[Federal Register Volume 72, Number 217 (Friday, November 9, 2007)]
[Rules and Regulations]
[Pages 63462-63477]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-21700]
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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: Final rule; official staff interpretation.
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SUMMARY: The Board is amending Regulation Z, which implements the Truth
in Lending Act, and the official staff commentary to the regulation, to
withdraw portions of the interim final rules for the electronic
delivery of disclosures issued March 30, 2001. The 2001 interim final
rules addressed the timing and delivery of electronic disclosures,
consistent with the requirements of the Electronic Signatures in Global
and National Commerce Act (E-Sign Act). Because compliance with the
2001 interim final rules has not been mandatory, withdrawal of these
provisions from the Code of Federal Regulations reduces confusion about
the status of the provisions and simplifies the regulation.
In addition, the Board is adopting final amendments to Regulation Z
to provide guidance on the electronic delivery of disclosures. For
example, the final rules provide that when an application for a credit
card is accessed by a consumer in electronic form, disclosures may be
provided to the consumer in electronic form on or with the application
without regard to the consumer consent and other provisions of the E-
Sign Act. Similar final rules are being adopted under other consumer
fair lending and financial services regulations administered by the
Board.
DATES: The final rule is effective December 10, 2007. The mandatory
compliance date is October 1, 2008.
FOR FURTHER INFORMATION CONTACT: John C. Wood, Counsel, 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. Statutory 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.
The Electronic Signatures in Global and National Commerce Act (the
E-Sign Act), 15 U.S.C. 7001 et seq., was enacted in 2000. 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 and consent
provisions, became effective October 1, 2000, and did not require
implementing regulations. Thus, creditors 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 Regulation
Z if the consumer affirmatively consents to receipt of electronic
disclosures in the manner required by section 101(c) of the E-Sign Act.
II. Board Proposals and Interim Rules Regarding Electronic Disclosures
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 (implementing the Equal
Credit Opportunity Act, the Electronic Fund Transfer Act, the Consumer
Leasing Act, and the Truth in Savings Act, respectively) were published
on March 30, 2001 (66 FR 17,322) (Regulation M) and April 4, 2001 (66
FR 17,779, 66 FR 17,786, and 66 FR 17,795) (Regulations B, E, and DD,
respectively). 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 interim final rules also
incorporated many of the provisions that were part of earlier
regulatory proposals issued by the Board regarding electronic
disclosures.\1\
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\1\ On May 2, 1996, the Board proposed to amend Regulation E to
permit financial institutions to provide disclosures by sending them
electronically (61 FR 19696). 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 similar proposals under Regulations B, M, Z, and DD (63 FR
14,552, 14,538, 14,548, and 14,533, respectively, March 25, 1998).
Based on comments received on the 1998 proposals, in 1999 the Board
published revised proposals under Regulations B, E, M, Z, and DD (64
FR 49688, 49699, 49713, 49722 and 49740, respectively, September 14,
1999).
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[[Page 63463]]
Under the 2001 interim final rules, 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 (typically by e-mail) 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.
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 who choose to receive electronic disclosures 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 41439, August 8, 2001.)
Thus, creditors are not required to comply with the interim final
rules. Since that time, the Board had 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.
In April 2007, the Board proposed to amend Regulation Z and the
official staff commentary by (1) withdrawing portions of the 2001
interim final rule 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. (72 FR 21141,
April 30, 2007.) Similar amendments were also proposed by the Board
under Regulations B, E, M, and DD (72 FR 21125, 72 FR 21131, 72 FR
21135, and 72 FR 21155, respectively). In addition, the Board proposed
to amend Regulation Z to implement certain provisions of the Bankruptcy
Abuse Prevention and Consumer Protection Act of 2005, Public Law 109-8,
119 Stat. 23 (the ``Bankruptcy Act''), that amend TILA and relate to
electronic credit card disclosures.
III. Summary of the Final Rule
The Board received about 25 comments on the April 2007 proposal,
primarily from creditors and their representatives. Most of the
financial industry commenters generally supported the proposal,
although some provided suggestions for clarifications or changes to
particular elements of the proposal. A comment letter was also
submitted on behalf of four consumer groups. The consumer group
commenters suggested a number of changes to strengthen consumer
protections. The comments are discussed in more detail in the Section-
by-Section Analysis below.
For the reasons discussed below, the Board is now adopting
amendments to Regulation Z in final form, largely as proposed in April
2007. As stated in the proposal, because compliance with the 2001
interim final rules has not been mandatory, the final rule will reduce
confusion about the status of the electronic disclosure provisions and
simplify the regulation. (Certain provisions in the 2001 interim rules,
including provisions addressing foreign language disclosures, were not
affected by the lifting of the mandatory compliance date and became
final in 2001; thus, those provisions are not dealt with in this
rulemaking.) The Board is also adopting certain provisions that are
identical or similar to provisions in the 2001 interim 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.
As stated above, the Board also proposed to implement certain
provisions of the Bankruptcy Act that amended TILA and relate to
electronic disclosures. Action on the proposed provisions to implement
the Bankruptcy Act is being deferred. The same revisions are contained
in the Board's proposed amendments to the Regulation Z rules for open-
end credit, which were published for comment in June 2007 (72 FR
32,948, June 14, 2007). The Board will consider the provisions relating
to the Bankruptcy Act in connection with its final action on the rules
for open-end credit after considering the comments submitted on the
June 2007 proposal.
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 creditor,
government agency, or other trusted entity) that have become more
pronounced since 2001. Finally, the Board is eliminating 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.
With regard to disclosures required to be provided on or with a
credit application or solicitation (the ``shopping disclosures'') or in
an advertisement, the 2001 interim final rule allowed creditors to
provide these disclosures electronically without regard to the consumer
consent or other provisions of the E-Sign Act. The Board reasoned that
these disclosures, which would be available to the general public while
shopping for credit, did not necessarily ``relate to a transaction,''
which is a prerequisite for triggering the E-Sign consumer consent
provisions, and thus were not subject to the consent provisions. Some
commenters on the interim final rules agreed with the result but did
not agree with the Board's rationale.
In the April 2007 proposal, the Board stated that, upon further
consideration, it did not believe it was necessary to determine whether
or not these disclosures are related to a transaction. Instead,
pursuant to the Board's authority under section 105(a) of TILA, as well
as under section 104(d) of the
[[Page 63464]]
E-Sign Act,\2\ the Board proposed 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.
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\2\ 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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Commenters supported the Board's approach with regard to this
issue. This final rule adopts the approach in the April 2007 proposal.
