[Federal Register Volume 71, Number 231 (Friday, December 1, 2006)]
[Proposed Rules]
[Pages 69500-69504]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-20301]
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FEDERAL RESERVE SYSTEM
12 CFR Part 205
[Regulation E; Docket No. R-1270]
Electronic Fund Transfers
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule; request for public comment.
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SUMMARY: The Board is proposing to amend 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
proposed amendments would create an exception for certain small-dollar
transactions from the requirement that terminal receipts be made
available to consumers at the time of the transaction.
DATES: Comments must be received on or before January 30, 2007.
ADDRESSES: You may submit comments, identified by Docket No. R-1270, 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 form 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 or David A. Stein,
Counsels, or Vivian W. Wong, Attorney, 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 the 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 the 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))
interprets the requirements of Regulation E to facilitate compliance
and provides 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
Historically, consumers have tended to use cash to make small-
dollar purchases, for example, to buy food or beverages from a vending
machine or to pay for a subway fare.\1\ Data from the payment card
associations indicates, however, that in certain market segments,
consumers are increasingly using credit and debit cards in place of
cash, even for small-dollar transactions.\2\ This shift in consumer
[[Page 69501]]
payment preferences in small-dollar transactions is consistent with
evidence suggesting the declining use of cash as a share of all
payments.\3\ Consumers have cited numerous reasons for using debit
cards over other payment methods, such as cash or checks. These reasons
include convenience, shorter checkout times, avoiding ATM fees or check
printing fees, and the ability to track and record payments.\4\
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\1\ According to one industry estimate, consumers spent more
than $1 trillion on transactions less than $5 in 2003, with an
average payment of $3.72. See TowerGroup, ``Making Sense from Cents:
Trends in the Rebirth of Electronic Micropayments'' (July 2004).
\2\ See ``More and More Consumers Use Visa to Make Small
Purchases,'' Visa Press Release (August 24, 2006) (reporting double
digit growth in the use of payment cards in the first six months of
2006 compared to the same period in 2005); ``MasterCard PayPass
Increases Customer Loyalty and Moves Payments Away From Cash,''
Master Card Press Release (July 18, 2006). See also TowerGroup,
``Anticipating Micropayment Growth'' (October 2005) (indicating
nearly $3 billion in growth (up to $13.5 billion) for transactions
less than $5 using debit and credit cards between 2003 and 2004).
\3\ See Geoffrey Gerdes and Jack Walton II, ``Trends in the Use
of Payment Instruments in the United States,'' Federal Reserve
Bulletin 180, 181 (Spring 2005).
\4\ See Ron Borzekowski, Elizabeth Kiser, and Shaista Ahmed,
``Consumers'' Use of Debit Cards: Patterns, Preferences, and Price
Response,'' April 2006. Working paper, Federal Reserve Board. See
also Elizabeth Klee, ``Paper or Plastic? The Effect of Time on Check
and Debit Card Use at Grocery Stores,'' February 2006. Working
paper, Federal Reserve Board (concluding that based on an analysis
of grocery store scanner data, consumer preferences for debit cards
over checks is significantly driven by the differences in
transaction time).
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Merchants, financial institutions and payment card associations
have responded to the shift in consumer preferences towards non-cash
methods of payment for small-dollar transactions in various ways.
Payment card associations have changed their rules to enable quicker
processing of transactions for both debit and credit cards. For
example, these associations have waived the signature and personal
identification number (PIN) authorization requirements for certain
types of purchases under $25. Moreover, to encourage merchant
acceptance of payment cards, these associations have also reduced their
debit and credit card interchange rates for certain small-dollar
transactions.\5\ In addition, some card issuers have integrated new
technologies into their products which allow consumers to swipe or wave
radio frequency-enabled cards or other devices to authorize payment in
``contactless'' transactions. These initiatives have reduced the amount
of time consumers spend at checkout, which has in turn allowed
merchants to process more transactions in the same amount of time.
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\5\ See, e.g., ``Visa Takes Big Steps Into Small Payments,''
Visa Press Release (April 11, 2006).
