Final Rule—Amendment To Regulation E - from Federal Reserve Board

Federal Reserve Bulletin, May, 2001

The Board of Governors is amending 12 C.F.R. Part 205, its Official Staff Commentary to Regulation E, which implements the Electronic Fund Transfer Act. The commentary interprets the requirements of Regulation E to facilitate compliance by financial institutions that offer electronic fund transfer services to consumers. The final rule provides guidance on Regulation E coverage of electronic check conversion transactions and computer-initiated bill payments; authorization of recurring debits from a consumer's account; telephone-initiated transfer; and other issues.

Effective March 15, 2001, 12 C.F.R. Part 205 is amended as follows:

Part 205--Electronic Fund Transfers (Regualtion E)

1. The authority citation for Part 205 is revised to read as follows:

Authority: 15 U.S.C. 1693b.

2. In Supplement I to Part 205, the following amendments are made:

a. Under Section 205.2-Definitions, under 2(a) Access Device, a new paragraph 2. is added;

b. Under Section 205.2-Definitions, under 2(h) Electronic Terminal, paragraph 2. is revised;

c. Under Section 205.2-Definitions, a new heading 2(k) Preauthorized Electronic Fund Transfer, and a new paragraph 1. are added;

d. Under Section 205.2-Definitions, under 2(m) Unauthorized Electronic Fund Transfer, a new paragraph 5. is added;

e. Under Section 205.3-Coverage, under 3(b) Electronic Fund Transfer, new paragraphs 1.v., 1.vi., and 3. are added;

f. Under Section 205.3-Coverage, under 3(c) Exclusions from Coverage, a new heading "Paragraph 3(c)(1)-Checks" is added;

g. Under Section 205.3-Coverage, under 3(c) Exclusions from Coverage, under newly added heading Paragraph 3(c)(1)-Checks, paragraphs 1. and 2. are added;

h. Under Section 205.3-Coverage, under 3(c) Exclusions from Coverage, under Paragraph 3(c)(6)Telephone-Initiated Transfers, paragraph 1. is revised and paragraph 2.v. is added;

i. Under Section 205.6-Liability Of Consumer For Unauthorized Transfers, under Paragraph 6(b)(1)-Timely Notice Given, new paragraph 3. is added;

j. Under Section 205. 7-Initial Disclosures, under 7(a) Timing of Disclosures, paragraph 2. is revised;

k. Under Section 205. 7-Initial Disclosures, under Paragraph 7(b)(10) Error Resolution, paragraph 2. is revised;

l. Under Section 205.8-Change-In-Terms Notice; Error Resolution Notice, under 8(b) Error Resolution Notice, a new paragraph 2. is added;

m. Under Section 205.9-Receipts At Electronic Terminals; Periodic Statements, under Paragraph 9(a)(5)Terminal Location, paragraph 1. is revised;

n. Under Section 205.9-Receipts At Electronic Terminals; Periodic Statements, under Paragraph 9(a)(5)(iv), paragraphs 1. and 2. are redesignated as paragraphs 3. and 4. under paragraph 9(a)(5) and republished;

o. Under Section 205.9-Receipts At Electronic Terminals; Periodic Statements, Paragraph 9(a)(5)(iv) is removed;

p. Under Section 205.9-Receipts At Electronic Terminals; Periodic Statements, under 9(b) Periodic Statements, paragraph 4. is revised;

q. Under Section 205.9-Receipts At Electronic Terminals; Periodic Statements, under 9(c) Exceptions to the Periodic Statement Requirements for Certain Accounts, a new heading, Paragraph 9(c)(1)-Preauthorized Transfers to Accounts is added and new paragraphs 1. and 2. are added to the newly designated heading;

r. Under Section 205.10-Preauthorized Transfers, under 10(b) Written Authorization for Preauthorized Transfers from Consumer's Account, paragraph 5. is revised, and new paragraph 7. is added;

s. Under Section 205.10-Preauthorized Transfers, under Paragraph 10(e)(2)-Employment or Government Benefit, paragraph 1. is revised;

t. Under Section 205.11-Procedures For Resolving Errors, under 11(a) Definition of Error, paragraph 2. is revised; and

u. Under Section 205.12-Relation To Other Laws, under 12(a) Relation to Truth in Lending, paragraph 1. is revised.

Supplement to Part 205--Official Staff Interpretations

Section 205.2--Definitions

2(a) Access Device

2. Checks used to capture information. The term "access device" does not include a check or draft used to capture the MICR (Magnetic Ink Character Recognition) encoding to initiate a one-time ACH debit. For example, if a consumer authorizes a one-time ACH debit from the consumer's account using a blank, partially completed, or fully completed and signed check for the merchant to capture the routing, account, and serial numbers to initiate the debit, the check is not an access device. (Although the check is not an access device under Regulation E, the transaction is nonetheless covered by the regulation. See comment 3(b)-l(v).)

2(h) Electronic Terminal

2. POS terminals. A POS terminal that captures data electronically, for debiting or crediting to a consumer's asset account, is an electronic terminal for purposes of Regulation E even if no access device is used to initiate the transaction. (See section 205.9 for receipt requirements.)

2(k) Preauthorized Electronic Fund Transfer

1. Advance authorization. A "preauthorized electronic fund transfer" under Regulation E is one authorized by the consumer in advance of a transfer that will take place on a recurring basis, at substantially regular intervals, and will require no further action by the consumer to initiate the transfer. In a bill-payment system, for example, if the consumer authorizes a financial institution to make monthly payments to a payee by means of EFTs, and the payments take place without further action by the consumer, the payments are preauthorized EFTs. In contrast, if the consumer must take action each month to initiate a payment (such as by entering instructions on a touch-tone telephone or home computer), the payments are not preauthorized EFTs.