Exhibit 110 — In re Bank of America California Unemployment Benefits Litigation (Dkt. 350-111, S.D. Cal. No. 3:21-md-02992)

Record facts

U.S. District Court for the Southern District of California · No. 3:21-md-02992-GPC-MSB · Doc. 350-111 · 2024-10-24 · Docket on CourtListener

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EXHIBIT 110 
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Federal Register / Vol. 71, No. 6 / Tuesday, January 10, 2006 / Rules and Regulations 
FEDERAL RESERVE SYSTEM 
12 CFR Part 205 
[Regulation E; Docket Nos. R–1210 and R– 
1234] 
Electronic Fund Transfers 
AGENCY: Board of Governors of the 
Federal Reserve System. 
ACTION: Final rule; official staff 
interpretation. 
SUMMARY: The Board is amending 
Regulation E, which implements the 
Electronic Fund Transfer Act, and the 
official staff commentary to the 
regulation codified in Supplement I to 
Part 205. The commentary interprets the 
requirements of Regulation E to 
facilitate compliance primarily by 
financial institutions that offer 
electronic fund transfer services to 
consumers. 
The revisions address the regulation’s 
coverage of electronic check conversion 
services. Under the final rule, merchants 
and other payees that initiate electronic 
check conversion transactions must 
obtain a consumer’s authorization for 
each transaction. In addition, 
commentary revisions address 
preauthorized transfers, error resolution, 
and other matters. 
DATES: The final rule is effective 
February 9, 2006. The mandatory 
compliance date is January 1, 2007. 
FOR FURTHER INFORMATION CONTACT: Ky 
Tran-Trong, Senior Attorney, or Daniel 
G. Lonergan, David A. Stein or John C. 
Wood, 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 
On September 17, 2004, the Board 
published a notice of proposed 
rulemaking in the Federal Register (69 
FR 55996) (September 2004 proposal) to 
provide guidance regarding the rights, 
liabilities, and responsibilities of parties 
engaged in electronic check conversion 
(ECK) transactions and to provide rules 
governing the coverage under 
Regulation E of payroll card accounts. In 
addition, proposed commentary 
revisions provided guidance on 
preauthorized electronic transfers from 
a consumer’s account, error resolution 
procedures, ATM disclosures, and other 
matters. 
The Board received nearly 120 
comment letters on the September 2004 
proposal. Comments were received from 
a variety of industry commenters, 
including banks, thrifts, credit unions, 
payment card companies, payment 
processing companies, and industry 
trade associations. Comments were also 
received from consumer groups, the 
Department of the Treasury, the Federal 
Trade Commission and individual 
consumers. The following is a summary 
of significant proposed revisions to the 
regulation and the staff commentary, 
and the comments received. 
Electronic Check Conversion 
The EFTA expressly provides that 
transactions originated by check, draft, 
or similar paper instrument are not 
governed by the Act. In an ECK 
transaction, a consumer provides a 
check to a payee and information from 
the check is used to initiate a one-time 
EFT from the consumer’s account. 
Specifically, the payee electronically 
scans and captures the MICR-encoding 
on the check for the routing, account, 
and serial numbers, and enters the 
amount to be debited from the 
consumer’s asset account. 
Under the staff commentary, 
electronic check conversion transactions 
are covered by the EFTA and Regulation 
E if the consumer authorizes the 
transaction as an EFT. Under existing 
commentary provisions, a consumer 
authorizes an EFT if the consumer 
receives notice that the transaction will 
be processed as an EFT and the 
consumer completes the transaction. 
See comment 3(b)–3. This standard 
applies whether the check conversion 
occurs at a point-of-sale (where a person 
goes to a merchant’s physical location to 
obtain goods or services) or in an 
accounts receivable conversion (ARC) 
transaction where the consumer mails a 
fully completed and signed check to the 
payee that is converted to an EFT. 