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III. Summary of Proposed Revision
When a debit card is used to pay for a purchase at a POS terminal,
Regulation E requires that a receipt setting forth transaction
information about the EFT be made available to the consumer at that
time. The receipt requirement applies whenever an EFT is made at an
electronic terminal, regardless of the amount of the transaction.
Board staff has received several industry inquiries asking the
Board to consider eliminating the receipt requirement at POS terminals
for small-dollar transactions. According to industry representatives,
the receipt requirement is a significant impediment to allowing
consumers to use debit cards to make small-dollar purchases due to the
cost of installing, servicing, and maintaining printers at POS
terminals. In addition, in some applications, such as for mass transit,
the additional time required to provide a receipt to each consumer
using a debit card to pay for individual fares would add delays that
would make it operationally unfeasible to allow consumers to use debit
cards for such transactions.
In light of the implementation costs and other considerations and
the uncertain consumer benefit from receipts for small-dollar
transactions, the Board is proposing to create an exception from the
terminal receipt requirement for EFTs of $15 or less. The proposed rule
would facilitate electronic transactions in circumstances where the
receipt requirement is sufficiently burdensome or impractical so as to
potentially deter merchants from allowing consumers to use electronic
methods of payment. Moreover, it is unclear whether consumers typically
request or retain receipts for small-dollar transactions at POS
terminals. As further discussed in more detail in the section-by-
section analysis, the Board also believes that the risks to consumers
of not receiving a receipt for their transactions (and the benefit of
receiving a receipt) would be minimal given the small value of the
transaction. In particular, the Board notes that consumers would
continue to receive a listing of each transaction on their periodic
statements, regardless of the transaction amount, and would have the
right to assert errors that may arise from any such transaction,
provided such notice was provided within the required time frames.
IV. Section-by-Section Analysis
Section 205.9 Receipts at Electronic Terminals; Periodic Statements
Under Sec. 205.9(a), when a consumer initiates an EFT at an
electronic terminal, a receipt reflecting the transaction details must
be made available to the consumer at the time of the transaction. An
electronic terminal is defined as any electronic device (other than a
telephone operated by a consumer) through which a consumer may initiate
an EFT. Electronic terminals include, but are not limited to, POS
terminals, ATM machines, and cash dispensing machines. See Sec.
205.2(h).\6\ Proposed Sec. 205.9(a)(2) would except EFTs of $15 or
less from the requirement that financial institutions make a terminal
receipt available at the time of the transaction.
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\6\ The terminal receipt requirement does not apply to
transactions initiated through a telephone operated by a consumer,
or to transactions initiated by a consumer ``by a means analogous in
function to a telephone.'' Thus, the receipt requirement does not
apply to Internet transactions, where a consumer uses a computer to
visit a merchant's web site to purchase goods or services. See Sec.
205.2(h); comment 2(h)-1(ii).
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The National Commission on Electronic Fund Transfers, whose
recommendations provided much of the basis for the EFTA, deemed the
requirement to make available terminal receipts at the time a consumer
initiates an EFT at an electronic terminal necessary to provide
consumers, ``at a minimum, records that provide the same information
and can be used in the same way as cancelled checks.'' \7\ The
legislative history of the Act indicates that Congress was similarly
concerned about the importance of terminal receipts for EFTs as
evidence of the transaction. In particular, Senate Banking Committee
Reports noted that ``receipts * * * would give the consumer written
verification of the amount, date, and type of transfer and the person
paid.'' S. Rep. No. 915, 95th Cong., 2d Sess. 5 (1978).\8\ Receipts may
also serve to assist consumers in tracking their purchases for account
management purposes.
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\7\ National Commission on Electronic Fund Transfers, EFT in the
United States: Policy Recommendations in the Public Interest 47-48
(1977).
\8\ See also S. Rep. No. 1273, 95th Cong., 2d Sess. 30 (1978);
H.R. Rep. No. 1315, 95th Cong., 2d Sess. 6 (1978).
