[Federal Register Volume 71, Number 6 (Tuesday, January 10, 2006)]
[Rules and Regulations]
[Pages 1473-1483]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-8317]
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Rules and Regulations
Federal Register
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This section of the FEDERAL REGISTER contains regulatory documents
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Federal Register / Vol. 71, No. 6 / Tuesday, January 10, 2006 / Rules
and Regulations
[[Page 1473]]
FEDERAL RESERVE SYSTEM
12 CFR Part 205
[Regulation E; Docket No. R-1247]
Electronic Fund Transfers
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Interim final rule; request for public comment.
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SUMMARY: The Board is amending Regulation E, which implements the
Electronic Fund Transfer Act, and the official staff commentary to the
regulation. The commentary interprets the requirements of Regulation E
to facilitate compliance primarily by financial institutions that offer
electronic fund transfer services to consumers.
The interim final rule provides that payroll card accounts
established directly or indirectly by an employer on behalf of a
consumer to which electronic fund transfers of the consumer's salary,
wages, or other employee compensation are made on a recurring basis are
accounts covered by Regulation E.
DATES: This interim final rule is effective July 1, 2007. Comments must
be received on or before March 13, 2006.
ADDRESSES: You may submit comments, identified by Docket No. R-1247, by
any of the following methods:
Agency Web Site: http://www.federalreserve.gov. Follow the
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: [email protected]. 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
http://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, or
Daniel G. Lonergan or David A. Stein, Counsels, 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 (EFTA or Act) (15 U.S.C. 1693 et
seq.), 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 require 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 prescribe restrictions on 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
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 Overview of Comments Received
Payroll cards have become increasingly popular with some employers,
financial institutions, and payroll service providers as a means of
providing a consumer's wages or other recurring compensation payments--
assets that the consumer is able to access and spend via an access
device that provides functionality comparable to that of a debit card.
Typically, an employer, in conjunction with a bank, will provide the
employee with a plastic card with a magnetic stripe; this card accesses
an account (or subaccount) assigned to the individual employee. Each
payday, the employer credits this account for the amount of the
employee's compensation instead of providing the employee with a paper
check or making a direct deposit of salary to the employee's checking
account. The employee-consumer can use the payroll card to withdraw his
or her funds at an ATM, and to make purchases at POS (and possibly get
cash back). Some payroll cards may offer features such as convenience
checks and electronic bill payment. Payroll cards are often marketed to
employers as an effective means of providing wages to employees who
lack a traditional banking relationship. For ``unbanked'' consumers,
payroll card products can serve as substitutes for traditional
transaction accounts at a financial institution.
On September 17, 2004, the Board published a notice of proposed
rulemaking in the Federal Register (69 FR 55,996) (September 2004
proposal) to provide, among other things, that the term ``account''
under Regulation E includes payroll card accounts established by an
employer for the purpose of providing an employee's compensation on a
recurring basis. A payroll card account would be subject to the
regulation whether it is operated or managed by the employer, a third-
party payroll processor, or a depository institution.
The Board received approximately 120 comment letters on the
September
[[Page 1474]]
2004 proposal, nearly 50 of which specifically commented on the
proposed revisions addressing payroll card accounts. Comments were
received from a variety of industry commenters, including banks,
thrifts, credit unions, and industry trade associations. Comments were
also received from consumer groups and individual consumers.
Industry commenters generally agreed that it was appropriate to
cover payroll card accounts under Regulation E, but urged the Board not
to cover other stored-value products so as not to discourage the
continued evolution of such products. Most industry commenters also
asserted that not all provisions of Regulation E should apply to
payroll card accounts. In particular, industry commenters stated that
institutions should not be required to provide paper periodic
statements. These commenters cited various reasons, including that
other means of accessing balance and transaction information, such as
via a telephone and the Internet, provided more useful and timely
information to consumers at less cost to financial institutions.
Industry commenters also stated that payroll card users are often
unbanked and chiefly interested in obtaining balance information and,
further, that this population was typically transient, making paper
statements difficult to deliver. Consumer groups urged the Board to
expand the scope of the proposal to cover any stored-value product that
is marketed or used as an account substitute, or that is used to
receive payments of significant household funds, such as workers'
compensation or unemployment benefits.
A final rule addressing the other proposed provisions addressing
electronic check conversion transactions and other matters in the
September 2004 proposal is published elsewhere in this Federal
Register.
III. Summary of the Interim Final Rule
The Board has modified the proposed rule in light of the comments
received. In order to give interested parties an opportunity to comment
on the modifications made, and, in particular, on the alternative means
to provide periodic statement information, the Board is publishing this
interim final rule for comment.
Under the interim final rule, payroll card accounts are defined as
``accounts'' for purposes of coverage under Regulation E, and include
those accounts directly or indirectly established by an employer to
which EFTs of the consumer's wages or other compensation are made on a
recurring basis. The interim final rule incorporates a new Sec. 205.18
to grant financial institutions flexibility in how to provide certain
account transaction information to payroll card users. Under the new
section, financial institutions would be granted an alternative to
regularly providing paper periodic statements. In particular, instead
of providing paper periodic statements under Sec. 205.9, an
institution would: (1) Make available to the consumer balance
information through a readily available telephone line; (2) make
available to the consumer an electronic history (such as via the
Internet) of the consumer's account transactions covering at least a
period of 60 days prior to the consumer's oral or written request; and
(3) provide promptly upon the consumer's request, a written history of
the consumer's account transactions covering at least a period of 60
days prior to the request. The history of account transactions provided
electronically or upon request would set forth the same type of
information required to be provided on paper periodic statements
otherwise required under Regulation E, including information about any
fees for EFTs imposed during the period in connection with the payroll
card account.
The comments received on the proposal, and the Board's response to
the comments, are discussed in the following section-by-section
analysis. As discussed below, the Board is adopting these rules as
interim final rules so that interested parties may comment on the new
requirements. The effective date of the interim final rule is July 1,
2007.
IV. Section-by-Section Analysis
Section 205.2 Definitions 2(b) Account
The EFTA and Regulation E apply to any EFT that authorizes a
financial institution to debit or credit a consumer's asset account.
Under the proposed rule, the term ``account'' in Sec. 205.2(b)(3)
would be revised to include a ``payroll card account'' directly or
indirectly established by an employer on behalf of a consumer to which
EFTs of the consumer's wages, salary, or other employee compensation
are made on a recurring basis. A payroll card account would be subject
to the regulation whether the account is operated or managed by the
employer, a third-party payroll processor, or a depository institution.
The interim final rule redesignates current Sec. 205.2(b)(2) as Sec.
205.2(b)(3) and adopts the definition of payroll card accounts as
proposed under Sec. 205.2(b)(2).
