Electronic Fund Transfers, 51451-51457 [E6-14342]

Agencies

• FEDERAL RESERVE SYSTEM

[Federal Register Volume 71, Number 168 (Wednesday, August 30, 2006)]
[Rules and Regulations]
[Pages 51451-51457]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-14342]


-----------------------------------------------------------------------

FEDERAL RESERVE SYSTEM

12 CFR Part 205

[Regulation E; Docket No. R-1265]


Electronic Fund Transfers

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Interim final rule; request for public comment.

-----------------------------------------------------------------------

SUMMARY: The Board is amending Regulation E, which implements the 
Electronic Fund Transfer Act, and the official staff commentary to the 
regulation, which interprets the requirements of Regulation E. The 
amendments clarify that the requirement to obtain a consumer's 
authorization to collect a service fee for insufficient or uncollected 
funds through an electronic debit to the consumer's account applies to 
any person that intends to collect the fee in that manner. The 
amendments also clarify notice requirements for electronic check 
conversion transactions and for collecting insufficient funds fees 
electronically. This interim final rule, for which the Board is seeking 
comment, will supersede the corresponding provisions of the January 
2006 final rule that addressed these topics.

DATES: This interim final rule is effective January 1, 2007. Comments 
must be received on or before September 29, 2006.

ADDRESSES: You may submit comments, identified by Docket No. R-1265, by 
any of the following methods:
     Agency Web site: https://www.federalreserve.gov. Follow the 
instructions for submitting comments at https://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: regs.comments@federalreserve.gov. Include the 
docket number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551.
    All public comments are available from the Board's Web site at 
https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or in 
paper in Room MP-500 of the Board's Martin Building (20th and C 
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Ky Tran-Trong, Senior Attorney, Vivian 
W. Wong, Attorney, or David A. Stein,

[[Page 51452]]

Counsel, Division of Consumer and Community Affairs, Board of Governors 
of the Federal Reserve System, Washington, DC 20551, 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 Electronic Fund Transfer Act (15 U.S.C. 1693 et seq.) (EFTA or 
Act), enacted in 1978, provides a basic framework establishing the 
rights, liabilities, and responsibilities of participants in electronic 
fund transfer (EFT) systems. The EFTA is implemented by the Board's 
Regulation E (12 CFR part 205). Examples of types of transfers covered 
by the Act and regulation include transfers initiated through an 
automated teller machine (ATM), point-of-sale (POS) terminal, automated 
clearinghouse (ACH), telephone bill-payment plan, or remote banking 
service. The Act and regulation provide for disclosure of terms and 
conditions of an EFT service, documentation of EFTs by means of 
terminal receipts and periodic account activity statements, limitations 
on consumer liability for unauthorized transfers, procedures for error 
resolution, and certain rights related to preauthorized EFTs. Further, 
the Act and regulation also restrict the unsolicited issuance of ATM 
cards and other access devices.
    The official staff commentary (12 CFR part 205 (Supp. I)) is 
designed to facilitate compliance and provide protection from liability 
under Sections 915 and 916 of the EFTA for financial institutions and 
other persons subject to the Act. 15 U.S.C. 1693m(d)(1). The commentary 
is updated periodically to address significant questions that arise.

II. Background and Summary of Interim Final Rule

    On January 10, 2006, the Board published a notice of final 
rulemaking in the Federal Register (71 FR 1,638) (January 2006 final 
rule) that was primarily intended to provide guidance regarding the 
rights, liabilities, and responsibilities of parties engaged in 
electronic check conversion transactions (ECK transactions).\1\ In 
addition to the provisions addressing authorization and notice 
requirements for ECK transactions, the final rule provided that before 
a fee for insufficient or uncollected funds may be debited via an EFT 
from a consumer's account, the consumer must authorize the debit. 
Authorization is obtained when notice is provided to the consumer 
stating that the fee will be collected by means of an EFT and the 
consumer goes forward with the underlying transaction. The notice must 
also disclose the specific amount of the fee. See 71 FR at 1,645-46, 
1,659.
---------------------------------------------------------------------------

    \1\ In an ECK transaction, a merchant or other payee takes 
information from a consumer's check to initiate a one-time EFT from 
the consumer's account.
---------------------------------------------------------------------------