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 that when shopping for credit or viewing
credit advertising online, consumers would not be harmed if the E-Sign
consent procedures do not apply and would obtain significant benefits
by having timely access to shopping and advertising disclosures in
electronic form. 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 account-opening disclosures,
periodic statements, and change-in-terms notices, creditors are
required to obtain the consumer's consent, in accordance with the E-
Sign Act, to provide such disclosures in electronic form, or else
provide written disclosures.
Finally, as proposed, 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 are being deleted as unnecessary, because the E-Sign Act is
a self-effectuating statute. The revisions to Regulation Z and the
official staff commentary are described more fully below in the
Section-by-Section Analysis.
IV. 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. As proposed, the Board is revising 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) is also revised, as proposed, to provide that
the open-end credit disclosures required by Sec. Sec. 226.5a (credit
card applications and solicitations), 226.5b (home equity credit line
applications), and 226.16 (open-end credit advertising) 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. Commenters supported this aspect of the
proposal. The Board believes that this 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 online at the
same time they access an electronic 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 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 deleting Sec.
226.36, as discussed below, Sec. 226.5(a)(5) is also deleted, as
proposed.
The 2001 interim final rule revised comment 5(b)(2)(ii)-3 to
reference the E-Sign Act's consumer consent requirements. As proposed,
this language is being deleted 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
proposed 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, such as on a home computer,
the disclosures required on or with the application or solicitation
must also be provided to the consumer in electronic form. The Board
proposed to add comment 5a(a)(2)-9 to clarify this point and also to
make clear that 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 (and not, for example, by
including a reference in the paper application or solicitation to the
Web site where the disclosures are located).
[[Page 63465]]
Many creditor commenters urged the Board to revise the regulation
and commentary to permit disclosures to be given in paper form in
appropriate cases, even where an application or solicitation is in
electronic form. In particular, commenters noted that requiring
electronic disclosures could present problems for applications taken in
person using electronic means. Commenters stated, for example, that a
consumer or creditor employee might complete an electronic application
by entering information at a terminal or kiosk in the creditor's
office. These commenters noted that paper disclosures would be more
appropriate in such cases, because the applicant would be able to
retain them. For example, a loan officer could give the disclosures to
the consumer, or in the case of an unattended kiosk, the kiosk could
have a printer to provide paper disclosures. (Although the credit card
application and solicitation disclosures are not required to be given
in retainable form, application-related disclosures for other types of
accounts raise the same issue and are required to be in retainable
form.)
Some creditor commenters argued that the proposed requirement would
contravene the E-Sign Act, based on the provisions in E-Sign that state
(1) that the statute does not require any person to accept or use
electronic records in place of paper, and (2) that any regulations
interpreting E-Sign may not add to its requirements. Creditor
commenters suggested that, at a minimum, the regulation should provide
an exception to allow paper disclosures for in-person electronic
applications. Consumer group commenters stated that the regulation
should not only permit, but should require, paper disclosures in the
case of in-person electronic applications. For example, the commenters
noted, a door-to-door solicitor could otherwise simply display certain
disclosures to a consumer on the screen of a laptop computer, even
though the consumer would have no way to later access the disclosures.
One creditor commenter suggested that, in addition to permitting
paper disclosures for electronic applications, the regulation should
also permit electronic disclosures for paper applications without
consumers' consent in certain cases. For example, the commenter
suggested, a basic or short-form disclosure could be provided in paper
form along with the paper application, together with a Web site where a
more complete disclosure could be obtained.
In the final regulation, new Sec. 226.5a(a)(2)(v) is revised to
state that if an application or solicitation is accessed by the
consumer in electronic form, the required application- or solicitation-
related disclosures may (rather than must) be provided in electronic
form. The proposal to require electronic disclosures for credit card
applications and solicitations that are accessed electronically was
intended to ensure that the disclosures are provided ``on or with'' the
application or solicitation in compliance with the timing and delivery
requirements of Regulation Z. Section 226.5a(a)(2) already requires
that the credit card application and solicitation disclosures be
provided on or with an application or solicitation, and this
requirement applies to electronic as well as paper applications; the
only added requirement under the proposal would have been to require
that, in the case of an electronic application, the disclosures be in
electronic form.
Where a consumer accesses and submits an application form using a
home computer via a card issuer's Web site, the card issuer must
provide the disclosures in electronic form with the application form on
the Web site in order to meet the requirement to provide disclosures in
a timely manner on or with the application. If the issuer instead
mailed paper disclosures to the consumer, this requirement would not be
met. This guidance is stated in new comment 5a(a)(2)-9.
In contrast, if a consumer is physically present in the card
issuer's office, and accesses and submits an electronic application--
such as via a terminal or kiosk--the Board believes the issuer could
provide disclosures in paper form and comply with the timing and
delivery (``on or with'') requirements of the regulation. In addition,
as discussed by the commenters, paper disclosures may be preferable in
this situation because they can be retained by the consumer. Therefore,
paper disclosures are permissible in the case of in-person electronic
applications in a card issuer's office, when the timing and delivery
requirements are met. This guidance is also stated in new comment
5a(a)(2)-9.
The final regulation, however, does not require paper disclosures
for such in-person electronic applications, as suggested by the
consumer group commenters. Electronic disclosures would comply with the
regulation for these applications in some cases. For example, for an
electronic in-person credit card application in a card issuer's office,
the issuer could display the required disclosures to the consumer on a
terminal or kiosk screen. The requirement to provide disclosures in a
form the consumer may retain does not apply to the credit card
application disclosures, so this procedure would comply with the
regulation. However, the Board anticipates that card issuers will
provide disclosures in a retainable form in this situation and would
consider further revisions to the regulation to address this issue if
necessary. (In other cases--for example, for some of the home equity
line of credit application disclosures, and all of the adjustable-rate
mortgage (ARM) application disclosures, discussed below--the
retainability requirement does apply, and therefore creditors would
likely have to provide paper disclosures for in-person applications in
a creditor's office for these types of credit.)
New comment 5a(a)(2)-9 is modified from the proposal to provide the
guidance discussed above. In addition, the portion of the proposed
comment stating that paper applications must be accompanied by paper
disclosures has been deleted as unnecessary. For example, if a credit
card application in paper form did not contain all of the required
Sec. 226.5a disclosures, but instead referred the consumer to a Web
site where some or all of the disclosures could be found, the
application would not be in compliance with the Regulation Z
requirement that the disclosures be provided in a timely manner on or
with the application. In addition, the provisions that state that
electronic disclosures may be provided without regard to the consumer
consent or other provisions of the E-Sign Act are limited to situations
where the application or solicitation itself is in electronic form.
Thus, if a card issuer wanted to provide electronic disclosures for a
paper application or solicitation (for example, where a paper
application is submitted in person at the issuer's office), the issuer
would first have to comply with the E-Sign notice and consent
requirements.