Although merchants and other payees 
are in the best position to provide notice 
to a consumer for the purpose of 
obtaining the consumer’s authorization 
for an ECK transaction, they are not 
currently covered by the commentary 
provision in Regulation E addressing 
ECK transactions. 
Over the past few years, several issues 
have arisen relating to ECK transactions 
in general, and ARC transactions in 
particular. Concerns have been raised 
about the uniformity and adequacy of 
some of the notices provided to 
consumers about ECK transactions. 
Some in the industry would like the 
flexibility to obtain a consumer’s 
authorization to process a transaction 
either as an EFT or as a check. Board 
staff also has received inquiries from 
financial institutions and other industry 
participants concerning their obligations 
under Regulation E in connection with 
ECK services. 
The Board proposed to revise the 
regulation to require merchants and 
other payees that use information from 
a check to initiate a one-time EFT from 
a consumer’s account to provide notice 
to the consumer and obtain the 
consumer’s authorization for each EFT. 
The Board specifically solicited 
comment on whether payees should be 
required to obtain a consumer’s written, 
signed authorization when the 
transaction occurs at POS. To help 
consumers understand the nature of an 
ECK transaction, the Board also 
proposed to require payees in ECK 
transactions to disclose to consumers 
that when a check is converted, funds 
may be withdrawn from their accounts 
quickly, and that the check will not be 
returned by the consumer’s financial 
institution. 
Industry commenters supported many 
of the proposed revisions addressing 
ECK transactions, including coverage 
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under Regulation E of merchants and 
other payees for the limited purpose of 
providing notice to obtain consumer 
authorization for ECK transactions. 
Some industry commenters, however, 
raised concerns about requiring the 
authorization to be written and signed 
for POS transactions. They also raised 
concerns about providing consumers 
with disclosures explaining that funds 
may be withdrawn from the account 
quickly and that checks will not be 
returned to the consumer. Commenters 
asserted, for example, that a written, 
signed authorization requirement could 
stifle industry innovation, and that the 
additional information about ECK 
transactions would result in overly 
lengthy disclosures. 
Consumer groups also supported 
many of the proposed revisions 
addressing ECK transactions, including 
merchant coverage and the additional 
disclosure requirements. Consumer 
groups stated, however, that the Board 
should require a consumer’s written, 
signed authorization for other debits 
that may occur in connection with the 
underlying ECK transaction, such as for 
debits to collect service fees when 
consumers have insufficient funds in 
their account to cover the underlying 
transaction, since consumers are 
unlikely to expect the additional debits 
to their accounts. 
Error Resolution 
Section 205.11(c)(4) provides that a 
financial institution may satisfy its 
obligation to investigate an alleged error 
by reviewing its own records if the 
alleged error concerns a transfer to or 
from a third party and there is no 
agreement between the institution and 
the third party for the type of EFT 
involved. This rule is commonly 
referred to as the ‘‘four walls’’ rule. The 
Board proposed to revise the staff 
commentary to clarify that an institution 
would not satisfy its error resolution 
obligations solely by reviewing the 
payment instructions if, for example, 
there is additional information within 
the institution’s own records that would 
assist in resolving the alleged error. 
Many industry commenters opposed 
the Board’s proposed commentary 
revisions, expressing concern about the 
potential scope of information that 
might need to be reviewed under the 
proposed revisions to the four walls 
standard. Consumer groups favored the 
proposed comment, and urged the 
Board to revise the comment to state 
that an institution’s review should 
consider records that could be helpful to 
resolving the consumer’s claim, not just 
those records that were dispositive. 
Preauthorized Transfers 
Section 205.10(b) requires that 
recurring electronic debits from a 
consumer’s account be authorized ‘‘only 
by a writing signed or similarly 
authenticated by the consumer.’’ 