    Although the Board intended to apply the requirement to provide 
notice to the consumer for the electronic collection of insufficient 
funds fees to all persons seeking to collect such fees electronically, 
the Board inadvertently omitted a reference that would have 
specifically applied the requirement to all persons that intend to 
collect insufficient funds fees electronically. The interim final rule 
corrects this omission and also clarifies that the requirement to 
provide notice and obtain the consumer's authorization to collect a fee 
for insufficient or uncollected funds electronically does not apply to 
the consumer's account-holding financial institution. The interim final 
rule further specifies how to disclose the amount of the fee when the 
dollar amount of the fee may vary based on the transaction amount or 
due to other factors.
    The interim final rule clarifies that payees that intend to collect 
fees for insufficient or uncollected funds electronically at POS need 
not provide consumers an exact copy of the posted notice stating the 
payees' intent to collect such fees electronically, but instead may 
provide a notice that is substantially similar to the posted notice. 
Similar flexibility is provided for payees engaged in ECK transactions 
at POS with respect to the requirement to provide the consumer a notice 
stating the payee's intent to convert checks provided by a consumer to 
EFTs.
    The effective date of this interim final rule is January 1, 2007. 
However, the rule provides that payees at POS will not have to disclose 
either the dollar amount of the insufficient funds fee or an 
explanation of how that fee will be determined on the version of the 
notice given to consumers at the time of the transaction until January 
1, 2008.
    Because the substantive requirements of this rule are largely 
unchanged from the corresponding provisions of the January 2006 final 
rule, the Board is issuing this rule in interim final form, rather than 
as a new proposal. The interim final rule also provides interested 
parties an opportunity to comment on all aspects of the revised 
requirement and clarifications.

III. Section-by-Section Analysis

Section 205.3 Coverage

3(a) General
    Section 205.3(a) is revised to incorporate a revision that was 
inadvertently omitted from the January 2006 final rule addressing 
electronic check conversion transactions, ATM disclosures and other 
matters. See 71 FR 1,638 (January 10, 2006). Specifically, Sec.  
205.3(a) is revised pursuant to the Board's authority under Sections 
904(c) and 904(d)(1) of the EFTA to provide that the requirement in 
Sec.  205.3(b)(3) to obtain a consumer's authorization to collect a fee 
for insufficient or uncollected funds via an EFT to the consumer's 
account applies to any person. See 71 FR at 1,645-46. As further 
discussed under Sec.  205.3(b)(3), this amendment would enable the 
Board to clarify that the requirement to obtain the consumer's 
authorization applies to the merchant or other payee seeking to collect 
an insufficient funds fee electronically and not to the consumer's 
account-holding institution.
3(b) Electronic Fund Transfer
Electronic Check Conversion
    Under the January 2006 final rule, merchants and other payees in 
ECK transactions are required to obtain the consumer's authorization 
for the one-time transfer. Generally, authorization is obtained when 
the payee provides a notice to the consumer that a check received as 
payment will be converted to an EFT, and the consumer goes forward with 
the transaction. At POS, the notice must be posted in a prominent and 
conspicuous location, and a copy of the notice must be provided to the 
consumer at the time of the transaction, such as on a receipt. See 
Sec.  205.3(b)(2); 71 FR at 1,640-41. Model language was provided in 
the January 2006 final rule to facilitate compliance. See Model Clause 
A-6. This interim final rule clarifies that the notice given to the 
consumer at the time of the transaction must be substantially similar 
to the notice posted at POS, but need not be an exact copy of the 
posted notice.
    Since publication of the January 2006 final rule, the Board has 
received inquiries regarding whether the requirement to provide a copy 
of the notice posted at POS affords payees flexibility to modify the 
language in the notice given to consumers, or whether the rule requires 
the copy to contain the same language as the posted notice. For 
example, a payee might seek to modify the text of the notice given to 
the consumer (e.g., by changing the text

[[Page 51453]]