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, and lists a number of alternative methods by
which card issuers may satisfy this requirement. The Board proposed to
revise this comment to clarify that the listed methods are intended to
be examples, not an exhaustive list. Proposed revised comment 5a(a)(2)-
8 also cross-references comment 5a(a)(2)-2.ii., which was added in 2000
and specifies
[[Page 63466]]
how the tabular disclosures required by Sec. 226.5a can be
``prominently located'' if provided on or with electronic applications
and solicitations.
Creditor commenters generally urged that the ``non-bypassable
link'' example in the comment be deleted, or at least that the final
comment make clear that the various methods of presenting disclosures
electronically are only examples and not requirements. (In the ``non-
bypassable link'' method, a card issuer would provide, on the
application or solicitation web page, a link to the required
disclosures that would require the consumer to access the disclosures
before submitting the application or solicitation reply form.)
Comment 5a(a)(2)-8 has been modified to clarify that the various
methods of presenting disclosures electronically are not the exclusive
means of satisfying the disclosure requirements, but examples. In
addition, another example has been added, and other modifications have
been made for clarity. Of course, any method used would have to ensure
that the disclosures are provided (not merely made available) to the
consumer, clearly and conspicuously, in a timely manner on or with the
application or solicitation.
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). The April 2007 proposal contained a discussion of
whether the Board should retain the existing guidance in comment
5a(a)(2)-2.ii on ``prominent location'' to interpret the ``close
proximity'' standard of the Bankruptcy Act. The same issue is raised in
the Board's proposed amendments to the Regulation Z rules for open-end
credit, which were published for comment in June 2007 (72 FR 32,948,
June 14, 2007). The Board will consider this issue in connection with
its final action on the rules for open-end credit after considering the
comments submitted on the June 2007 proposal.
5a(b) Required disclosures and 5a(c) Direct-mail and electronic
applications and solicitations
The Bankruptcy Act provides that the disclosures for electronic
credit card offers must be ``updated regularly to reflect the current
policies, terms, and fee amounts.'' The April 2007 proposal contained
proposed amendments to Sec. Sec. 226.5a(b)(1), 226.5a(c), and
226.5a(e), as well as the staff commentary, to implement this
requirement, particularly with regard to the accuracy of variable-rate
APR disclosures in credit card applications and solicitations. The same
proposals are also contained in the June 2007 proposal to revise the
rules for open-end credit under Regulation Z. As stated above, the
Board will consider revisions related to the Bankruptcy Act in
connection with its final action on the June 2007 proposal.
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 home equity
lines of credit (HELOCs). The Board proposed 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, such as on a home computer, the
disclosures required on or with the application must also be provided
to the consumer in electronic form. The Board proposed to add comment
5b(a)(3)-1 to clarify this point and also to make clear that if a
consumer is provided with a paper application, the required disclosures
must be provided in paper form on or with the application (and not, for
example, by including a reference in the paper application to the Web
site where the disclosures are located).
As in the case of the credit card application and solicitation
disclosures required under Sec. 226.5a, discussed above, many creditor
commenters urged the Board to revise the regulation and commentary to
permit disclosures to be given in paper form in appropriate cases, even
where a HELOC application is in electronic form. Commenters mentioned
the same reasons as for the credit card disclosures, focusing in
particular on problems that might arise in the context of in-person
electronic applications (involving, for example, a consumer completing
the application in a creditor's office by entering information into a
terminal or kiosk). Consumer group commenters suggested that the
regulation not only should permit, but should require, paper
disclosures in the case of in-person electronic HELOC applications.
For the same reasons as discussed above in connection with credit
card application and solicitation disclosures, in the final regulation,
new Sec. 226.5b(a)(3) is revised to state that if an application is
accessed by the consumer in electronic form, the required disclosures
may (rather than must) be provided in electronic form. New comment
5b(a)(3)-1 has been modified from the proposal to provide guidance
parallel to that in new comment 5a(a)(2)-9 for credit card applications
and solicitations. Where a consumer accesses an electronic HELOC
application in person in a creditor's office, the creditor could
provide disclosures in paper form and comply with the timing and
delivery requirements of the regulation. In addition, as discussed by
the commenters, paper disclosures may be preferable in this situation
because they can be retained by the consumer. Indeed, paper disclosures
would likely be necessary to comply with the timing requirements and
the requirement to provide the home-equity brochure in a form the
consumer may retain under Sec. 226.5b(e) in the case of an in-person
electronic application in the creditor's office. (The Board anticipates
that creditors will provide the other HELOC application disclosures,
under Sec. 226.5b(d), in retainable form even though not technically
required, and would consider further revisions to the regulation to
address this issue if necessary.) In addition, the portion of the
proposed comment stating that paper applications must be accompanied by
paper disclosures has been deleted as unnecessary, parallel to comment
5a(a)(2)-9.
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. As proposed, this provision is being
deleted 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 is made available by electronic communication.
This comment is substantially similar to comment 5a(a)(2)-8 of the 2001
interim final rule, discussed above.
The Board proposed to delete comment 5b(b)-7 and substitute a new
comment 5b(a)(1)-5 in its place, which generally would parallel the
content of proposed 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.
As in the case of proposed revised comment 5a(a)(2)-8, discussed
above, creditor commenters addressing the proposed comment generally
urged that the ``non-bypassable link'' example in
[[Page 63467]]
the comment be deleted, or at least that the final comment make clear
that the various methods of presenting disclosures electronically are
only examples and not requirements. The comment has been modified to
clarify that the methods are not the exclusive means of satisfying the
disclosure requirements, but examples. In addition, another example has
been added, and other modifications have been made for clarity. Of
course, similarly to electronic credit card applications, any method
used for providing disclosures for electronic HELOC applications would
have to ensure that the disclosures are provided (not merely made
available) to the consumer, clearly and conspicuously, in a timely
manner on or with the application.
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. The 2001
interim final rule added language permitting creditors to provide only
one copy of the rescission 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 April 2007 proposal
retained this provision from the 2001 interim final rule. The few
commenters that addressed this proposal supported it. The final rule
adopts this provision as proposed with minor wording changes for
clarification. It does not appear that consumers would benefit by
receiving two electronic copies of rescission notices.
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 property owner 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. In the April 2007 proposal, the
Board proposed to modify comment 15(b)-1 by deleting the requirement to
use e-mail. The statement that each co-owner must consent to electronic
disclosures was also proposed to be deleted.