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According to industry representatives, start-up, servicing, and
maintenance costs arising from the terminal receipt requirements pose a
significant obstacle to the industry's efforts to offer cashless
payment options for small-dollar purchases in certain retail
environments. For example, in retail environments which exclusively
handle small-dollar transactions, such as vending machines or parking
meters, installing and maintaining additional equipment capable of
providing terminal receipts may not be cost-effective. In other
circumstances, the requirement to provide receipts may be impractical,
such as in the case of mass-transit systems where the time required to
print a receipt for each consumer purchasing single fares with a debit
card
[[Page 69502]]
would cause delays that would significantly conflict with a transit
system's need to handle a heavy volume of transactions within short
time periods. Anecdotally, industry representatives also report that in
retail environments in which the transaction amount is typically low,
such as convenience stores and quick-service restaurants, consumers
often choose not to request or retain receipts for those transactions.
Thus, in the absence of any relief from the receipt requirement,
merchants may choose to forego the acceptance of debit cards entirely,
thereby limiting consumer payment choices.
To facilitate the ability of consumers to use electronic payment
methods in circumstances where providing receipts may not be practical
or cost-effective, the Board is proposing to exercise its authority
under Section 904(c) of the EFTA to create a limited exception from the
terminal receipt requirement for small-dollar transactions.\9\ In
weighing the appropriateness for the exception, the Board has also
considered that the consumer benefit from receiving receipts is likely
to be minimal for these transactions. While receipts may be important
for consumers for moderate to high value transactions, the Board
believes that receipts are less significant for transactions of
relatively small amounts because consumers are less likely to retain
them for proof of payment or for account management purposes given the
limited risk of loss to the consumer. Moreover, consumers will continue
to receive a record of each transaction on monthly periodic
statements.\10\ In the event of a double debit or incorrect EFT amount
in connection with a small-dollar purchase, the consumer would retain
the right to assert an error arising from that transaction with his or
her financial institution. In light of these considerations, Sec.
205.9(e) of the proposed rule would provide financial institutions an
exception from the requirement to provide a receipt at the time the
consumer initiates an EFT at an electronic terminal where the value of
the transaction is $15 or less. The exception would apply to all types
of transfers initiated by a consumer at an electronic terminal,
including signature-based and personal identification number (PIN)-
based debits from the consumer's account. To simplify the rule and in
light of the broad definition of EFT under the regulation, the proposed
exception would also apply to deposits at ATMs or other electronic
terminals of $15 or less. See Sec. 205.3(b)(1); comment 3(b)(1)-1(i).
However, the Board anticipates that financial institutions would, for
operational reasons, continue to make receipts available for ATM
transactions, regardless of the amount of the transfer.
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\9\ Section 904(c) of the EFTA provides that the rules issued by
the Board ``may contain such classifications, differentiations, or
other provisions, and may provide for any adjustments and exceptions
for any class of electronic fund transfers'' that in the judgment of
the Board are ``necessary or proper to effectuate the purposes of
[the Act], to prevent circumvention or evasion thereof, or to
facilitate compliance therewith.''
\10\ Consumers that wish to keep a contemporaneous record of
their transactions could of course deduct the transaction amount
promptly in their check registers or use a similar account
reconciliation process.
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In proposing the $15 threshold under which no terminal receipt
would be required, the Board has considered a variety of factors,
including the average dollar transaction amount for the various market
segments for which this relief would be most useful \11\ and the
benefit to consumers from receiving a receipt in these transactions.
While it appears that a threshold of $5 or less would enable consumers
to use debit cards in the vast majority of the retail environments
where cashless payment options are contemplated, the Board believes a
$5 threshold would not be flexible enough to accommodate price
increases that may occur over time. In addition, setting too low a
threshold may impede the future acceptance of cashless methods of
payments in additional retail environments, such as for parking meters
and commuter rail systems.\12\ The Board believes the $15 threshold
would provide sufficient flexibility for the industry to accommodate
consumer preferences for electronic forms of payment instead of cash in
a variety of circumstances while ensuring that consumer protections
provided by the regulation's receipt provisions would be retained for
moderate to higher-dollar transactions in which consumers may have more
need for evidence of payment and for error resolution purposes. Comment
is requested on whether any additional consumer protections are
necessary for consumers who would not receive receipts under the
proposed rule. Comment is also requested on the dollar amount threshold
set forth in the proposed rule.