from ``You authorize us to use information from your check * * *'' to 
``I authorize you to use information from my check * * *'') to make the 
notice more meaningful to the consumer. The Board did not intend that 
the text of the copy given to the consumer necessarily be identical to 
the text on the posted sign. As stated in the SUPPLEMENTARY INFORMATION 
to the January 2006 final rule, the requirement to provide a copy is 
intended to give consumers a document explaining that their checks 
might be converted that they may take home to refer to later, if 
necessary. See 71 FR at 1,642. Accordingly, Sec.  205.3(b)(2) is 
revised to clarify that payees may provide to the consumer either a 
copy of the text of the notice posted at POS or alternatively, a 
substantially similar notice. Payees modifying the text of the posted 
notice in the notice given to the consumer must ensure that consumers 
are sufficiently informed that, by providing a check as payment, the 
consumer has authorized the conversion of the check to an EFT from the 
consumer's account.
Collection of Service Fees Through an Electronic Fund Transfer
    Section 205.3(b)(3) was added in the January 2006 final rule to 
clarify that an EFT from a consumer's account to collect a fee due to 
insufficient or uncollected funds is covered by Regulation E and must 
be authorized by the consumer. Under the January 2006 final rule, a 
consumer authorizes the electronic collection of a fee for a check or 
EFT returned due to insufficient funds when the consumer receives 
notice of the intent to collect the fee from the consumer's account by 
EFT, along with a disclosure of the amount of the fee, and goes forward 
with the underlying transaction. See 71 FR at 1,645-46. The interim 
final rule redesignates Sec.  205.3(b)(3) as Sec.  205.3(b)(3)(i) and 
also clarifies that the obligation to provide notice to obtain the 
consumer's authorization to electronically collect a fee for 
insufficient or uncollected funds applies to the person seeking to 
collect the fee. The interim final rule also provides that if the 
amount of the fee may vary due to the amount of the underlying 
transaction or due to other factors, the person collecting the fee may, 
in many cases, provide an explanation of how the fee is determined, 
rather than provide a specific dollar amount. In addition, Sec.  
205.3(b)(3) is revised to state that at POS, the notice given to the 
consumer may be substantially similar to the posted notice, so long as 
the consumer is sufficiently informed of the payee's intent to 
electronically collect an insufficient funds fee and the amount of the 
fee.
Persons Subject to the Requirement
    While Sec.  205.3(b)(3) as adopted in the January 2006 final rule 
was intended to apply the notice and authorization requirement to the 
person electronically collecting a fee for any items returned to that 
person due to insufficient or uncollected funds in the consumer's 
account, the rule did not specifically indicate the party that was 
required to provide the notice. Section 205.3(b)(3) thus arguably could 
create some confusion as to whether the obligation of providing the 
notice lies with the payee seeking to collect the insufficient funds 
fee electronically or with the consumer's account-holding financial 
institution. The interim final rule therefore clarifies that the 
obligation to provide the notice to obtain the consumer's authorization 
for the electronic collection of insufficient funds fees rests with the 
party seeking to collect the fee, which typically would be a merchant 
or other payee. Accordingly, if a payee fails to obtain a consumer's 
authorization for it to collect a fee for insufficient or uncollected 
funds by means of an EFT from the consumer's account, the payee 
collecting that fee, and not the consumer's account-holding financial 
institution, has violated the regulation. Section 205.3(b)(3) is 
redesignated as Sec.  205.3(b)(3)(i).
    Revised comment 3(b)(3)-1 clarifies that the requirement in Sec.  
205.3(b)(3) is not intended to apply to the consumer's account-holding 
financial institution when it assesses a fee against the consumer's 
account for returning a check or EFT unpaid or for paying an overdraft, 
regardless of where the underlying transaction has taken place (for 
example, at a POS, at an ATM, or for a check that a consumer has sent 
in as payment).
Notice Requirements--General
    As provided in the January 2006 final rule and in this interim 
final rule, payees must provide notice of their intent to 
electronically collect a fee for insufficient or uncollected funds. The 
notice must also state the amount of the fee. At POS, the notice must 
be posted in a prominent and conspicuous location and a copy of the 
notice must be provided to the consumer at the time of the transaction, 
such as on the sales receipt. Payees in accounts receivable conversion 
(ARC), or lockbox, transactions will typically provide written notice 
on a billing statement or invoice. See Sec.  205.3(b)(3); 71 FR at 
1,646.
    A separate notice to obtain the consumer's authorization to 
electronically collect a fee for items returned not paid due to 
insufficient funds in the consumer's account must be provided by the 
payee each time the payee seeks to collect the fee. Thus, the inclusion 
of authorization language in a contract or initial terms and 
conditions, for example, in an insurance contract or a utility 
agreement, would not satisfy a payee's obligation to provide notice 
each time it may seek to electronically collect an insufficient funds 
fee from the consumer's account. See comment 3(b)(2)-3.
    The interim final rule in Sec.  205.3(b)(3)(i) clarifies that the 
disclosure of the fee must be expressed in a dollar amount. This 
requirement is intended to inform consumers of how much they may be 
charged in the event they have insufficient funds in their account to 
clear the underlying transaction. See 71 FR at 1,646. State laws 
addressing the maximum fee that payees may collect for returned items 
due to insufficient or uncollected funds are not uniform, however. 
While in many states, the maximum fee that may be charged for items 
returned for insufficient funds is expressed as a flat fee regardless 
of the amount of the transaction, in others the fee may vary based on 
the transaction amount or on additional factors. For example, in some 
states, the maximum fee that may be collected may be a series of flat 
fees based on the amount of the transaction (e.g., $25 for transactions 
up to $50, $30 for transactions between $50.01 and $300.00, and the 
greater of $40, or 5% of the face amount of the check, for transactions 
above $300), and in other states the maximum fee is a fixed percentage 
of the transaction amount (e.g., 5% of the transaction amount). 
Moreover, in at least one state, the maximum fee might vary based on 
the number of days that a payment continues to be owed (e.g., the 
maximum fee that may be collected in most cases is $25, but the fee may 
increase to $35 if the obligation remains outstanding after 15 days' 
notice). Thus, where the actual fee charged to the consumer may vary 
based on the amount of the underlying transaction or upon other factors 
beyond the payee's control, a requirement to disclose a specific dollar 
amount might impose considerable programming costs in some cases or be 
impossible to comply with in others. Accordingly, the interim final 
rule provides that where a fee for insufficient or uncollected funds 
may vary based on the amount of the transaction or other factors, such 
as the