A few commenters expressed concern about the proposed deletion of
the statement that each co-owner must consent to electronic
disclosures, and suggested that the Board clarify this issue. The E-
Sign Act clearly states that any consumer to whom written disclosures
are required to be given must affirmatively consent to the use of
electronic disclosures before such disclosures may be used in place of
paper disclosures; accordingly, the Board believes that it is
unnecessary to address this issue in Regulation Z. In addition, a
commenter suggested that creditors should be able to provide a single
electronic rescission notice to co-owners who have the same e-mail
address or other electronic point of contact, and also that a creditor
may require that consumers who wish to receive disclosures
electronically provide such a single contact point. The Board believes
that these suggestions might not be consistent with the Truth in
Lending Act, which requires delivery of the rescission notice and
disclosures to each consumer entitled to rescind. Accordingly, the
revisions to comment 15(b)-1 are adopted as proposed.
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 the 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 proposed to
add a new paragraph (3) to Sec. 226.16(c) to provide that if a
consumer accesses an advertisement for open-end credit in electronic
form, such as on a home computer, the disclosures required on or with
the advertisement must also be provided to the consumer in electronic
form on or with the advertisement. The Board proposed to add comment
16(c)(3)-1 to clarify this point and also to make clear that if a
consumer accesses a paper advertisement, the required disclosures must
be provided in paper form on or with the advertisement (and not, for
example, by including a reference in the paper advertisement to the Web
site where the disclosures are located). Commenters did not address
this aspect of the proposal.
In the final regulation, new Sec. 226.16(c)(3) and comment
16(c)(3)-1 are not being adopted. Section 226.16(b) requires that if an
advertisement includes trigger terms, the advertisement itself must
``clearly and conspicuously set forth'' the required disclosures.
Therefore, under the existing regulation, providing paper disclosures
for an advertisement in electronic form, or vice versa, would not
comply because the disclosures would not be set forth in the
advertisement itself.
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 (in Sec. 226.16(c)(1) and (2), and comments
16(c)(1)-1 and -2) 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). In April
2007, the Board proposed to retain this provision. Only one commenter
addressed the provision and expressed concern that consumers may not
receive clear product information from online advertisements (noting,
for example, that in one online advertisement the commenter was aware
of, details were disclosed several linked pages away from the initial
credit advertisement). The final rule retains this provision as
proposed.
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. As proposed, Sec. 226.17(a)(1) is revised 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
[[Page 63468]]
satisfy the regulation's closed-end credit disclosure requirements.
Section 226.17(a)(1) is also revised, as proposed, to provide that
the closed-end credit disclosures required by Sec. Sec. 226.19(b)
(adjustable-rate mortgage loan applications) and 226.24 (closed-end
credit advertising) may be provided to the consumer in electronic form,
and that the disclosures required by Sec. 226.17(g) (delay in
disclosures for mail or telephone transactions) 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. Commenters
supported this provision. The Board believes that this 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
online 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 is 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 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 deleting
Sec. 226.36, as discussed below, Sec. 226.17(a)(3) is also being
deleted.
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 provide 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. In the
April 2007 proposal, the Board proposed to retain the amendment to
Sec. 226.17(g) from the 2001 interim final rule.
A few commenters discussed this provision, as well as other
provisions of Regulation Z permitting delayed disclosures where an
application is submitted by telephone. These commenters contended that
the same reasons permitting disclosures to be delayed in the case of a
telephone application might also apply in other situations, such as
where applications are conducted through mobile hand-held electronic
devices, ATMs, or computers not owned by the consumer (such as an
employer's computer). The Board has determined not to extend the
telephone provisions to additional situations; refer to the discussion
below under ``Delayed Disclosures.'' Accordingly, Sec. 226.17(g)
remains unchanged in this regard.
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 (as a condition of delaying the transaction-
specific TILA disclosures) 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. In the April 2007 proposal,
the Board proposed 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. The amendment to Sec. 226.17(g) is adopted as proposed.
Section 226.19 Certain Residential Mortgage and Variable-Rate
Transactions
Section 226.19(b) requires creditors to provide certain disclosures
relating to adjustable-rate mortgage (ARM) loans secured by the
consumer's principal dwelling. These disclosures must be provided when
an application form is provided to the consumer or before the consumer
pays a nonrefundable fee, whichever is earlier. The Board proposed to
amend Sec. 226.19 by adding a new paragraph (c) to provide that if a
consumer accesses an 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. The Board also proposed to
add comment 19(c)-1 to clarify this point, and to make clear that if a
consumer is provided with a paper ARM application, the required
disclosures must be provided in paper form on or with the application
(and not, for example, by including a reference in the application to
the Web site where the disclosures are located).
[[Page 63469]]
As in the case of the credit card application and solicitation
disclosures required under Sec. 226.5a and the HELOC application
disclosures under Sec. 226.5b, discussed above, many creditor
commenters urged the Board to revise Sec. 226.19(c) in the final
regulation and the accompanying commentary provisions to permit
disclosures to be given in paper form even where an ARM application is
provided in electronic form. These commenters focused in particular on
problems that might arise in the context of in-person electronic
applications (involving, for example, a consumer in a creditor's office
entering information at an electronic terminal to complete an
application). Consumer group commenters suggested that the regulation
should not only permit, but should require, paper disclosures in the
case of in-person ARM applications made electronically.
For the same reasons as discussed above in connection with credit
card application and solicitation disclosures and HELOC application
disclosures, new Sec. 226.19(c) is revised to state that if an
application is accessed by the consumer in electronic form, the
required disclosures may (rather than must) be provided in electronic
form. New comment 19(c)-1 has been modified from the proposal to
provide guidance parallel to that in new comments 5a(a)(2)-9 and
5b(a)(3)-1 for credit card applications and solicitations and for HELOC
applications, respectively. Where a consumer accesses an electronic ARM
application in person in a creditor's office, the creditor could
provide disclosures in paper form and comply with the timing and
delivery requirements of the regulation. Indeed, in the case of an in-
person electronic application in a creditor's office, paper disclosures
would likely be necessary to comply with the timing requirements and
the requirement to provide the ARM disclosures in a form the consumer
may retain. The portion of the proposed comment stating that paper
applications must be accompanied by paper disclosures has been deleted
as unnecessary, to parallel new comments 5a(a)(2)-9 and 5b(a)(3)-1.
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 proposed to revise comment 19(b)-2 in a manner
substantially similar to proposed comments 5b(a)(1)-5 and 5a(a)(2)-8,
discussed above. The proposed revised comment described alternative
methods for presenting electronic disclosures, which are examples
rather than an exhaustive list.