Overall, the majority of commenters supported coverage of payroll
card accounts under Regulation E. Many industry commenters agreed that
Regulation E coverage was appropriate for payroll cards, but urged the
Board to narrowly define payroll cards so as to include only those
types of products that are truly intended to serve as ``accounts.'' In
this regard, some industry commenters were concerned that an overly
broad definition of payroll cards might have the effect of stifling the
development of emerging stored-value card products.
A few industry commenters objected to the characterization of
payroll cards as ``accounts'' or ``account substitutes,'' asserting
that funds are added to payroll card accounts in a more limited manner
than they are to traditional deposit accounts. (With a payroll card,
funds can often be added to the account only by the employer and not
the employee.) These industry commenters believed that payroll cards
were more appropriately characterized as ``payment substitutes''
because they provide a means for replacing paper checks.
Consumers and consumer groups supported the proposal's broad
coverage of financial institutions, employers, and providers, and
stated that all Regulation E protections, including the provision of
periodic statements, should apply to payroll card accounts. These
commenters also recommended broadening the scope of the rule to
encompass all cards ``marketed as substitutes'' for a bank account, as
well as cards that are used to receive payments of significant
household funds, such as workers' compensation, unemployment benefits,
social security payments, or tax refunds.
By express definition, the coverage of EFT services under the EFTA
and Regulation E depends upon whether a transaction involves an EFT to
or from a consumer's account. Section 903(2) of the EFTA defines an
``account'' as a ``demand deposit, savings deposit, or other asset
account * * * as described in regulations of the Board, established
primarily for personal, family, or household purposes.'' The definition
is broad and is not limited to traditional checking and savings
accounts.\1\ Under
[[Page 1475]]
section 904(d) of the EFTA, ``[i]f EFT 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 EFTA] are made applicable to such persons and services.'' Congress
has clearly expressed its expectation that the Board's regulation would
keep pace with new services and assure that the Act's basic protections
continue to apply to such services.\2\
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\1\ The EFTA's legislative history evidences a clear
Congressional intent to define the term ``account'' broadly to
ensure that ``all persons who offer equivalent EFT services
involving any type of asset account are subject to the same
standards and consumers owning such accounts are assured of uniform
protection.'' S. Rep. No. 915, 95th Cong., 2d Sess. 9 (1978).
\2\ See id.; S. Rep. No. 1273, 95th Cong., 2d Sess. 9-10, 25-26
(1978).
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In light of the characteristics of payroll card accounts, the Board
believes it is appropriate to exercise its authority under sections
903(2) and 904(d) of the EFTA and determine that payroll card accounts
are appropriately classified as ``accounts'' for purposes of Regulation
E. Payroll card accounts are assigned to an identifiable consumer and
represent a recurring stream of payments that is likely the primary
source of the consumer's income. They are replenished on a recurring
basis and designed for ongoing use at multiple locations and for
multiple purposes. Payroll card accounts utilize the same kinds of
access devices, electronic terminals, and networks as do other EFT
services historically covered by the EFTA.
The interim final rule adopts a new Sec. 205.2(b)(2) to provide
that the term ``account'' includes a ``payroll card account'' directly
or indirectly established by an employer on behalf of a consumer to
which EFTs of the consumer's wages, salary, or other employee
compensation are made on a recurring basis. (Current Sec. 205.2(b)(2)
is re-designated as Sec. 205.2(b)(3).) Coverage under Regulation E
applies whether the account is operated or managed by the employer, a
third-party payroll processor, or a depository institution. The
definition is unchanged from the proposal.
The definition generally includes a payroll card account that
represents the means by which an employer regularly pays the employee's
salary or other form of compensation, and would include, for example,
card accounts for seasonal workers or employees that are paid on a
commission basis. Moreover, the fact that an employee may only remain
in the employer's hire for a short period of time, including just one
pay cycle, does not negate coverage, so long as the employer intended
to make recurring payments to the payroll card account. However, if the
employer only pays the employee by adding funds to an ``account''
accessible by a card in isolated or limited instances--for example, in
final-paycheck situations, or only in emergency situations when the
customary, non-payroll-card method of payment does not work--but
otherwise intends to regularly pay the employee by another method, such
as by paper check or direct-deposit, such a card ``account'' would not
fall within the definition of a payroll card account.
Payroll card accounts also are covered under the interim final rule
whether the funds are held in individual employee accounts or in a
pooled account with some form of ``subaccounting'' maintained by a
depository institution (or by a third party) that enables a
determination of the amounts of money owed to particular employees.
Although some commenters suggested that the manner in which such funds
are held should determine whether a particular payroll card account
falls within the rule, the Board has determined to adopt the definition
as proposed, because it will assure broad and uniform application and
compliance, and minimize potential circumvention of the rule. The Board
further believes there is no substantive difference between a
subaccount and an individual account for purposes of determining
whether Regulation E coverage is appropriate.
As stated in the proposal, the Board is limiting the scope of this
interim final rule to payroll card products. Thus, for example,
``gift'' cards issued by a merchant that can be used to purchase items
in the merchant's store would not be covered by the interim final rule.
In addition, comment 2(b)-2 clarifies that cards to which only one-time
transfers of salary-related payments are made (e.g., to pay an annual
bonus), or cards exclusively used to disburse non-salary-related
payments, such as petty cash or travel per diem cards, are not covered.
To the extent one-time bonus payments, payments to reimburse travel
expenses, or any other payment of funds (e.g., if a consumer is
permitted to add his or her funds) are transferred to or from a payroll
card account, however, such transfers would be considered EFTs covered
by the regulation. Current comment 2(b)-2 addressing examples of
accounts not covered by Regulation E is redesignated as comment 2(b)-3.
Some consumer group commenters urged the Board to apply Regulation
E to all card products to which an individual might transfer by direct
deposit some portion of his or her wages, even if such cards are not
``payroll card accounts'' directly or indirectly established by an
employer. These commenters asserted that such general spending cards
are marketed as account substitutes and therefore should be covered
under the regulation. Consumer groups also urged the Board to cover
stored-value products that may be used by some consumers to hold
important household funds or assets, such as workers' compensation,
unemployment benefits or tax refunds.
The Board has not expanded the interim final rule in the manners
suggested. Payroll cards are established directly or indirectly by an
employer for the express purpose of receiving on a long-term basis,
recurring payments of a consumer's wages, salary or other compensation.
Accordingly, there is a greater likelihood that the account will serve
as a consumer's principal transaction account, and hold significant
funds for an extended period of time. In contrast, general spending
cards are established by the individual consumer, and while the
consumer might choose to deposit some portion of salary (as well as
other funds) onto a general spending card, the consumer also may use
these products like gift cards or other stored-value or prepaid cards.