[[Page 51454]]

amount of time the obligation is left outstanding, a payee seeking to 
collect the fee electronically may, in many cases, instead provide an 
explanation of how the fee will be determined. (But see Sec.  
205.3(b)(3)(ii), requiring payees at POS to state the dollar amount of 
the fee on the notice given to the consumer where the fee can be 
calculated at the time of the transaction.) Comment 3(b)(3)-2 provides 
an example of how the rule would apply when a person seeks to 
electronically collect an insufficient funds fees in connection with an 
ARC transaction.
    To facilitate compliance, the January 2006 final rule provided 
model language that payees may use to disclose their intent to collect 
a fee for insufficient or uncollected funds electronically as well as 
the amount of the fee. Specifically, payees could disclose: ``You 
authorize us to collect a fee of $---- through an electronic fund 
transfer from your account if your payment is returned unpaid.'' See 
also Model Clauses A-6(a) and (b) in the January 2006 final rule. In 
the interim final rule, this clause has been moved to a new section A-8 
of Appendix A because the requirement to disclose the payee's intent to 
collect electronically a fee for insufficient or uncollected funds is 
not limited to electronic check conversion transactions, but could 
apply more broadly (e.g., when the underlying transaction is processed 
as a check transaction). The model clause has been revised for 
consistency with the interim final rule, and to improve its 
readability.
Notice Requirements--POS Transactions
    As noted previously, under the January 2006 final rule, payees at 
POS must post notice of their intent to collect an insufficient funds 
fee electronically (along with the amount of the fee) in a prominent 
and conspicuous location, and a copy of the notice must be provided to 
the consumer at the time of the transaction, such as on the sales 
receipt. The interim final rule in Sec.  205.3(b)(3)(ii) permits payees 
to provide on the posted notice a description of how the fee is 
determined if it may vary based on the transaction amount or upon other 
factors beyond the payee's control. However, if the dollar amount of 
the fee can be calculated at the time of the transaction, the interim 
final rule provides that the copy of the notice provided to the 
consumer at POS must state that dollar amount, rather than an 
explanation of how that fee is determined. For example, in a state 
where the fee may vary based solely on the amount of the underlying 
transaction, the payee may provide an explanation of how the fee may be 
determined on the posted notice, but would be required to provide the 
actual dollar amount of the fee on the notice provided to the consumer. 
Conversely, in a state where the amount of the service fee cannot be 
calculated at the time of the transaction (e.g., where the amount of 
the fee will depend on the number of days a debt continues to be owed), 
the payee may provide a description of how the fee will be determined 
on both the posted notice as well as on the copy provided to the 
consumer. See comment 3(b)(3)-3. Comment is requested on this approach, 
and specifically on the feasibility and the costs associated with 
providing the specific dollar amount of the insufficient funds fee that 
may be collected on the copy of the notice provided to the consumer at 
POS, if the maximum amount of the fee that may be collected is 
determined solely based on the amount of the transaction. Comment is 
also solicited regarding whether insufficient funds fees may be 
electronically collected by payees in circumstances other than in 
connection with a POS transaction or an ARC transaction when a consumer 
sends in a payment for a recurring bill or invoice (e.g., to pay a 
credit card or a utility bill).
    Consistent with the prior discussion regarding disclosures for ECK 
transactions, the notice given to the consumer at the time of the 
transaction regarding a person's intent to electronically collect an 
insufficient funds fee may be a copy of the posted notice, or may be a 
substantially similar notice. See Sec.  205.3(b)(3)(ii). Thus, payees 
at POS may modify the text of the notice given to consumers as long as 
the notice sufficiently conveys to the consumer the payee's intent to 
electronically collect a fee if an item is returned to the payee due to 
insufficient or uncollected funds in the consumer's account, and the 
amount of the fee (or an explanation of how that fee is determined).
Delayed Compliance Date for Terminals at POS
    Since publication of the January 2006 final rule, the Board has had 
discussions with vendors of check processing services and understands 
that achieving full compliance with the requirement to disclose the 
amount of the service fee on the receipt given to the consumer at POS 
will require considerable time and expense in order to reprogram 
existing terminals to provide the necessary information. In light of 
the fact that the notice posted at POS will inform consumers of the 
payee's intent to electronically collect fees for insufficient funds 
and at a minimum describe how those fees may be determined, the Board 
believes that the costs of reprogramming terminals used to generate 
receipts provided to the consumer by the January 1, 2007, compliance 
date would outweigh the additional benefit of providing the specific 
dollar amount of the fee to the consumer. Accordingly, Sec.  
205.3(b)(3)(iii) of the interim final rule provides a one-year delay in 
the compliance date with respect to the requirement to disclose the 
amount of the insufficient funds fee (or an explanation of the fee when 
the specific amount cannot be determined at the time of the 
transaction) on the copy of the notice, or substantially similar 
notice, given to the consumer at the time of the transaction.
    This delayed compliance provision is limited solely to the 
disclosure on the version of the notice given to the consumer regarding 
the amount of the insufficient funds fee that may be collected and does 
not apply to the requirement to disclose on that notice, the payee's 
intent to electronically collect the fee. The delayed compliance date 
also does not apply to the requirement to provide the amount of the 
fee, or an explanation of how the fee is determined, on the posted 
notice.
    This interim final rule supersedes the corresponding provisions of 
Sec. Sec.  205.3(a) and 205.3(b)(3) and associated commentary that was 
contained in the January 2006 final rule. The Board seeks comment on 
all aspects of the interim final rule.