As in the case of proposed revised comments 5b(a)(1)-5 and
5a(a)(2)-8, discussed above, creditor commenters addressing the
proposed comment generally urged that the ``non-bypassable link''
example in the comment be deleted, or at least that the final comment
make clear that the various methods of presenting disclosures
electronically are only examples and not requirements. The comment has
been modified to clarify that the methods are not the exclusive means
of satisfying the disclosure requirements, but rather examples. In
addition, another example has been added, and other modifications have
been made for clarity. Of course, any method used for providing
disclosures for electronic ARM applications would have to ensure that
the disclosures are provided (not merely made available) to the
consumer, clearly and conspicuously, in a timely manner.
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. The 2001
interim final rule added language permitting creditors to provide only
one copy of the rescission 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 April 2007 proposal
retained this provision from the 2001 interim final rule. The few
commenters that addressed this proposal supported it. The final rule
adopts this provision as proposed with minor wording changes. It does
not appear that consumers would benefit by receiving two electronic
copies of rescission notices.
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 property owner 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. In the April 2007 proposal, the
Board proposed to modify comment 23(b)-1 by deleting the requirement to
use e-mail. The statement that each co-owner must consent to electronic
disclosures was also proposed to be deleted, as consent requirements
are already set forth in the E-Sign Act.
The comments received by the Board on the proposed revisions to
comment 15(b)-1 relating to rescission in the open-end context,
discussed above, apply to closed-end rescission as well. See the
discussion under Sec. 226.15 above. Accordingly, the revisions to
comment 23(b)-1 are adopted as proposed.
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 proposed 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. The Board proposed to add
comment 24(d)-5 to clarify this point, and also to make clear that if a
consumer accesses a paper advertisement, the required disclosures must
be provided in paper form on or with the advertisement (and not, for
example, by including a reference in the advertisement to the Web site
where the disclosures are located). Commenters did not address this
provision.
In the final regulation, new Sec. 226.24(d)(3) and comment 24(d)-5
are not being adopted. Section 226.24(c) requires that if an
advertisement includes trigger terms, the advertisement itself must
``state'' the required disclosures. Therefore, under the existing
regulation, providing paper disclosures for an advertisement in
electronic form, or vice versa, would not comply because the
disclosures would not be stated in the advertisement itself.
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. The
2001 interim final rule
[[Page 63470]]
clarified (in Sec. 226.24(d)(1) and (2), and comments 24(d)-2 and
24(d)-4), as in the case of open-end credit advertising, 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). In April 2007, the
Board proposed to retain this provision. Only one commenter addressed
this provision and expressed concern that consumers may not receive
clear product information (see discussion under open-end advertising
above). The final rule retains this provision as proposed.
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. In the
April 2007 proposal, the Board proposed to delete comment 24(b)-6 as
unnecessary, because 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. In the supplementary information, the
Board stated that 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.
Some commenters were concerned by the foregoing discussion in the
April 2007 proposal, and contended that in the case of small hand-held
electronic devices (such as Internet-enabled cellphones or personal
digital assistants) that a consumer might use to view a credit
advertisement, the small size of the screen might necessitate scrolling
or the use of links for viewing the APR. Commenters also said the
proposal was confusing in that comment 24(b)-6, stating that the use of
links would not comply, was proposed to be deleted, yet the
supplementary information appeared to impose the same restriction.
Comment 24(b)-6 is being deleted as proposed. As stated in the
proposal, the existing regulatory requirement is to state the APR no
less conspicuously than the simple rate of interest, and this rule
applies in the electronic context. However, the Board believes that the
rule can be applied with some degree of flexibility, to account for
variations in devices consumers may use to view electronic
advertisements. Therefore, the use of scrolling or links would not
necessarily fail to comply with the regulation in all cases; however,
creditors should ensure that electronic advertisements comply with the
equal conspicuousness 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. As proposed, Sec. 226.31(b)(1) is 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 deleting
Sec. 226.36, as discussed below, Sec. 226.31(b)(2) is also being
deleted in the final rule.
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. In the April
2007 proposal, the Board proposed to delete Sec. 226.36 (which
constitutes all of Subpart F) from Regulation Z and the accompanying
sections of the staff commentary. Creditor commenters largely supported
the proposed deletion, and Sec. 226.36 and the accompanying commentary
are deleted in the final rule.
In the interim rule, Sec. 226.36(a) defined 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)
does not change applicable legal requirements under the E-Sign Act.
Sections 226.36(b), (c) and (f) incorporated 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 such
disclosures, and the provision allowing electronic signatures. The
deletion of these provisions has no impact on the general applicability
of the E-Sign Act to Regulation Z disclosures.
Sections 226.36(d) and (e) addressed 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 stated in the proposal that it no longer
believed that these additional provisions were necessary or
appropriate. The Board noted that electronic disclosures have evolved
since 2001, as industry and consumers have gained experience with them,
and also noted concerns about e-mail related to data security, identity
theft, and phishing.
The consumer group commenters urged the Board to require the use of
e-mail to provide required disclosures in electronic form, arguing that
e-mail is the only reliable way to ensure that consumers are able to
actually access, receive, and retain disclosures. The consumer groups
also disagreed with the statement that concerns relating to phishing,
identity theft, and data security are a valid reason for not requiring
the use of e-mail, noting that
[[Page 63471]]
phishing involves gathering information from the consumer, while
disclosures would be provided to the consumer, and need not include
sensitive information.
While the consumer's receipt of an e-mail message that is actually
from the consumer's creditor would not in general pose a security risk,
consumers might ignore or delete e-mails from creditors (real or
purported), in order to avoid falling victim to fraud schemes. Thus,
disclosures sent by consumers' creditors may not receive the attention
they should. Consequently, some creditors may be reluctant to
communicate by e-mail. To the extent consumers are instructed not to
ignore electronic mail messages from their creditors, the risk of
consumers being victimized by fraudulent e-mail might be increased. In
any event, the Board believes it is preferable not to mandate the use
of any particular means of electronic delivery of disclosures, but
instead to allow flexibility for creditors to use whatever method may
be best suited to particular types of disclosure (for example, account-
opening, periodic statements, or change in terms).
With regard to the requirement to attempt to redeliver returned
electronic disclosures, 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. As stated in the April 2007 proposal, the Board
continues to believe that both requirements would likely be unduly
burdensome.
Under the April 2007 proposed rule, the requirement in the 2001
interim final rule for creditors to maintain disclosures posted on a
Web site for at least 90 days would be deleted. Creditor commenters
supported the proposed deletion; consumer group commenters expressed
concern about its impact on consumers. As stated in the proposal, based
on a review of industry practices, it appears that many creditors
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 creditors
to maintain disclosures for any specific period of time. In addition,
the Board continues to believe 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 that would vary depending on the disclosures,
which would increase the compliance burden. Therefore, the 90-day
retention provision is deleted as proposed.