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\11\ Vending industry data indicates that the average cost in
2005 for food and beverages sold in vending machines was about 75
cents for candy, $1 for bottled beverages, and $2 for frozen and
refrigerated food products. Automatic Merchandiser 40-62 (August
2006). In addition, a survey of major transit systems in Boston,
Chicago, New York, and Washington, DC, indicates maximum one-way
fares ranging between $2 and $5 for subway systems.
\12\ For example, commuter one-way peak fares on the Long Island
Railroad (LIRR) to or from New York's Pennsylvania Station range
from just under $6 to $20. See LIRR fare map (effective March 1,
2005), available at http://www.mta.nyc.ny.us (visited October 15,
2006). Similarly, one payment card association reported that in
2004, its average ticket for fast-food purchases using debit and
credit cards was just under $12. See John Stewart, ``Micropayments,
Macro-Market?'' Digital Transactions (May 2005).
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Section 205.11 Procedures for Resolving Errors
11(a) Definition of Error
New comment 11(a)-6 would provide that the fact that an institution
does not make a terminal receipt available for a transaction of $15 or
less is not a billing error for purposes of Sec. Sec. 205.11(a)(1)(vi)
or (vii).
V. Initial 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 believes that this proposed rule will not have a significant
economic impact on a substantial number of small entities. A final
regulatory flexibility analysis will be conducted after consideration
of comments received during the public comment period.
1. Statement of the need for, and objectives of, the proposed rule.
The Board is revising Regulation E to provide financial institutions
relief from the requirement to make available terminal receipts at the
time of a transaction, for EFTs of $15 or less.
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
[[Page 69503]]
evasion [of the Act], or to facilitate compliance [with the Act].'' 15
U.S.C. 1693b(c). 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.
These revisions facilitate the use of electronic payment methods by
consumers in circumstances where the value to the consumer of having a
record of the transaction (i.e., the terminal receipt) is limited.
2. Small entities affected by the proposed rule. The requirement to
make available receipts when a consumer initiates an EFT at an
electronic terminal applies to all financial institutions, regardless
of their size. Accordingly, the proposed exception would reduce the
burden and compliance costs for small institutions by providing relief
from the requirement from the duty to make terminal receipts available
to consumers at the time of the transaction, where the transaction
amount is small.
3. Other federal rules. The Board has not identified any federal
rules that duplicate, overlap, or conflict with the proposed revisions
to Regulation E.
4. Significant alternatives to the proposed revisions. The Board
solicits comment about additional ways to reduce regulatory burden
associated with this proposed rule.
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 collection of information that is required by
this proposed rule is found in 12 CFR part 205. 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 collection 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.
The proposed rule provides relief to financial institutions from
the requirement to make available terminal receipts to consumers for
all EFTs of $15 or less. Thus, for purposes of the PRA, respondents
would face a one-time burden of 8 hours (one business day) to reprogram
and update their systems if they wish to make use of the proposed
exception. The Federal Reserve estimates that the total annual burden
for this requirement for the 100 estimated respondents likely to be
affected by this proposed rulemaking would be 800 hours. This would
increase the total annual burden of this information collection from
83,866 hours to 84,666 hours.
The other federal financial 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 estimates. Using
the Federal Reserve's method, the total estimated annual burden for all
financial institutions subject to Regulation E, including Federal
Reserve-supervised institutions, would be approximately 1,397,572
hours. The above estimates represent an average across all respondents
and reflect variations between institutions based on their size,
complexity, and practices. All covered institutions, including
retailers, ATM operators, and depository institutions (of which there
are approximately 19,300) potentially are affected by this collection
of information, and thus are respondents for purposes of the PRA.