Existing commentary provides that a 
tape recording of a telephone 
conversation with a consumer who 
agrees to preauthorized debits does not 
constitute written authorization under 
§ 205.10(b). The Board proposed to 
withdraw the existing commentary to 
address industry concerns that the 
guidance may conflict with the 
Electronic Signatures in Global and 
National Commerce Act (E-Sign Act), 15 
U.S.C. 7001 et seq. Many industry 
commenters, in particular those 
representing retailers, supported the 
proposed withdrawal, with some of 
these commenters asking the Board to 
explicitly state that a recorded 
conversation complies with the E-Sign 
Act. Other commenters, however, 
opposed the withdrawal of the guidance 
due to concern about potential abuses 
and the possible increase in 
unauthorized transfers that could result. 
Consumer groups did not comment on 
the proposed withdrawal. 
ATM Disclosures 
Section 205.16 provides that an ATM 
operator that imposes a fee 
(‘‘surcharge’’) on a consumer for 
initiating an EFT or balance inquiry 
must post a sign at ATMs that a fee will 
be imposed for providing EFT services 
or for balance inquiries. The September 
2004 proposal included proposed 
commentary revisions to provide ATM 
operators flexibility when disclosing 
these surcharges. In particular, the 
proposal clarified that ATM operators 
could disclose on ATM signage that a 
surcharge ‘‘may’’ be imposed if there are 
circumstances where the operator 
would not impose such a fee for use of 
its ATM. (Before a surcharge may be 
imposed by an ATM operator, the 
operator must provide a separate on- 
screen notice or a receipt informing the 
consumer that a fee will be charged and 
the amount of the fee, and the consumer 
must elect to continue the transaction.) 
In August 2005, the Board withdrew the 
proposed commentary revisions and 
issued a new proposal to incorporate 
this clarification into both the regulation 
and the commentary. See 70 FR 49891 
(Aug. 25, 2005) (August 2005 proposal). 
The Board received approximately 25 
comments on the August 2005 proposal 
from a variety of industry commenters, 
including banks, credit unions and trade 
associations. Industry commenters 
strongly supported the revised proposal 
stating that it would provide institutions 
with flexibility to provide more accurate 
disclosures and reduce consumer 
confusion. Consumer groups and one 
consumer rights advocate, however, 
asserted that the revised proposal would 
not ensure that consumers who are 
charged a fee will receive adequate 
notice on ATM signage. 
Payroll Cards 
The September 2004 proposal also 
included rules governing the coverage 
under Regulation E of payroll card 
accounts that are established either 
directly or indirectly by an employer on 
behalf of a consumer for the purpose of 
providing salary, wages, or other 
employee compensation on a recurring 
basis. An interim final rule is being 
published separately in this Federal 
Register to address payroll card 
accounts. 
III. Overview of the Final Rule 
The Board is adopting final revisions 
to Regulation E and the staff 
commentary largely as proposed. 
However, several clarifications and 
modifications to the proposal have been 
made to respond to commenters’ 
concerns. The following is a summary of 
significant revisions to the regulation 
and the staff commentary. All of the 
revisions are discussed in detail below 
in the section-by-section analysis. The 
rule is effective February 9, 2006. The 
mandatory compliance date for the final 
rule is January 1, 2007. 
Electronic Check Conversion 
Merchant coverage. The final rule 
provides that merchants and other 
payees that use information from a 
check to initiate a one-time EFT from a 
consumer’s account are subject to the 
regulation solely for the limited purpose 
of obtaining a consumer’s authorization 
for the one-time transfer. Generally, 
authorization is obtained when the 
payee provides a notice to the consumer 
that a check received as payment will be 
converted to an EFT, and the consumer 
goes forward with the transaction. At 
POS, the notice must be posted in a 
prominent and conspicuous location, 
and a copy of the notice must be 
provided to the consumer at the time of 
the transaction, such as on a receipt. For 
ARC transactions, the notice will 
typically be provided on a billing 
statement or invoice. Model clauses are 
provided to try to minimize the risk that 
merchants and other payees will be 
subject to private actions. 
Alternative authorization. As 
proposed, the final rule recognizes that 
payees may obtain a consumer’s 
authorization to use information from 
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the consumer’s check to initiate an EFT, 
or, alternatively, to process the 
transaction as a check. 