Nevertheless, while the Board is not requiring 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. The Board expects creditors to maintain disclosures on Web
sites for a reasonable period of time (which may vary depending upon
the particular disclosure) so that consumers have an opportunity to
access, view, and retain the disclosures. As stated in the April 2007
proposal, the Board will monitor creditors' electronic disclosure
practices with regard to the ability of consumers to retain Regulation
Z disclosures and would consider further revisions to the regulation to
address this issue if necessary.
V. Other Issues Raised by Commenters
Clear and Conspicuous Disclosures
An issue raised in the comments on the April 2007 proposal related
to small hand-held electronic devices through which consumers may
conduct financial transactions using the Internet or other electronic
means (for example, personal digital assistants, Internet-enabled
cellphones, and similar devices). One commenter requested clarification
on whether creditors would be deemed to comply with the requirement to
provide disclosures in a clear and conspicuous form, even when the
consumer views them on a small screen of a hand-held electronic device.
The commenter noted that the creditor has no control over what devices
consumers choose to use, for example, to view disclosures on a web
page. The Board believes that disclosures comply with the ``clear and
conspicuous'' requirement as long as they are provided in a manner such
that they would be clear and conspicuous when viewed on a typical home
personal computer monitor. In addition, with regard to disclosures
subject to specific font size requirements, the disclosures must be
provided such that the required size requirement would be met when
viewed on a typical home personal computer monitor.
Retainable Form
Several industry commenters requested guidance on how creditors can
be sure of meeting the requirement to provide disclosures in a form
that the consumer can keep. Commenters noted that some of the
disclosures that are exempted from the E-Sign requirements regarding
notice and consent are nevertheless required to be given in retainable
form (for example, the HELOC brochure under Sec. 226.5b(e) and the ARM
application disclosures under Sec. 226.19(b)). Commenters pointed out
that the E-Sign Act requires, with regard to consumer disclosures
generally, that a creditor disclose ``the hardware and software
requirements for access to and retention of the electronic records''
and that the consumer consent to electronic disclosures ``in a manner
that reasonably demonstrates that the consumer can access'' the
disclosures electronically. A commenter noted that if the E-Sign
procedures are followed, a creditor has some degree of comfort that the
retainability requirement has been met; however, with regard to
disclosures that are exempted from the E-Sign notice and consent
provisions (such as those under Sec. Sec. 226.5b(e) and 226.19(b)), it
is not clear how the creditor can demonstrate compliance with the
retainability requirement.
The consumer group commenters were concerned about retainability of
disclosures in light of the deletion of the requirement to maintain
disclosures on a Web site for at least 90 days. They urged that the
final regulations require that disclosures be delivered in a format
that is both downloadable and printable.
The Board believes that creditors satisfy the requirement for
providing electronic disclosures in a form the consumer can retain if
they are provided in a standard electronic format that can be
downloaded and saved or printed on a typical home personal computer.
Typically, any document that can be downloaded by the consumer can also
be printed. The Board will, however, monitor creditors' practices to
evaluate whether further guidance is needed on this issue. In a
situation where the consumer is provided electronic disclosures through
equipment under the creditor's control--such as a terminal or kiosk in
the creditor's offices--the creditor could, for example, provide a
printer that automatically prints the disclosures.
Delayed Disclosures
A number of creditor commenters suggested that, in the case of
transactions involving small hand-held electronic devices, creditors
should be permitted to treat the transactions as though they were
conducted by telephone and thus delay disclosures. For example, for
telephone credit card applications and solicitations, Sec. 226.5a
[[Page 63472]]
permits the disclosures to be provided within 30 days after the
consumer requests the credit card (but no later than the delivery of
the card). For telephone HELOC applications and ARM loan applications,
Sec. Sec. 226.5b and 226.19(b), respectively, permit the disclosures
to be provided within three business days after the creditor receives
the application. For telephone applications for closed-end credit in
general, Sec. 226.17(g) allows the Sec. 226.18 loan (or retail sale)
disclosures to be provided no later than the due date of the first
payment, if certain generic disclosures have been made available to the
consumer or to the public generally (for example, in a catalog). Since
small hand-held electronic devices may not be well suited to displaying
or retaining disclosures, commenters argued that creditors should be
permitted to mail paper disclosures to consumers within the timeframes
specified in the regulations applicable to telephone transactions,
instead of providing electronic disclosures that consumers might view
using a small hand-held device. Commenters contended that such devices
are more like telephones than home computers. Some commenters suggested
that such a delayed disclosure provision should apply to other
situations as well, such as ``enhanced ATMs'' and computers not owned
by the consumer (e.g., a computer in an employer's office or a public
library). However, it does not appear that at present, use of such
devices for financial transactions has advanced to the point where the
relief suggested by the commenters is necessary to avoid burdens on
electronic commerce.
Expansion of Exception From E-Sign Notice and Consent Requirements
One commenter suggested that the Board adopt additional exemptions
from the E-Sign notice and consent requirements. For example, if a
consumer applied for a credit card or mortgage online, the commenter
suggested that the creditor should be able to provide the account-
opening disclosures under Sec. 226.6, or loan closing disclosures
under Sec. 226.18 (in addition to the application-related disclosures
already permitted under this final rule) online, without notice and
consent under the E-Sign Act. The commenter argued that, since Internet
commerce has expanded greatly over the past few years, when consumers
choose to conduct financial transactions online, they presume that they
will receive related disclosures online as well. The Board believes
that, at this time, there is insufficient evidence that the consent
requirements are a burden on electronic commerce in this situation; and
that consumers who shop for credit online may not necessarily want to
receive account-opening or loan closing disclosures online.
VI. 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. In the proposed rule, the Board
invited comments on whether the proposed rules are clearly stated and
effectively organized, and how the Board might make the proposed text
easier to understand. A few commenters made suggestions for clarifying
the regulatory language. These comments are discussed above, under
``IV. Section-by-Section Analysis.'' The Board has attempted to clarify
the language in the final rule as suggested by commenters.
VII. Final Regulatory Flexibility Analysis
The Board prepared an initial regulatory flexibility analysis as
required by the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA)
in connection with the April 2007 proposal. The Board received no
comments on its initial regulatory flexibility analysis.
The 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
certifies that the rule will not have a significant economic impact on
a substantial number of small entities.
1. Statement of the need for, and objectives of, the final rule.
The Board is adopting 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 clarifying
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
authorizes 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. Issues raised by comments in response to the initial regulatory
flexibility analysis. In accordance with section 603(a) of the RFA, the
Board conducted an initial regulatory flexibility analysis in
connection with the proposed rule. The Board did not receive any
comments on its initial regulatory flexibility analysis.