IV. Final Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) 
generally requires an agency to perform an assessment of the impact a 
rule is expected to have on small entities.
    However, under section 605(b) of the RFA, 5 U.S.C. 605(b), the 
regulatory flexibility analysis otherwise required under section 604 of 
the RFA is not required if an agency certifies, along with a statement 
providing the factual basis for such certification, that the rule will 
not have a significant economic impact on a substantial number of small 
entities. Based on its analysis and for the reasons stated below, the 
Board certifies that this interim final 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 interim final 
rule. The Board is revising Regulation E to clarify that a person that 
intends to collect a fee for insufficient or uncollected funds via

[[Page 51455]]

an EFT from a consumer's account must obtain the consumer's 
authorization. Authorization would be obtained by the person, typically 
a merchant or other payee, if the person provides a written notice of 
its intent to collect the fee electronically, along with a disclosure 
of the dollar amount of the fee, and the consumer goes forward with the 
underlying transaction after receiving that notice. This requirement 
would allow consumers to receive prior notice of a payee's intent to 
electronically collect a fee for insufficient or uncollected funds and 
enable the Board to promote consistency in the notice provided to 
consumers by merchants and other payees.
    In response to industry requests for flexibility with respect to 
the requirement to provide consumers with a copy of the notice posted 
at POS informing them of the payee's intent to electronically collect a 
fee for insufficient or uncollected funds, the interim final rule 
states that payees may provide a substantially similar notice. A 
similar revision is made with respect to the electronic check 
conversion requirements at POS. Accordingly, payees may provide 
consumers with a notice that is substantially similar to the notice 
posted at POS informing consumers that the payee may convert checks 
received as payment to EFTs.
    In addition, to address state laws that, for example, permit payees 
to charge a fee for items returned due to insufficient funds in a 
consumer's account based on a percentage of the underlying transaction 
(rather than a flat fee regardless of the transaction amount), the 
interim final rule permits payees to disclose a description of how the 
fee will be determined in lieu of an actual dollar amount. However, if 
the dollar amount can be calculated at the time of the transaction, 
payees must state the dollar amount of the fee on the version of the 
notice provided to the consumer.
    The EFTA was enacted to provide a basic framework establishing the 
rights, liabilities, and responsibilities of participants in electronic 
fund transfer systems. The primary objective of the EFTA is the 
provision of individual consumer rights. 15 U.S.C. 1693. The EFTA 
authorizes the Board to prescribe regulations to carry out the purpose 
and provisions of the statute. 15 U.S.C. 1693b(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. 1693b(c). The Act also states 
that ``[i]f electronic fund transfer services are made available to 
consumers by a person other than a financial institution holding a 
consumer's account, the Board shall by regulation assure that the 
disclosures, protections, responsibilities, and remedies created by 
[the act] are made applicable to such persons and services.'' 15 U.S.C. 
1693b(d). The Board believes that the revisions to Regulation E 
discussed above are within Congress's broad grant of authority to the 
Board to adopt provisions that carry out the purposes of the statute.
    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 September 2004 proposal (69 FR 55,996 (September 
17, 2004)). In accordance with section 604(a) of the RFA, the Board 
also conducted a final regulatory flexibility analysis in connection 
with its January 2006 final rule (71 FR 1,638 (January 10, 2006)). The 
Board did not receive any comments on either of these regulatory 
flexibility analyses specifically with respect to the disclosure of a 
person's intent to electronically collect a fee for insufficient or 
uncollected funds. However, one commenter, a major provider of check 
processing services, in response to the September 2004 proposal, noted 
that in general any changes to the authorization language provided to 
consumers in electronic check conversion transactions at POS locations 
would entail re-programming of the terminals typically used to provide 
notices and obtain the consumer's authorization.