Under the latter situation, consumers would derive little benefit from
receiving full Regulation E protections for a card that may only be
used on a limited, short-term basis and which may hold minimal funds,
while the costs of providing Regulation E initial disclosures, periodic
statements and error resolution rights would be quite significant for
the issuer. In addition, coverage of such products could impede the
development of other card products generally. Similarly, although some
card products may be used to transfer significant or important sums to
a consumer, these products are generally designed to make one-time or a
limited number of payments to consumers, and are not intended to be
used on a long-term basis. Given these above considerations, the Board
has determined to limit the scope of the interim final rule to payroll
card accounts. The Board will monitor the development of other card
products and may reconsider Regulation E coverage as these products
continue to develop.
Section 205.18 Requirements for Financial Institutions Offering Payroll
Card Accounts
In the proposal, the Board proposed that all of the Regulation E
provisions, including initial disclosures, periodic statements, error
resolution procedures, and other consumer protections, would apply to
payroll card accounts. Industry commenters, however, disagreed with the
Board's suggestion that all provisions of Regulation E coverage
[[Page 1476]]
should apply to payroll card accounts. In particular, most industry
commenters stated that the requirement to deliver periodic statements
under Sec. 205.9 should not apply to payroll card accounts. Instead,
industry commenters suggested that entities offering payroll cards
should be subject to rules similar to those contained in Sec. 205.15
of Regulation E for accounts established for the electronic transfer of
government benefits (electronic benefit transfer, or EBT, accounts),
which provide for alternative means of providing account information.
Industry commenters commonly cited one or more of the following
justifications for not requiring paper periodic statements: (1) Some
payroll card holders are transient, complicating the mailing of
statements; (2) payroll card holders are sufficiently informed about
their accounts by ``real-time'' balance and recent-transaction
information available by other means, such as on-line, through
telephone voice-response units, or ATMs; (3) payroll cards seek to
eliminate employer paper payroll costs, and a mailed statement could
reduce expected savings to employers; (4) the cost of mailing
statements could increase payroll card fees, potentially lowering both
employer as well as employee interest in using the cards; and (5)
imposing a costly regulatory requirement could inhibit the development
of a card product that is safer for employees than carrying cash,
potentially cheaper than using a check-casher, and is a potential means
for transitioning the unbanked to a full banking relationship.
In contrast, consumer group commenters asserted that payroll card
accounts should be treated the same as other consumer accounts for all
purposes under the EFTA, including the requirement to provide paper
periodic statements. These commenters noted that periodic statements
assist consumers in tracking their account balances and transactions
and, importantly, allow consumers to discover unauthorized transfers or
other errors involving their accounts.
The periodic statement requirement is an important aspect of the
EFTA's protections. When it addressed EBT programs in 1994, the Board
recognized that periodic statements are a central component of
Regulation E's disclosure scheme. However, in the EBT final rule, the
Board exercised its exception authority under section 904(c) of the
EFTA to provide relief from the requirement to provide a periodic
statement if: (1) Account balance information is made available to
benefit recipients via telephone and electronic terminals; and (2) a
written account history is provided upon request. The Board determined
that granting EBT providers relief from the periodic statement
requirements was appropriate in light of the availability of other
means of obtaining account information to benefit recipients, the
limited types of transactions involved for EBT accounts, and the
expense of routinely mailing monthly statements to all recipients given
the low margins associated with administering EBT programs. See 59 FR
10,678, 10,681 (March 7, 1994).
As part of this rulemaking, the Board has conducted focus group
testing of identified payroll card holders to obtain information
regarding how actual payroll card users manage and use their accounts
in order to better understand their account information needs.
Participants in the Board-sponsored focus groups included both
consumers who received paper periodic statements for their payroll card
accounts, and those who did not.
Generally, focus group participants found their cards convenient to
use, and most used their cards not only to withdraw cash, but also to
make purchases on a regular basis. A significant number of participants
believed that receiving pay on payroll cards is more convenient than
receiving a paper paycheck each pay period, although a few participants
expressed a preference for receiving tangible, paper evidence of pay
each pay period. Many participants, particularly those that do not have
a checking account, have all of their pay deposited onto their payroll
card and pay all of their expenses from the account. Other participants
used the payroll card as a small savings account, while paying all of
their expenses out of another bank account.
The majority of focus group participants regularly checked their
balances over the telephone, or checked balance and transaction
information on-line, some multiple times per week. Although some
limited transaction information was available through the telephone,
most focus group participants chose not to access their transaction
information by phone. Participants indicated that more transaction
information was available on-line than was available via the telephone,
which made verification of transactions easier on-line.
For those participants who received paper periodic statements, most
stated that they generally filed their statements as a record of
account activity, but otherwise rarely used them to track transactions
or look for errors. The lack of periodic statement use was generally
attributed to the fact that the participants monitored their payroll
account information more frequently during the month via the telephone
or on-line, and thus, participants felt that they did not need to
review their statement when it arrived. While a few participants wanted
to receive or to continue to receive paper statements, others indicated
a clear preference for using alternative means of obtaining account
information, in particular on-line and by phone, to monitor account
activity and avoid errors.
The Board notes that nearly all of the focus group participants had
some means of on-line access; consequently the participants may not be
representative of the current or future payroll card holder population
overall with respect to their ability to access account information on-
line. Nevertheless, the Board believes that the focus groups provided
helpful insight regarding how consumers use and manage their payroll
card accounts.
After a review of the comments and data from the focus groups, and
further analysis, the Board has concluded that it is appropriate to
provide flexibility in connection with the periodic statement
requirement for payroll card accounts. As was the case when the Board
considered rules governing EBT products in 1994, the Board is persuaded
at this time that the alternative methods of providing account
transaction information currently made available by many payroll card
providers can give payroll card users a means of tracking their account
balances and transactions that is comparable to that provided by paper
periodic statements. Moreover, information obtained via the telephone
or on-line is typically updated on a daily basis, in contrast to
periodic statements which only provide information as of the end of
each statement cycle. Thus, consumers using telephone and on-line
methods often have access to more timely information through these
methods. Access to more timely information may be particularly critical
to consumers who may need to track their account balances on a
transaction-by-transaction basis to ensure they do not overdraw their
accounts.
The Board has also weighed the potential burden of requiring all
financial institutions to provide paper periodic statements against the
benefit consumers who prefer these statements would obtain from such
statements. Since financial institutions are not currently required to
provide paper statements for payroll card accounts, such a requirement
would impose
[[Page 1477]]
considerable one-time implementation costs on financial institutions
that currently provide payroll card accounts, and possibly discourage
other financial institutions from offering payroll card accounts.