Additional disclosures about ECK 
transactions. To help consumers 
understand the nature of ECK 
transactions, the final rule provides that 
persons initiating an ECK transaction, 
whether at POS or in an ARC 
transaction, must disclose to the 
consumer that when a check provided 
as payment is used to initiate an EFT, 
funds may be withdrawn from the 
consumer’s account as soon as the same 
day payment is made (for POS 
transactions) or received (for ARC 
transactions). Payees must also disclose, 
as applicable, that the consumer’s check 
will not be returned by the consumer’s 
financial institution. Under the final 
rule, for POS transactions, payees may 
provide these additional disclosures on 
a sign. The requirement to provide these 
disclosures sunsets three years from the 
mandatory compliance date of this final 
rule. 
Collection of Service Fees Via EFT 
The final rule, as proposed, provides 
that payees that choose to collect a 
service fee via an EFT due to 
insufficient or uncollected funds in a 
consumer’s account in connection with 
the underlying transaction must obtain 
the consumer’s authorization to collect 
the fee. Authorization is obtained when 
a payee provides notice to the consumer 
stating that the fee will be collected via 
an EFT and the consumer goes forward 
with the transaction. Payees also are 
required to disclose the amount of the 
fee on the notice. 
Error Resolution 
The final rule provides that a 
financial institution does not satisfy its 
error resolution responsibilities under 
the ‘‘four walls’’ rule by solely 
reviewing the payment instructions; an 
institution must review any additional 
information within the institution’s own 
records pertaining to the particular 
account in question that would assist in 
resolving the alleged error. 
Preauthorized Transactions 
The final rule, as proposed, 
withdraws the existing commentary 
stating that a tape recording of a 
telephone conversation with a consumer 
who agrees to preauthorized debits does 
not constitute written authorization 
under the regulation. 
Disclosures at Automated Teller 
Machines 
The final rule, as proposed in the 
August 2005 proposal, revises the 
regulation to permit ATM operators to 
alternatively provide notice on ATM 
signage that a surcharge may be 
imposed (in place of a disclosure that a 
surcharge will be imposed) if there are 
circumstances in which an ATM fee 
may not be charged. 
Effective Date of Rule 
The effective date of the final rule is 
February 9, 2006. While institutions 
may, if they choose, begin complying 
with the new requirements on February 
9, 2006, compliance with this final rule 
is not mandatory until January 1, 2007. 
The additional time should give persons 
affected by this final rule adequate time 
to implement the new requirements, 
including developing the new required 
notices for ECK transactions. 
IV. Section-by-Section Analysis 
Section 205.3
Coverage 
3(a) General 
Section 205.3(a) is revised to provide 
that § 205.3(b)(2), discussed below, 
applies to any person. 
3(b) Electronic Fund Transfer 
The term ‘‘electronic fund transfer’’ is 
defined in § 205.3(b)(1) as ‘‘any transfer 
of funds that is initiated through an 
electronic terminal, telephone, 
computer, or magnetic tape for the 
purpose of ordering, instructing, or 
authorizing a financial institution to 
debit or credit an account.’’ The term 
includes POS transfers, ATM transfers, 
direct deposits or withdrawals of funds, 
telephone transfers and debit card 
transactions. The final rule includes 
language in the existing regulation that 
was inadvertently omitted in the 
September 2004 proposal. Comments 
3(b)–1 and 3(b)–2 are redesignated as 
comments 3(b)(1)–1 and 3(b)(1)–2, and 
conforming changes are made to 
comments 2(a)–2 and 3(c)(1)–2. 