    3. Small entities affected by the interim final rule. Merchants or 
other payees that initiate one-time EFTs from a consumer's account to 
electronically collect a fee for items returned due to insufficient or 
uncollected funds in the consumer's account will be required under the 
regulation to obtain the consumer's authorization for the transfer. 
Payees must provide written notice of their intent to collect the fees 
electronically, and disclose the dollar amount of the fee. For ARC 
transactions, notice will likely be provided on a billing statement or 
invoice. At POS, notice must be provided by posted signage, and a copy 
of the notice, or a substantially similar notice, must be given to the 
consumer.
    The Board believes many small merchants and other payees that 
electronically collect fees for returned items due to insufficient or 
uncollected funds in a consumer's account are currently providing 
written notices to collect such fees debited, either on posted signage 
or on a transaction receipt at POS, and possibly both. Similarly, the 
Board believes that payees are providing written notices in ARC 
transactions because payment system rules currently require written 
notices. Therefore, small entities affected by this interim final rule 
are unlikely to have to craft entirely new notices as a result of this 
rule. Although they will have to review, and likely revise, their 
existing notices, including reprogramming the terminals used to 
generate these notices, the Board does not expect that the burden 
associated with these tasks will be significant. To further facilitate 
compliance, the Board provided model language regarding the notice 
requirement as part of the January 2006 final rule, and has provided 
revised model language in this interim final rule. In addition, the 
interim final rule would extend for one year, the compliance date for 
the requirement to disclose the dollar amount of the fees for 
insufficient or uncollected funds on the notice provided to the 
consumer to allow additional time for any necessary programming 
changes.
    4. Other federal rules. The Board has not identified any federal 
rules that duplicate, overlap, or conflict with the interim final 
revisions to Regulation E.
    5. Significant alternatives to the proposed revisions. The Board 
solicits comment about potential ways to reduce regulatory burden 
associated with this interim final rule.

V. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (PRA) of 1995 (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 interim final rule contains requirements subject 
to the PRA. The collection of information that is required by this rule 
is found in 12 CFR 205.3(b)(3). The Federal Reserve may not conduct or 
sponsor, and an organization is not required to respond to, this 
information collection unless the information collection displays a 
currently valid OMB control number. The OMB control number is 7100-
0200. This information is required to provide benefits for consumers 
and is mandatory (15 U.S.C. 1693 et seq.). The respondents/
recordkeepers are for-profit financial institutions, including small 
businesses. Institutions are required to retain records for 24 months.

[[Page 51456]]

    All persons, such as merchants and other payees, that may collect a 
fee for insufficient or uncollected funds via an EFT from the 
consumer's account potentially are affected by this collection of 
information, because these merchants and payees will be required to 
obtain a consumer's authorization for the electronic transfer under 
Sec.  205.3(b)(3).
    Burden with respect to the requirement to provide notice to the 
consumer for the purpose of obtaining the consumer's authorization for 
the electronic collection of fees for insufficient or uncollected funds 
was previously estimated in the January 2006 final rule (Docket No. R-
1210 and R-1234), and reported in accordance with those estimates in 
documents filed with OMB. Under the Board's prior analysis, the total 
burden under Regulation E for all financial institutions, including but 
not limited to the burden of obtaining a consumer's authorization to 
collect a fee for insufficient or uncollected funds electronically as a 
result of the January 2006 final rule as further amended by this 
interim final rule, is 1,250,959 hours. This burden estimate does not, 
however, include the burden associated with the new disclosure 
requirements in connection with payroll card accounts as announced in a 
separate final rule (Docket No. R-1247).
    Because the records would be maintained by the institutions and the 
notices are not provided to the Federal Reserve, no issue of 
confidentiality arises under the Freedom of Information Act.