Accordingly, after also taking into consideration the alternative
methods available to consumers for obtaining payroll card account
information, the Board concludes that granting relief from the periodic
statement requirement for payroll card accounts is appropriate.
Section 205.18 of the interim final rule adopts an approach for
providing account information for payroll card accounts similar to that
used for EBT products under Sec. 205.15, with certain modifications to
address issues relating to periodic statements and error resolution
procedures and notices. This new section allows financial institutions
to use alternative means to provide account information where an
institution chooses not to provide periodic statements under Sec.
205.9(b). Section 205.18 also addresses the requirements governing
periodic statements, initial disclosures, error resolution and the
annual error resolution notice, the issuance of access devices, and
limitations on liability. Except as modified by this section, all other
provisions of Regulation E apply to payroll card accounts.
18(a) Coverage
Section 205.18(a) describes the entities that must comply with
Regulation E with respect to the provision of payroll card accounts. A
person is a financial institution subject to the regulation if it
directly or indirectly holds a payroll card account or issues an access
device to a consumer for use in initiating an EFT from a payroll card
account. The scope of coverage set forth in this paragraph differs from
the scope under the definition of ``financial institution'' under Sec.
205.2(i) because it does not require that a person issuing an access
device for a payroll card account to also agree with a consumer to
provide EFT services in order to be covered. As stated in the
supplementary information in the proposal, the Board intends to cover
employers to the extent they are involved in the transfer of funds to
the payroll card account or in the issuance of the card. See 69 FR at
55,999. Thus, the Board believes that this clarification is necessary
to extend coverage under the interim final rule to employers that issue
payroll cards to their employees, but who may not otherwise provide EFT
services to their employees using those cards. However, the mere fact
that a consumer has elected to make direct deposits of salary to a
checking or savings account that the consumer has separately
established would not make an employer a financial institution for
purposes of this rule.
Section 205.18(a) further states that, except as provided in Sec.
205.18, the person must comply with all applicable requirements of the
act and regulation with respect to payroll card accounts. Comment
18(a)-1 illustrates this provision in the context of issuing access
devices under Sec. 205.5, and states that a financial institution may
issue an access device for a payroll card account consumer only in
response to an oral or written request for the device or as a renewal
or substitute of an accepted access device. The comment further
clarifies that a consumer is deemed to request an access device when
the consumer chooses to receive his or her salary through a payroll
card account. Although some commenters stated that a consumer should be
deemed to apply for a payroll card account when the consumer submits an
application for employment, such a rule could be inconsistent with the
compulsory use prohibition in Sec. 205.10(e)(2).
To the extent more than one party is a ``financial institution''
under the rule with respect to a particular payroll card account, such
parties may contract among themselves pursuant to the jointly provided
services provision under Sec. 205.4(e) to ensure compliance with the
interim final rule. For example, if an employer, by agreement, issues a
payroll card to a consumer and opens an account at a bank into which
the employer deposits the consumer's wages and from which the consumer
can access funds by using the card, then both the employer and the bank
would qualify as a financial institution with respect to that
consumer's payroll card account. Similarly, if an employer contracts
with a third party processor or service provider to issue the access
device for the payroll card account, the third party processor or
service provider would also be a financial institution with respect to
that payroll card account. Disclosure obligations satisfied by one
party, such as a service provider, for a payroll card account would
satisfy any disclosure obligations for any other financial institution
with respect to that payroll card account. Although several commenters
expressed concern that more than one entity may qualify as a
``financial institution,'' no significant reasons were offered to
explain why Sec. 205.4(e) is inadequate in the payroll card account
context.
18(b) Alternative to Periodic Statement
Section 205.18(b) provides financial institutions flexibility in
providing account information to consumers. Financial institutions may
elect to provide periodic statements under Sec. 205.9 as they would
for other accounts. As an alternative to providing periodic statements,
institutions may instead: (1) Make available to the consumer the
account balance through a readily available telephone line; (2) make
available to the consumer an electronic history (such as via an
Internet Web site) of the consumer's account transactions that covers
at least 60 days preceding the date the consumer electronically
accesses the account; and (3) provide promptly upon the consumer's oral
or written request, a written history of the consumer's account
transactions that covers at least 60 days preceding the date of receipt
of the consumer's request. As further explained below in the context of
error resolution time frames, a consumer ``electronically accesses'' an
account once the consumer enters a user identification code or a
password or otherwise complies with a security procedure used by an
institution to verify the consumer's identity.
Consistent with the EBT rule, and as for EFT systems generally, a
readily available telephone line is a local or toll-free line available
at least during standard business hours. Institutions may of course
choose to provide recipients with a line available 24 hours. See 59 FR
at 10,681. The readily available phone line may be automated, in which
case institutions will likely provide 24-hour access to balance
information. Model Form A-7(a), discussed below, sets forth a model
clause that institutions may use to inform consumers about how to
access their account information, including the telephone number that
consumers may call to obtain balance information.
The requirement to provide a written history of account
transactions promptly upon the consumer's oral or written request
addresses the possibility that some consumers may have limited on-line
access. The Board anticipates that, in general, written histories will
be sent the same day or soon after the consumer makes an oral request,
and within a few days after the consumer's request in writing is
received by an institution (to account for any time lags that may arise
in routing the consumer's written request to the appropriate person).
Institutions may also provide a specific telephone number or address
for consumers to request a written history of account transactions.
Comment is
[[Page 1478]]
solicited as to whether the option to obtain a written history of
account transactions is necessary or appropriate.
The Board recognizes that requiring financial institutions to
provide 60 days' worth of account transaction information differs from
the rule in Sec. 205.9(b), which requires financial institutions to
provide transaction information for EFTs that have occurred during a
monthly cycle. The Board nevertheless believes that 60 days is
appropriate for payroll card accounts because, unlike for accounts
generally under Regulation E, institutions will not be required to send
a statement of account transactions to consumers with payroll card
accounts on a regular basis. Without a longer time period for account
transactions, some payroll card account holders might waive their right
to assert an error under Sec. 205.11 if they do not access their
transaction history on at least a monthly basis. The Board further
notes that the requirement to provide a 60-day account history is also
the time period used in the EBT rule.
To ensure that consumers are able to review their account
transactions and to effectively exercise their error resolution rights,
Sec. 205.18(b)(2) of the interim final rule requires the same type of
account transaction information to be provided to consumers that is set
forth under Sec. 205.9(b)(1)-(6), whether the history of account
transactions is provided electronically or in writing. For example,
consumers must be provided with information about fees incurred in
connection with EFTs and payroll card accounts.
Comment is solicited as to whether additional transaction
information should be provided to payroll card users, or whether
certain information should be excluded from the history of account
transactions. Comment is also solicited regarding the feasibility of
providing consumers with a rolling history of 60 days' worth of
transactions.