3. Small entities affected by the final rule. 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 final rule 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 final rule is unknown.
4. Other federal rules. The Board believes no federal rules
duplicate, overlap, or conflict with the final revisions to Regulation
Z.
5. Significant alternatives to the proposed revisions. The Board
solicited comment on any significant alternatives that could provide
additional ways to reduce regulatory burden associated
[[Page 63473]]
with the proposed rule. Commenters suggested that in certain
circumstances where a consumer accesses a credit application or
solicitation in electronic form, creditors should be permitted to
provide the required disclosures in paper form (rather than electronic
form as would be required under the proposed rule). The final rule
permits paper disclosures in certain circumstances as suggested by the
commenters. A commenter also suggested that in certain cases where a
consumer receives a credit application or solicitation in paper form,
creditors should be permitted to provide the required disclosures in
electronic form without the consumer's consent. The final rule allows
electronic disclosures in the case of applications or solicitations in
paper form, but only if the consumer consents in accordance with the E-
Sign Act.
VIII. 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 subject to the
PRA by this final rulemaking 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, in the event the
Board were to retain records during the course of an examination, 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-
supervised 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-
supervised institutions that are deemed to be respondents for the
purposes of the PRA.
As mentioned in the Preamble, on April 30, 2007, a notice of
proposed rulemaking was published in the Federal Register (72 FR
21141). No comments specifically addressing the burden estimate were
received.
The Federal Reserve has a continuing interest in the public's
opinions of our collections of information. At any time, comments
regarding the burden estimate, or any other aspect of this collection
of information, including suggestions for reducing the burden, may be
sent to: Secretary, Board of Governors of the Federal Reserve System,
20th and C Streets, NW., Washington, DC 20551; and 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.
0
For the reasons set forth in the preamble, the Board amends 12 CFR part
226 as set forth below:
PART 226--TRUTH IN LENDING (REGULATION Z)
0
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
0
2. Section 226.5 is amended by revising paragraph (a)(1), to read as
follows, and removing paragraph (a)(5):
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 that the consumer may keep.\8\ 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. Sec. 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.
---------------------------------------------------------------------------
\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)(2s), 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.
0
3. Section 226.5a is amended by adding a new paragraph (a)(2)(v), to
read as follows:
Sec. 226.5a Credit and charge card applications and solicitations.
(a) * * *
(2) * * *
(v) For an application or a solicitation that is accessed by the
consumer in electronic form, the disclosures required under this
section may be provided to the consumer in electronic form on or with
the application or solicitation.
* * * * *
[[Page 63474]]
0
4. Section 226.5b is amended by adding a new paragraph (a)(3), to read
as follows, removing the heading for paragraph (c)(1), redesignating
paragraph (c)(1) as paragraph (c), and removing paragraph (c)(2):
Sec. 226.5b Requirements for home equity plans.
* * * * *
(a) * * *
(3) For an application that is accessed by the consumer in
electronic form, the disclosures required under this section may be
provided to the consumer in electronic form on or with the application.
* * * * *
0
5. Section 226.15 is 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 in electronic form in
accordance with the consumer consent and other applicable provisions of
the E-Sign Act). * * *
* * * * *
0
6. Section 226.16 is 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 electronic advertisement (such as an advertisement appearing on
an Internet Web site), 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 electronic
advertisement (such as an advertisement appearing on an Internet Web
site) 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.
* * * * *
Subpart C--Closed-end Credit
0
7. Section 226.17 is amended by revising paragraph (a)(1), removing
paragraph (a)(3), and revising paragraph (g), 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. 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. 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).
---------------------------------------------------------------------------
* * * * *
(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 or in electronic form to the consumer or to the public before the
actual purchase order or request:
(1) The cash price or the principal loan amount.
(2) The total sale price.
(3) The finance charge.
(4) The annual percentage rate, and if the rate may increase after
consummation, the following disclosures:
(i) The circumstances under which the rate may increase.
(ii) Any limitations on the increase.
(iii) The effect of an increase.
(5) The terms of repayment.
* * * * *
0
8. Section 226.19 is amended by adding a new paragraph (c), to read as
follows:
Sec. 226.19 Certain residential mortgage and variable-rate
transactions.
* * * * *
(c) Electronic disclosures. For an application that is accessed by
the consumer in electronic form, the disclosures required by paragraph
(b) of this section may be provided to the consumer in electronic form
on or with the application.
0
9. Section 226.23 is 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 in electronic form in accordance with the
consumer consent and other applicable provisions of the E-Sign Act). *
* *
* * * * *
0
10. Section 226.24 is amended by revising paragraph (d) 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 electronic advertisement (such as an advertisement appearing on
an Internet Web site), 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 electronic
[[Page 63475]]
advertisement (such as an advertisement appearing on an Internet Web
site) 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.
Subpart E--Special Rules for Certain Home Mortgage Transactions
0
11. Section 226.31 is amended by revising paragraph (b) to read as
follows:
Sec. 226.31 General rules.
* * * * *
(b) Form of disclosures. The creditor shall make the disclosures
required by this subpart clearly and conspicuously in writing, in a
form that the consumer may keep. 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. Sec. 7001 et seq.).
* * * * *
Subpart F--[Removed]
0
12. Subpart F, consisting of Sec. 226.36, is removed.
0
13. In Supplement I to Part 226, the following amendments are made:
0
a. In Section 226.5--General Disclosure Requirements, under Paragraph
5(b)(2)(ii), paragraph 3. is revised.
0
b. In Section 226.5a--Credit and Charge Card Applications and
Solicitations, under 5a(a)(2) Form of Disclosures, paragraph 8. is
revised and new paragraph 9. is added.
0
c. In Section 226.5b--Requirements for Home Equity Plans, under 5b(a)
Form of Disclosures, under 5b(a)(1) General, new paragraph 5. is added.
0
d. In Section 226.5b--Requirements for Home Equity Plans, under 5b(a)
Form of Disclosures, new heading Paragraph 5b(a)(3) is added, and under
the new heading new paragraph 1. is added.
0
e. In Section 226.5b--Requirements for Home Equity Plans, under 5b(b)
Time of Disclosures, paragraph 7. is removed.
0
f. In Section 226.15--Right of Rescission, under 15(b) Notice of Right
to Rescind., paragraph 1. is revised.
0
g. In Section 226.16--Advertising, under Paragraph 16(c)(1), paragraphs
1. and 2. are revised.
0
h. In Section 226.19--Certain Residential Mortgage and Variable-Rate
Transactions, under 19(b) Certain variable-rate transactions, paragraph
2.v. is revised.