Text of Interim Final Revisions

    Comments are numbered to comply with Federal Register publication 
rules.

List of Subjects in 12 CFR Part 205

    Consumer protection, Electronic fund transfers, Federal Reserve 
System, Reporting and recordkeeping requirements.

0
For the reasons set forth in the preamble, the Board amends 12 CFR part 
205 and the Official Staff Commentary, as follows:

PART 205--ELECTRONIC FUND TRANSFERS (REGULATION E)

0
1. The authority citation for part 205 continues to read as follows:


    Authority: 15 U.S.C. 1603b.

0
2. Section 205.3 is amended by revising paragraphs (a), (b)(2)(ii) and 
(b)(3) as follows:


Sec.  205.3  Coverage.

    (a) General. This part applies to any electronic fund transfer that 
authorizes a financial institution to debit or credit a consumer's 
account. Generally, this part applies to financial institutions. For 
purposes of Sec. Sec.  205.3(b)(2) and (b)(3), 205.10(b), (d), and (e) 
and 205.13, this part applies to any person.
    (b) Electronic fund transfer. * * *
    (2) Electronic fund transfer using information from a check. * * *
    (ii) The person initiating an electronic fund transfer using the 
consumer's check as a source of information for the transfer must 
provide a notice that the transaction will or may be processed as an 
EFT, and obtain a consumer's authorization for each transfer. A 
consumer authorizes a one-time electronic fund transfer (in providing a 
check to a merchant or other payee for the MICR encoding, that is, the 
routing number of the financial institution, the consumer's account 
number and the serial number) when the consumer receives notice and 
goes forward with the underlying transaction. For point-of-sale 
transfers, the notice must be posted in a prominent and conspicuous 
location, and a copy thereof, or a substantially similar notice, must 
be provided to the consumer at the time of the transaction.
* * * * *
    (3) Collection of insufficient funds fees via electronic fund 
transfer. (i) General. The person initiating an electronic fund 
transfer to collect a fee for the return to that person of an 
electronic fund transfer or a check due to insufficient or uncollected 
funds in the consumer's account must obtain the consumer's 
authorization for each transfer. A consumer authorizes a one-time 
electronic fund transfer from his or her account to pay the fee for 
insufficient or uncollected funds if the person collecting the fee 
provides notice to the consumer stating that the person may 
electronically collect the fee, and the consumer goes forward with the 
transaction. The notice must state that the fee will be collected by 
means of an electronic fund transfer from the consumer's account if the 
payment is returned due to insufficient or uncollected funds and must 
disclose the dollar amount of the fee. If the fee may vary due to the 
amount of the transaction or due to other factors, then, except as 
otherwise provided in paragraph (b)(3)(ii), the person collecting the 
fee may disclose, in place of the dollar amount of the fee, an 
explanation of how the fee will be determined.
    (ii) Point-of-sale transactions. If a fee for insufficient or 
uncollected funds may be collected electronically in connection with a 
point-of-sale transaction, the person collecting the fee must post the 
notice described in paragraph (b)(3)(i) of this section in a prominent 
and conspicuous location, and also provide the consumer a copy of the 
posted notice, or a substantially similar notice, at the time of the 
transaction. If the amount of the fee may vary due to the amount of the 
transaction or due to other factors, the posted notice may explain how 
the fee will be determined, but in such cases, the notice provided to 
each consumer must state the dollar amount of the fee if the amount can 
be calculated at the time of the transaction.
    (iii) Delayed compliance date for fee disclosure. Through December 
31, 2007, the copy of the notice given to consumers at point-of-sale 
under paragraph (b)(3)(ii) of this section need not include either the 
dollar amount of any fee collected electronically for insufficient or 
uncollected funds or an explanation of how the fee will be determined.
* * * * *

0
3. In Appendix A to part 205,
0
a. Section A-6 Model Clauses for Authorizing One-Time Electronic Fund 
Transfer Using Information From a Check (Sec.  205.3(b)(2)), paragraphs 
(a) and (b) are revised; and
0
b. Section A-8 Model Clause for Electronic Collection of Insufficient 
Funds Fees (Sec.  205.3(b)(3)) is added.