18(c) Modified Requirements
Initial Disclosures and Annual Error-Resolution Notice
For financial institutions that do not furnish periodic statements,
Sec. 205.18(c) sets forth provisions clarifying how to satisfy the
requirements relating to disclosures, liability limits, and error
resolution procedures under Regulation E. Section 205.18(c)(1)
generally sets forth modified disclosures that a financial institution
must provide in addition to or in lieu of required initial disclosures
under Sec. 205.7(b). Section 205.18(c)(1)(i) requires financial
institutions to include in the initial disclosures for payroll card
accounts the means by which a consumer can access information about his
or her account, including the telephone number that the consumer may
call to obtain his or her account balance, and information on how the
consumer can electronically obtain a history of account transactions,
such as the address of an Internet Web site. Institutions must also
include in their initial disclosures, in place of the disclosure
required by Sec. 205.7(b)(6), a summary of the consumer's right to
obtain a written history of account transactions upon request,
including a telephone number to call to request a history. Section
205.18(c)(1)(ii) requires financial institutions to provide in initial
disclosures a notice explaining the error resolution rights associated
with payroll card accounts in place of the notice required by Sec.
205.7(b)(10).
Section 205.18(c)(2) requires financial institutions to provide an
annual notice describing error-resolution rights, in place of the
notice required by Sec. 205.8(b). The interim final rule provides
Model Forms which financial institutions may use to facilitate
compliance with the interim final rule in section A-7 in appendix A to
part 205.
Limitations on Liability and Error Resolution
Sections 205.18(c)(3) and (4) of the interim final rule explain the
application of the regulation's limitations on liability and error
resolution procedures when a financial institution opts not to provide
paper periodic statements. Section 205.18(c)(3) specifies two different
triggers for beginning the 60-day period for limiting liability for
unauthorized EFTs, depending on when and how the consumer has obtained
a history of his or her account transactions. If the consumer obtains
transaction information electronically under Sec. 205.18(b)(1)(ii),
the 60-day period begins on the date the account is electronically
accessed by the consumer. If the consumer has requested a written
history of his or her account transactions under Sec.
205.18(b)(1)(iii), the 60-day period begins on the date the institution
sends the written history. The interim final rule specifies that the
applicable 60-day period for reporting an unauthorized EFT begins on
the earlier of these two dates to clarify when the 60-day period begins
to run where a consumer reviews his account transactions for errors
both electronically as well as using a written history the consumer has
requested. For example, assume that a consumer reviews his or her
transactions on-line on June 1, and subsequently requests a written
history on June 5, which is sent by the financial institution that day.
In this case, the consumer's 60-day period for asserting an
unauthorized EFT appearing both electronically and on the written
history begins running on June 1 when the consumer first electronically
accessed the account. As further explained below in the context of
error resolution procedures, in order for the 60-day period to begin
running, the unauthorized transfer must have been available for the
consumer to review when the consumer electronically accessed his or her
account, or when the consumer obtained a written history of account
transactions.
Section 205.18(c)(4) establishes a similar rule for establishing
when the 60-day period for reporting an error begins for purposes of
the error resolution procedures set forth in Sec. 205.11, depending
upon how the consumer has obtained the history of his or her account
transactions on which an error appears. Accordingly, a financial
institution must comply with the error resolution requirements set
forth in Sec. 205.11 if it receives a consumer's oral or written
notice of error no later than 60 days after the earlier of: (1) The
date the consumer electronically accesses his or her account under
Sec. 205.18(c)(1)(ii); or (2) the date the institution sends a written
history of the consumer's account transactions that has been requested
under Sec. 205.18(b)(1)(iii) in which the error is first reflected.
The first trigger further requires that the financial institution has
made available to the consumer information about the EFT for which the
consumer asserts an error on the date that the consumer electronically
accesses his or her account (e.g., by posting the information about the
transfer on an Internet Web site).
With respect to electronic access, the Board does not intend for
the 60-day periods for liability limits and error resolution to begin
running if the consumer merely, for example, visits an Internet Web
site where his or her account information and other information can be
retrieved. Rather, the 60-day period would begin once the consumer
enters a user identification code or a password or otherwise complies
with a security procedure used by an institution to verify the
consumer's identity. However, the interim final rule does not require
institutions to determine whether the consumer has in fact accessed
information about specific transactions involving the consumer's
payroll card account to trigger the beginning of the 60-day period for
liability limits and
[[Page 1479]]
error resolution rights. The Board also notes that, in contrast to the
EBT rule, the 60-day period is not triggered when a consumer obtains
balance information via the telephone.
Comment is requested regarding the feasibility of determining when
a consumer has electronically accessed his or her account. Comment is
also requested regarding whether other means of triggering the 60-day
time periods for establishing liability for unauthorized EFTs or for
error resolution may be appropriate. In particular, comment is
requested regarding the feasibility of determining when a consumer has
accessed specific transaction information about his or her payroll card
account where the consumer can also access other personal information
connected to his or her employment (e.g., health benefits or insurance)
on the same Internet Web site.
Example
As discussed above, the history of account transactions provided
under Sec. 205.18(c)(1), whether provided electronically or in
writing, must cover at least 60 days preceding the date of the
institution's receipt of a request for the history by the consumer.
Thus, assume, for example, that a consumer uses a password to
electronically access his or her payroll card account, or is sent a
written history the consumer has requested, on June 1. The history of
account transactions provided electronically or sent to the consumer
must cover a period of at least 60 days prior to June 1, and would
include any EFTs occurring between April 2 and May 31. Assuming that
the consumer did not previously access or receive account information
reflecting the covered EFTs, the consumer would have 60 days, or until
July 30, to assert any unauthorized EFTs or other errors occurring
between April 2 and May 31 to preserve his or her rights under
Sec. Sec. 205.6 and 205.11 with respect to those transfers.
In the example, suppose the consumer electronically accesses his or
her account on June 1 and discovers an error that occurred on May 10.
In this case, the consumer must provide notice of that error to the
institution by July 30 to trigger the institution's obligation to
investigate the error. Thus, although the consumer has 60 days
following the date he or she obtains the history of account
transactions to assert any errors appearing on that history, it does
not necessarily mean that the consumer has 60 days following the date
of the error to provide notice of that error to the institution.
Accordingly, if the consumer provides a notice of the May 10 error
after July 30, the institution is not required to comply with the
procedures and time limits in Sec. 205.11 for investigating the error.
See comment 11(b)-7. Nevertheless, if the error involves an
unauthorized EFT, liability for the unauthorized transfer may not be
imposed on the consumer unless the institution satisfies the
requirements of Sec. 205.6.