Comments are invited on: a. Whether the proposed collection of
information is necessary for the proper performance of the Federal
Reserve's functions; including whether the information has practical
utility; b. the accuracy of the Federal Reserve's estimate of the
burden of the proposed information collection, including the cost of
compliance; c. ways to enhance the quality, utility, and clarity of the
information to be collected; and d. ways to minimize the burden of
information collection on respondents, including through the use of
automated collection techniques or other forms of information
technology. Comments on the collection of information should be sent to
Michelle Long, Federal Reserve Board Clearance Officer, Division of
Research and Statistics, Mail Stop 151-A, Board of Governors of the
Federal Reserve System, Washington, DC 20551, with copies of such
comments sent to the Office of Management and Budget, Paperwork
Reduction Project (7100-0200), Washington, DC 20503.
Text of Proposed Revisions
Certain conventions have been used to highlight the proposed
changes to the text of the regulation and staff commentary. New
language is shown inside bold-faced arrows, while language that would
be deleted is set off with bold-faced brackets. 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.
For the reasons set forth in the preamble, the Board proposes to
amend 12 CFR part 205 and the Official Staff Commentary, as follows:
PART 205--ELECTRONIC FUND TRANSFERS (REGULATION E)
1. The authority citation for part 205 would continue to read as
follows:
Authority: 15 U.S.C. 1693b.
2. Section 205.9 would be amended by revising paragraph (a) and
adding a new paragraph (e) as follows:
Sec. 205.9 Receipts at electronic terminals; periodic statements.
(a) Receipts at electronic terminals. [A] [rtrif]General. Except as
provided in paragraph (e) of this section, a [ltrif] financial
institution shall make a receipt available to a consumer at the time
the consumer initiates an electronic fund transfer at an electronic
terminal. The receipt shall set forth the following information, as
applicable:
(1) Amount. The amount of the transfer. A transaction fee may be
included in this amount, provided the amount of the fee is disclosed on
the receipt and displayed on or at the terminal.
(2) Date. The date the consumer initiates the transfer.
(3) Type. The type of transfer and the type of the consumer's
account(s) to or from which funds are transferred. The type of account
may be omitted if the access device used is able to access only one
account at that terminal.
(4) Identification. A number or code that identifies the consumer's
account or accounts, or the access device used to initiate the
transfer. The number or code need not exceed four digits or letters to
comply with the requirements of this paragraph (a)(4).
(5) Terminal location. The location of the terminal where the
transfer is initiated, or an identification such as a code or terminal
number. Except in limited circumstances where all terminals are located
in the same city or state, if the location is disclosed, it shall
include the city and state or foreign country and one of the following:
(i) The street address; or
(ii) A generally accepted name for the specific location; or
[[Page 69504]]
(iii) The name of the owner or operator of the terminal if other
than the account-holding institution.
(6) Third party transfer. The name of any third party to or from
whom funds are transferred.
* * * * *
[rtrif](e) Exception for receipts in small-value transfers. A
financial institution is not subject to the requirement to provide a
receipt under paragraph (a) of this section if the amount of the
transfer is $15 or less.[ltrif]
3. In Supplement I to part 205, under Sec. 205.11--Procedures for
Resolving Errors, under 11(a) Definition of Error, paragraph 6. would
be added.
Supplement I to Part 205--Official Staff Interpretations
* * * * *
Section 205.11--Procedures for Resolving Errors
11(a) Definition of Error
* * * * *
[rtrif]6. Terminal receipts for transfers of $15 or less. The fact
that an institution does not make a terminal receipt available for a
transfer of $15 or less in accordance with Sec. 205.9(e) is not an
error for purposes of Sec. Sec. 205.11(a)(1)(vi) or (vii).[ltrif]
* * * * *
By order of the Board of Governors of the Federal Reserve
System, November 27, 2006.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E6-20301 Filed 11-30-06; 8:45 am]
BILLING CODE 6210-01-P