lending). Periodic statements may be provided electronically if the consumer consents in the manner required by E-Sign. When loan applications are made available electronically, such as on a Web site, a consumer must be able to access the disclosures at the time the blank application or reply form is made available. The rules for both open- and closed-end credit provide some flexibility in satisfying this requirement, such as using a link to the required disclosures the consumer can't bypass or having the disclosures automatically appear on the screen when the application or reply form appears. If a link isn't 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.

Also, only one notice of the right to rescind must be given electronically to each consumer that has a right to rescind. And any party other than the creditor that must comply with the home equity disclosure requirements may provide the required disclosures and brochure electronically.

* Reg DD (Truth in Savings). Financial institutions opening accounts electronically may not delay providing disclosures under section 230.4(a) as they can when accounts are opened if the consumer isn't present at the institution.

SUMMARY

Electronic disclosures, as well as E-Sign, can be beneficial for credit unions because of the potential reduction in expenses and employee time required for account opening, loan processing, and regulatory compliance. A credit union's paper, printing, and postage costs can be greatly reduced through the electronic delivery of disclosures and periodic statements and by the use and acceptance of digital or electronic signatures for account cards, loan documents, and other contracts.

Furthermore, employee time required to process and explain loan and share account documents to members and provide disclosures will also decrease as these items are provided electronically.

Copyright Credit Union National Association, Inc. Jun 2001
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