Additional Issues
In addition to scope and periodic statement issues, commenters
raised a few additional issues with respect to the proposal. As part of
the proposal, the Board sought public comment on ongoing rulemaking
efforts by the Federal Deposit Insurance Corporation (FDIC) to amend,
revise, or interpret the meaning of the terms ``deposit'' with respect
to stored-value or prepaid products, and possibly payroll card
products.\3\ The overwhelming majority of commenters urged the Board
not to link its treatment of payroll card accounts under Regulation E
to the FDIC's regulatory proposals. Many commenters also raised
concerns that the treatment of payroll card products as ``accounts''
under Regulation E might make the Board, or other regulators, more
likely to deem such products ``accounts,'' ``deposits,'' or ``account
relationships'' for purposes of other laws (e.g., for customer
identification procedures under the USA PATRIOT Act, for reserve
requirements under the Board's Regulation D, for Truth in Savings Act
purposes, and possibly for other issues under provisions of state law).
The Board notes that the definition of ``account'' under the EFTA and
Regulation E does not incorporate the definitions of ``account'' or
``deposit'' as described in other laws. Accordingly, the definition of
``payroll card account'' in this interim final rule is intended only to
address coverage issues under Regulation E, and is not intended to
address the definition of ``account'' for purposes of any other statute
or regulation.
---------------------------------------------------------------------------
\3\ See generally 70 FR 45571 (August 8, 2005); 69 FR 20558
(April 16, 2004) (FDIC proposals to clarify the insurance coverage
of funds accessed through stored-value cards and other
nontraditional access mechanisms).
---------------------------------------------------------------------------
One large provider of payroll cards sought clarification as to
whether a ``dual function'' payroll card account is covered under the
rule. Under a dual function card account, part of the account holds
employer-funded ``corporate expense funds,'' and the remaining
segregated portion of the card holds employer-transmitted wages
belonging to the employee. The Board believes the segregated corporate
expense portion of the account accessible by the card is not a
``payroll card account'' because the funds are not primarily for
personal, family, or household purposes. The remaining funds that
consist of the consumer's wages would qualify as funds held in a
``payroll card account.''
Several industry commenters requested that the Board clarify
whether, or to what extent, the ``compulsory use'' provisions of
Regulation E apply to payroll card accounts. Section 205.10(e)(2)
prohibits a financial institution from requiring a consumer to
establish an account with a particular institution for receipt of EFTs
as a condition of employment or receipt of a government benefit. As
clarified by the existing commentary, an employer may not require its
employees to receive their salary by direct deposit to any particular
institution, although an employer may: (1) Require direct deposit of
salary by electronic means if employees may choose the institution that
will receive the direct deposit; or alternatively, (2) give the
employee the choice of having his or her salary deposited at a
particular institution designated by the employer, or receiving their
salary by check or cash. The Board believes the compulsory use
provisions apply to payroll card accounts because they are established
as accounts for the receipt of EFTs of salary. However, provided that
an employer does not require a consumer to obtain a payroll card
account as the method of receiving pay, and permits, for example, a
consumer to receive pay via direct deposit to a financial institution,
the compulsory use prohibition should not be implicated.
Many providers of payroll card accounts urged the Board to provide
a 12-month period in which to bring payroll card programs into
compliance. Many consumer commenters believed that a six-month period
is adequate. The effective date of the interim final rule is July 1,
2007. The Board anticipates that financial institutions will have at
least one year following publication of a final rule on payroll card
accounts to adjust their programs for compliance.
A-7--Model Clauses for Financial Institutions Offering Payroll Card
Accounts
Model Form A-7 is added to provide model clauses consistent with
the new Sec. 205.18 alternate provisions for financial institutions
who offer payroll card accounts and who do not provide the periodic
statement required under Sec. 205.9(b). These clauses, which are
modeled after similar clauses provided
[[Page 1480]]
under Appendix A-5 for EBT accounts, are intended to provide model
language to assist payroll card issuers in providing disclosure
information with respect to obtaining account balances and account
histories, as well as error resolution procedures. Comment 2 for
Appendix A has been revised to make clear that the use of such clauses
in making these disclosures in connection with payroll card accounts
will protect a financial institution from liability under sections 915
and 916 of the EFTA if the clauses accurately reflect the institution's
EFT services. Additionally, a typographical error has also been
corrected in the interim final rule. Currently the comment references
``205.15(d)(7),'' when in fact the correct reference is ``(d)(1).'' As
no subsection ``(d)(7)'' exists, an appropriate technical correction
has been incorporated.
V. Final Regulatory Flexibility Analysis
The Board prepared a regulatory flexibility analysis as required by
the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) in
connection with the September 2004 proposal. The Board received no
comments on its regulatory flexibility analysis.
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 interim final
rule. 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 with regard to electronic
fund transfers. 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 EFTA 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 EFTA], to prevent
circumvention or evasion [of the act], or to facilitate compliance
[with the EFTA].'' 15 U.S.C. 1693b(c). The EFTA 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 EFTA] are made
applicable to such persons and services.'' 15 U.S.C. 1693b(d).
The Board is revising Regulation E to provide that payroll card
accounts directly or indirectly established by an employer on behalf of
a consumer to which EFTs of the consumer's wages, salary, or other
employee compensation are made on a recurring basis are ``accounts''
subject to Regulation E. The Board believes that the revisions to
Regulation E as discussed in the SUPPLEMENTARY INFORMATION are within
Congress' 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 3(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 with respect to
the portions relating to payroll card accounts.
3. Small entities affected by the final rule. Employers, payroll
card services providers and depository institutions are required to
comply with the interim final rule under Regulation E to the extent
that they are engaged in providing payroll card accounts to consumers.
Based on available information, the interim final rule will apply to
the following institutions (numbers approximate): Employers (5,000),
payroll card services providers (40), and depository institutions (60),
for a subtotal of approximately 5,100 institutions. The Board estimates
that over 4,000 of these institutions could be considered small
institutions with assets less than $150 million.
All small entities that are engaged in providing payroll card
accounts are affected by the requirements established by this interim
final rule, including initial disclosures, error resolution procedures,
and the provision of account information.
4. Recordkeeping, reporting, and compliance requirements.
Institutions must provide an initial disclosure to payroll card account
holders regarding the means by which the holder may obtain account
information and the means by which the holder may resolve errors. In
order to comply with the amendments to Regulation E, institutions must
review their account-opening disclosures to ensure compliance with the
regulation; and some institutions may be required to revise their
disclosures. (The rule provides model disclosures to facilitate the
revision of the disclosures and to ensure compliance.) In addition, if
the institution elects not to provide periodic statements, the
institution must establish systems for delivering account information
electronically and by telephone. Institutions also will be required to
implement error resolution provisions under the interim final rule to
the extent that they do not currently have such procedures.