Appendix A to Part 205--Model Disclosure Clauses and Forms

* * * * *

A-6 Model Clauses for Authorizing One-Time Electronic Fund Transfers 
Using Information From a Check (Sec.  205.3(b)(2))

(a)--Notice About Electronic Check Conversion

    When you provide a check as payment, you authorize us either to 
use information from your check to make a one-time electronic fund 
transfer from your account or to process the payment as a check 
transaction.

(b)--Alternative Notice About Electronic Check Conversion 
(Optional)

    When you provide a check as payment, you authorize us to use 
information from your check to make a one-time electronic fund 
transfer from your account. In certain circumstances, such as for 
technical or processing reasons, we may process your payment as a 
check transaction.
    [Specify other circumstances (at payee's option).]
* * * * *

[[Page 51457]]

A-8 Model Clause for Electronic Collection of Insufficient Funds Fees 
(Sec.  205.3(b)(3))

    If your payment is returned due to insufficient funds in your 
account, you authorize us to make a one-time electronic fund 
transfer from your account to collect a fee of $---- . [If your 
payment is returned due to insufficient funds in your account, you 
authorize us to make a one-time electronic fund transfer from your 
account to collect a fee. The fee will be determined [by]/[as 
follows]: --------.]


0
4. In Supplement I to Part 205, under Section 205.3--Coverage, the 
heading ``Paragraph 3(b)(3)--Collection of Service Fees via Electronic 
Fund Transfer'' is revised as ``Paragraph 3(b)(3)--Collection of 
Insufficient Funds Fees via Electronic Fund Transfer'', paragraph 1. is 
revised, and paragraphs 2. and 3. are added.

Supplement I to Part 205--Official Staff Interpretations

* * * * *

Section 205.3--Coverage

* * * * *
    3(b) Electronic Fund Transfer
* * * * *
    Paragraph 3(b)(3)--Collection of Insufficient Funds Fees via 
Electronic Fund Transfer
    1. Fees imposed by account-holding institution. The requirement 
to obtain a consumer's authorization to collect a fee via EFT for 
the return of an EFT or check unpaid due to insufficient or 
uncollected funds in the consumer's account applies only to the 
person to whom the EFT or check was returned and that intends to 
collect the service fee by means of an EFT from the consumer's 
account. The authorization requirement does not apply to any fees 
assessed by the consumer's account-holding financial institution 
when it returns the unpaid underlying EFT or check or pays the 
amount of the overdraft.
    2. Accounts receivable transactions. In an accounts receivable 
(ARC) transaction where a consumer sends in a payment for amounts 
owed, a person seeking to electronically collect a fee for returned 
items due to insufficient or uncollected funds in a consumer's 
account must obtain the consumer's authorization to collect the fee. 
A consumer authorizes a person to electronically collect an 
insufficient funds fee when the consumer receives notice, typically 
on an invoice or statement, that the person may collect the fee 
through an EFT to the consumer's account, and the consumer goes 
forward with the underlying transaction by sending payment. The 
notice must also state the dollar amount of the fee. However, an 
explanation of how that fee will be determined may be provided in 
place of the dollar amount of the fee if the fee may vary due to the 
amount of the transaction or due to other factors. For example, if a 
state law permits a maximum fee of $30 or 10% of the underlying 
transaction, whichever is greater, a payee may explain how the fee 
is determined, rather than state a specific dollar amount for the 
fee.
    3. Disclosure of dollar amount of fee at POS. The notice 
provided to the consumer at POS under Sec.  205.3(b)(3)(ii) must 
state the amount of the fee for insufficient or uncollected funds if 
the dollar amount of the fee can be calculated at the time of the 
transaction. For example, if a state sets a maximum fee that may be 
collected due to insufficient or uncollected funds in a consumer's 
account based on the amount of the underlying transaction (such as 
where the amount of the fee is expressed as a percentage of the 
underlying transaction), the person collecting the fee must provide 
the actual dollar amount of the fee on the notice provided to the 
consumer. Alternatively, in a state where the amount of the 
insufficient funds fee a person may collect cannot be calculated at 
the time of the transaction (for example, where the amount of the 
fee will depend on the number of days a debt continues to be owed), 
the person collecting the fee may provide a description of how the 
fee will be determined on both the posted notice as well as on the 
notice provided to the consumer.
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System.

    Dated: August 24, 2006.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E6-14342 Filed 8-29-06; 8:45 am]
BILLING CODE 6210-01-P