0
i. In Section 226.19--Certain Residential Mortgage and Variable-Rate
Transactions, new heading 19(c) Electronic disclosures is added, and
under the new heading new paragraph 1. is added.
0
j. In Section 226.23--Right of Rescission, under 23(b) Notice of Right
to Rescind., paragraph 1. is revised.
0
k. In Section 226.24--Advertising, under 24(b) Advertisement of Rate of
Finance Charge, paragraph 6. is removed.
0
l. In Section 226.24--Advertising, under 24(d) Catalogs or other
multiple-page advertisements; electronic advertisements, paragraphs 2.
and 4. are revised.
0
m. Subpart F, section 226.36--Requirements for Electronic
Communications, is 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.
* * * * *
Section 226.5a--Credit and Charge Card Applications and
Solicitations
* * * * *
5a(a) General rules.
5a(a)(2) Form of disclosures.
* * * * *
8. Form of electronic disclosures provided on or with electronic
applications or solicitations. 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. Methods card
issuers could use to satisfy the requirement include, but are not
limited to, the following examples:
i. The disclosures could automatically appear on the screen when
the application or reply form appears;
ii. The disclosures could be located on the same Web page as the
application or reply form (whether or not they appear 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;
iii. 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. The link would take the consumer to the
disclosures, but the consumer need not be required to scroll
completely through the disclosures; or
iv. The disclosures could be located on the same web page as the
application or reply form without necessarily appearing on the
initial screen, immediately preceding the button that the consumer
will click to submit the application or reply.
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).
9. Form of disclosures. Whether disclosures must be in
electronic form depends upon the following:
i. If a consumer accesses a credit card application or
solicitation electronically other than in-person in a card issuer's
office (covered under ii. below), such as online at a home computer,
the card issuer must provide the disclosures in electronic form
(such as with the application or solicitation on its Web site) in
order to meet the requirement to provide disclosures in a timely
manner on or with the application or solicitation. If the issuer
instead mailed paper disclosures to the consumer, this requirement
would not be met.
ii. In contrast, if a consumer is physically present in the card
issuer's office, and accesses a credit card application or
solicitation electronically, such as via a terminal or kiosk, the
issuer may provide disclosures in either electronic or paper form,
provided the issuer complies with the timing and delivery (``on or
with'') requirements of the regulation.
* * * * *
Section 226.5b--Requirements for Home Equity Plans
* * * * *
5b(a) Form of disclosures.
5b(a)(1) General
* * * * *
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. Methods creditors could use to satisfy
the requirement include, but are not limited to, the following
examples:
i. The disclosures could automatically appear on the screen when
the application appears;
[[Page 63476]]
ii. The disclosures could be located on the same web page as the
application (whether or not they appear 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;
iii. Creditors could provide a link to the electronic
disclosures on or with the application as long as consumers cannot
bypass the disclosures before submitting the application. The link
would take the consumer to the disclosures, but the consumer need
not be required to scroll completely through the disclosures; or
iv. The disclosures could be located on the same web page as the
application without necessarily appearing on the initial screen,
immediately preceding the button that the consumer will click to
submit the application.
Whatever method is used, a creditor need not confirm that the
consumer has read the disclosures.
* * * * *
Paragraph 5b(a)(3)
1. Form of disclosures. Whether disclosures must be in
electronic form depends upon the following:
i. If a consumer accesses a home equity credit line application
electronically other than in-person in a creditor's office (covered
under ii. below), such as online at a home computer, the creditor
must provide the disclosures in electronic form (such as with the
application form on its Web site) in order to meet the requirement
to provide disclosures in a timely manner on or with the
application. If the creditor instead mailed paper disclosures to the
consumer, this requirement would not be met.
ii. In contrast, if a consumer is physically present in the
creditor's office, and accesses a home equity credit line
application electronically, such as via a terminal or kiosk, the
creditor may provide disclosures in either electronic or paper form,
provided the creditor complies with the timing, delivery, and
retainability requirements of the regulation.
* * * * *
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 (one copy to each if the notice is provided in
electronic form in accordance with the consumer consent and other
applicable provisions of the E-Sign Act) and one copy of the
disclosures.
* * * * *
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 (such as an
advertisement appearing on an Internet Web site). The rule applies
only if the advertisement contains one or more of the triggering
terms from Sec. 226.16(b).
2. Electronic advertisement. If an electronic advertisement
(such as an advertisement appearing on an Internet Web site)
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.
* * * * *
Subpart C--Closed-End Credit
Section 226.19--Certain Residential Mortgage and Variable-Rate
Transactions
* * * * *
19(b) Certain variable-rate transactions.
* * * * *
2. * * *
v. 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. Methods creditors could use to satisfy
the requirement include, but are not limited to, the following
examples:
A. The disclosures could automatically appear on the screen when
the application appears;
B. The disclosures could be located on the same web page as the
application (whether or not they appear 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;
C. Creditors could provide a link to the electronic disclosures
on or with the application as long as consumers cannot bypass the
disclosures before submitting the application. The link would take
the consumer to the disclosures, but the consumer need not be
required to scroll completely through the disclosures; or
D. The disclosures could be located on the same web page as the
application without necessarily appearing on the initial screen,
immediately preceding the button that the consumer will click to
submit the application.
Whatever method is used, a creditor need not confirm that the
consumer has read the disclosures.
* * * * *
19(c) Electronic disclosures.
1. Form of disclosures. Whether disclosures must be in
electronic form depends upon the following:
i. If a consumer accesses an ARM loan application electronically
other than in-person in a creditor's office (covered under ii.
below), such as online at a home computer, the creditor must provide
the disclosures in electronic form (such as with the application
form on its Web site) in order to meet the requirement to provide
disclosures in a timely manner on or with the application. If the
creditor instead mailed paper disclosures to the consumer, this
requirement would not be met.
ii. In contrast, if a consumer is physically present in the
creditor's office, and accesses an ARM loan application
electronically, such as via a terminal or kiosk, the creditor may
provide disclosures in either electronic or paper form, provided the
issuer complies with the timing, delivery, and retainability
requirements of the regulation.
* * * * *
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 (one copy to each if the notice is provided in
electronic form in accordance with the consumer consent and other
applicable provisions of the E-Sign Act) and one copy of the
disclosures.
* * * * *
Section 226.24--Advertising
* * * * *
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 (such as an
advertisement appearing on an Internet Web site). 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 advertisement. If an electronic advertisement
(such as an advertisement appearing on an Internet Web site)
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.
[[Page 63477]]
By order of the Board of Governors of the Federal Reserve
System, October 31, 2007.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E7-21700 Filed 11-8-07; 8:45 am]
BILLING CODE 6210-01-P