After conducting focus group studies on the use of payroll cards
and reviewing several of the payroll card products currently available,
the Board understands that many small employers, payroll card services
providers, and depository institutions that provide such products are
currently providing account-opening disclosures for payroll card
accounts, and generally have in place error resolution procedures. In
addition, the Board understands that many, if not all, institutions
providing payroll cards make information regarding those payroll card
accounts available to the holders via telephone and electronic access.
In light of the fact that the interim final rule codifies the current
practices and procedures of many payroll card providers and provides an
alternative to periodic statements, the Board concludes that the
interim final rule will not have a substantial economic impact on small
entities.
5. Other Federal rules. The Board believes no Federal rules
duplicate, overlap, or conflict with the interim final revisions to
Regulation E.
6. Steps taken to minimize the economic impact on small entities.
The Board solicited comment about potential ways to reduce regulatory
burden. Commenters urged the Board to eliminate the periodic statement
requirement, asserting that other more cost-effective methods of
providing transaction information could provide consumers with the
information necessary to enable consumers to manage their payroll card
accounts. In the interim final rule, financial institutions engaged in
providing payroll card accounts may elect not to provide periodic
statement in paper form if they make available balance information to
consumers though a readily-available telephone line and make available
account transaction information electronically, such as through an
Internet Web site. These financial institutions will also be required
to provide a written history of
[[Page 1481]]
account transactions upon the consumer's request.
VI. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act (PRA) of 1995 (44
U.S.C. 3506; 5 CFR Part 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 final rule contains requirements
subject to the PRA. The collection of information that is required by
this rule is found in 12 CFR 205.2(b)(2) and 205.18. 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 to 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.
All financial institutions involved in providing payroll card
accounts to consumers (i.e., employers, payroll card services
providers, and depository institutions), of which there are
approximately 5,100, potentially are affected by this collection of
information because these institutions will be required to provide
initial disclosures, account transaction histories, error resolution
procedures, and other consumer protections, to consumers who receive
their salaries through payroll card accounts as defined in Sec.
205.2(b)(2).
The following estimates represent an average across all respondents
and reflect variations among institutions based on their size,
complexity, and practices. The other Federal agencies are responsible
for estimating and reporting to OMB the total paperwork burden for the
institutions for which they have administrative enforcement authority.
They may, but are not required to, use the Federal Reserve's burden
estimate methodology.
The interim final rule provides disclosure obligations when one or
more parties is involved in offering payroll card accounts as defined
in Sec. 205.2(b)(2)--whether the financial institution is an employer,
a depository institution, or other third party involved in holding
payroll card accounts or in the issuance of payroll cards. Such
entities are required to fully comply with Regulation E, as amended by
this interim final rule, and provide disclosure of basic terms, costs,
and rights relating to electronic fund transfer services in connection
with the payroll card account. Parties that jointly offer such accounts
may contract among themselves to comply with the regulation by
providing one set of disclosures. Certain information must be disclosed
to consumers, including: Initial and updated EFT terms, transaction
information, the consumer's potential liability for unauthorized
transfers, and error resolution rights and procedures.
The Federal Reserve estimates that of the 1,289 respondents
regulated by the Federal Reserve that are required to comply with
Regulation E, approximately 5 participate in payroll card programs. The
Federal Reserve estimates that each respondent will take, on average, 8
hours (one business day) to reprogram and update their systems to
provide initial disclosures to payroll card account holders. The
Federal Reserve also estimates that each respondent will take, on
average, 7 hours to reprogram and update systems to provide periodic
statements, or to provide account information by other means. Finally,
the Federal Reserve estimates that each respondent will take, on
average, 8 hours (one business day) to develop error resolution
procedures. The total annual burden for respondents regulated by the
Federal Reserve for all of these disclosures is estimated to be 115
hours. Using the Federal Reserve's methodology, the total annual burden
for all other institutions offering payroll card services is
approximately 117,185 hours. The disclosures are standardized and
machine-generated and do not substantively change from one individual
account to another; thus, the average time for providing the disclosure
to all consumers should be small.
The Federal Reserve's current annual burden for Regulation E
disclosures is estimated to be 63,047 hours. The interim final rule
would increase the total burden under Regulation E for all respondents
regulated by the Federal Reserve by 115 hours, from 63,047 to 63,162
hours. (This burden estimate does not include the burden associated
with the new disclosure requirements addressing electronic check
conversion services and ATM disclosures as announced in a separate
final rulemaking (Dockets No. R-1210 and R-1234).) Using the
methodology explained above, the interim final rule would increase
total burden under Regulation E for all other potentially affected
entities by approximately 117,185 hours.
Because the records would be maintained by the institution 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. 1693b.
0
2. Section 205.2 is amended by redesignating paragraph (b)(2) as
paragraph (b)(3) and adding a new paragraph (b)(2) as follows:
Sec. 205.2 Definitions
* * * * *
(b)(1) Account means * * *
(2) The term includes a ``payroll card account'' directly or
indirectly established by an employer on behalf of a consumer to which
electronic fund transfers of the consumer's wages, salary, or other
employee compensation are made on a recurring basis, whether the
account is operated or managed by the employer, a third-party payroll
processor, a depository institution or any other person. For rules
governing payroll card accounts, see Sec. 205.18.
* * * * *
0
3. In part 205 new Sec. 205.18 is added as follows:
Sec. 205.18 Requirements for Financial Institutions Offering Payroll
Card Accounts
(a) Coverage. A person is a financial institution for purposes of
the act and this part if it directly or indirectly holds a payroll card
account as described in Sec. 205.2(b)(2) or directly or indirectly
issues an access device to a consumer for use in initiating an EFT from
a payroll card account. The person shall comply with all applicable
requirements of the act and this part with respect to payroll card
accounts except as provided in this section.
(b) Alternative to periodic statement. (1) A financial institution
need not furnish a periodic statement required by section 205.9(b) if
the institution makes available to the consumer:
[[Page 1482]]
(i) The consumer's account balance, through a readily available
telephone line;
(ii) An electronic history, such as through an Internet Web site,
of the consumer's account transactions that covers at least 60 days
preceding the date the consumer electronically accesses the account;
and
(iii) A written history of the consumer's account transactions that
is provided promptly in response to an oral or written request and that
covers at least 60 days preceding the date of receipt of a request by
the consumer.
(2) The history of account transactions provided under paragraphs
(b)(1)(ii) and (iii) of this section must include the information set
forth in section 205.9(b).
(c) Modified requirements. A financial institution that provides
information under paragraph (b) of this section, shall comply with the
following:
(1) Initial disclosures. The financial institution shall modify the
disclosures under section 205.7(b) by disclosing:
(i) Account information. A telephone number that the consumer may
call to obtain the account balance, the means by which the consumer can
obtain an electronic account history, such as the address of an
Internet Web site, and a summary of the consumer's right to receive a
written account history upon request (in place of the summary of the
right to receive a periodic statement required by section 205.7(b)(6)),
including a telephone number to call to request a history. The
disclosure required by this paragraph (c)(1)(i) may be made by
providing a notice substantially similar to the notice contained in
section A-7 in appendix A of this part.
(ii) Error resolution. A notice concerning error resolution that is
substantially similar to the notice contained in section A-7 in
appendix A of this part, in place of the notice required by section
205.7(b)(10).
(2) Annual error resolution notice. The financial institution shall
provide an annual notice concerning error resolution that is
substantially similar to the notice contained in section A-7 in
appendix A of this part, in place of the notice required by section
205.8(b).
(3) Limitations on liability. For purposes of section 205.6(b)(3),
the 60-day period for reporting any unauthorized transfer that appears
on a periodic statement shall begin on the earlier of:
(i) The date the consumer electronically accesses the consumer's
account under paragraph (b)(1)(ii) of this section, provided that the
information about the transfer was made available to the consumer at
that time; or
(ii) The date the financial institution sends a written history of
the consumer's account transactions requested by the consumer under
paragraph (b)(1)(iii) of this section in which the unauthorized
transfer is first reflected.
(4) Error resolution. The financial institution shall comply with
the requirements of section 205.11 in response to an oral or written
notice of an error from the consumer that is received no later than 60
days after the earlier of:
(i) The date the consumer electronically accesses the consumer's
account under paragraph (b)(1)(ii) of this section, provided that
information about the transfer that gives rise to the alleged error was
made available to the consumer at that time; or
(ii) The date the financial institution sends a written history of
the consumer's account transactions requested by the consumer under
paragraph (b)(1)(iii) of this section in which the error is first
reflected.
0
4. In Appendix A to Part 205, new section A-7--Model Clauses For
Financial Institutions Offering Payroll Card Accounts Sec. 205.18(c))
is added, as follows:
Appendix A to Part 205--Model Disclosure Clauses and Forms
* * * * *
A-7--Model Clauses for Financial Institutions Offering Payroll Card
Accounts (Sec. 205.18(c))
(a) Disclosure by financial institutions of information about
obtaining account information for payroll card accounts. Sec.
205.18(c)(1).
You may obtain information about the amount of money you have
remaining in your payroll card account by calling [telephone number].
This information, along with a 60-day history of account transactions,
is also available on-line at [Internet address].
You also have the right to obtain a 60-day written history of
account transactions by calling [telephone number], or by writing us at
[address].
(b) Disclosure of error-resolution procedures for financial
institutions that provide alternative means of obtaining payroll card
account information (Sec. 205.18(c)(1)(ii) and (c)(2)).
In Case of Errors or Questions About Your Payroll Card Account
Telephone us at [telephone number] or Write us at [address] [or E-mail
us at [electronic mail address]] as soon as you can, if you think an
error has occurred in your payroll card account. We must hear from you
no later than 60 days after the earlier of the date you electronically
access your account or the date we sent the FIRST written history on
which the error appeared. You may request a written history of your
transactions at any time by [calling us at [telephone number] [writing
us at [address]]]. You will need to tell us:
Your name and [payroll card account] number.
Why you believe there is an error, and the dollar amount involved.
Approximately when the error took place.
If you tell us orally, we may require that you send us your
complaint or question in writing within 10 business days.
We will determine whether an error occurred within 10 business days
after we hear from you and will correct any error promptly. If we need
more time, however, we may take up to 45 days to investigate your
complaint or question. If we decide to do this, we will credit your
account within 10 business days for the amount you think is in error,
so that you will have the money during the time it takes us to complete
our investigation. If we ask you to put your complaint or question in
writing and we do not receive it within 10 business days, we may not
credit your account.
For errors involving new accounts, point-of-sale, or foreign-
initiated transactions, we may take up to 90 days to investigate your
complaint or question. For new accounts, we may take up to 20 business
days to credit your account for the amount you think is in error.
We will tell you the results within three business days after
completing our investigation. If we decide that there was no error, we
will send you a written explanation.
You may ask for copies of the documents that we used in our
investigation.
If you need more information about our error-resolution procedures,
call us at [telephone number] [the telephone number shown above] [[or
visit [Internet address]]].
0
5. In Supplement I to Part 205, the following amendments are made:
0
a. Under Section 205.2--Definitions, under 2(b) Account, paragraph 2 is
redesignated as paragraph 3 and a new paragraph 2 is added;
0
b. A new Section 205.18 Requirements for Financial Institutions
Offering Payroll Card Accounts is added;
0
c. Under Appendix A--Model Disclosure Clauses and Forms, paragraph 2 is
revised.
* * * * *
[[Page 1483]]
Supplement I to Part 205--Official Staff Interpretations
Section 205.2 Definitions
2(a) * * *
2(b) Account.
1. * * *
2. One-time EFT of salary-related payments. The term ``payroll card
account'' does not include a card used for a one-time EFT of a salary-
related payment, such as a bonus, or a card used solely to disburse
non-salary-related payments, such as a petty cash or a travel per diem
card. To the extent that one-time EFTs of salary-related payments and
any other EFTs are transferred to or from a payroll card account, these
transfers are EFTs covered by the act and regulation, even if the
particular transfer itself does not represent wages, salary, or other
employee compensation.
* * * * *
Section 205.18 Requirements for Institutions Offering Payroll Card
Accounts
18(a) Coverage.
1. Issuance of access device. Consistent with section 205.5(a), a
financial institution may issue an access device only in response to an
oral or written request for the device, or as a renewal or substitute
for an accepted access device. A consumer is deemed to request an
access device for a payroll card account when the consumer chooses to
receive his or her salary through a payroll card account.
Appendix A--Model Disclosure Clauses and Forms
1. * * *
2. Use of forms. The appendix contains model disclosure clauses for
optional use by financial institutions to facilitate compliance with
the disclosure requirements of sections 205.5(b)(2) and (b)(3),
205.6(a), 205.7, 205.8(b), 205.14(b)(1)(ii), 205.15(d)(1) and (d)(2),
and 205.18(c)(1) and (c)(2). The use of appropriate clauses in making
disclosures will protect a financial institution from liability under
sections 915 and 916 of the act provided the clauses accurately reflect
the institution's EFT services.
* * * * *
By order of the Board of Governors of the Federal Reserve
System, December 30, 2005.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E5-8317 Filed 1-9-06; 8:45 am]
BILLING CODE 6210-01-P