Electronic Check Conversion 
The EFTA excludes from the 
definition of ‘‘electronic fund transfer’’ 
any transaction ‘‘originated by check, 
draft, or similar paper instrument.’’ 15 
U.S.C. 1693a; see also § 205.3(c)(1). In 
ECK transactions, a consumer provides 
a check to a merchant or other payee to 
use as a source of information to initiate 
an EFT from the consumer’s account as 
payment for the purchase of goods or 
services, and not to initiate a payment 
by check. The payee electronically 
captures the routing, account, and serial 
numbers from the check and initiates a 
one-time EFT from the consumer’s 
account. The Board proposed to amend 
§ 205.3(b)(2) of Regulation E and 
comment 3(b)(2)–1 to clarify that ECK 
transactions are covered by Regulation E 
and deemed not to originate by check. 
Substantially similar guidance 
previously had been provided in the 
commentary to Regulation E. The few 
commenters addressing the issue agreed 
that the guidance regarding the status of 
ECK transactions under Regulation E is 
more appropriately placed in the 
regulation. Accordingly, the proposal 
has been adopted in § 205.3(b)(2)(i) with 
minor revisions. Section 205.3(b)(2)(i) 
further provides that a consumer must 
authorize an ECK transaction (discussed 
below). 
One industry commenter expressed 
concern that the proposed regulatory 
language was too broad in stating that a 
transaction is covered by Regulation E 
where a check is ‘‘used as a source of 
information to initiate a one-time EFT.’’ 
According to the commenter, some may 
interpret the language to include 
transactions arising from electronic 
check presentment or image exchange. 
The Board agrees; § 205.3(b)(2)(i) is 
intended to apply only when a payee 
uses a check as a source of information 
to initiate an EFT from the consumer’s 
account. New comment 3(b)(1)–2.iv 
clarifies that transactions arising from 
the electronic collection, presentment, 
or return of checks through the check 
collection system, such as through the 
transmission of electronic check images, 
are not EFTs covered by Regulation E. 
A few commenters asked the Board to 
clarify that the rules applying to ECK 
transactions were not intended to apply 
to Internet- or telephone-initiated 
transactions (where a consumer 
provides information—including the 
MICR-encoding—from his or her check 
to pay for a purchase via these payment 
channels). While Internet- and 
telephone-initiated transactions are 
covered by Regulation E because they 
result in electronic transfers from the 
consumer’s account, the rules for ECK 
transactions do not apply to these 
transactions. 
Coverage of merchants and other 
payees. Currently, a merchant or other 
payee that engages in ECK transactions 
is not covered by Regulation E because 
it does not meet the definition of 
‘‘financial institution.’’ Under § 205.2(i) 
the term ‘‘financial institution’’ means a 
‘‘bank, savings association, credit union, 
or any other person that directly or 
indirectly holds an account belonging to 
a consumer, or that issues an access 
device and agrees with a consumer to 
provide electronic fund transfer 
services.’’ The Board has previously 
acknowledged that a merchant or other 
payee is in the best position to provide 
notice to a consumer for the purpose of 
obtaining authorization of an ECK 
transaction. See 66 FR 15187, 15189–90 
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(March 16, 2001). The Board has not 
covered merchants and other payees 
previously under the regulation because 
it expected that these persons would 
provide consumers with the necessary 
notice. In response to concerns about 
the uniformity and adequacy of some of 
the notices provided to consumers about 
ECK transactions, the Board proposed to 
exercise its authority under Sections 
904(c) and 904(d)(1) of the EFTA to 
require merchants and other payees that 
initiate a one-time EFT using 
information from the consumer’s check, 
draft or similar paper instrument, to 
provide notice to obtain a consumer’s 
authorization for the transfer. The final 
rule is adopted, as proposed. Coverage 
of merchants and other payees under 
the final rule is solely for the limited 
purpose of obtaining consumer 
authorizations for ECK transactions. A 
financial institution will be subject to 
the requirement to obtain consumer 
authorization for the transaction to the 
extent that the institution initiates an 
EFT using information from a 
consumer’s check (e.g., if the institution 
converts checks provided as a payment 
for a mortgage loan). 
Most commenters supported the 
proposed revision in § 205.3(b)(2)(ii) 
because they believe the merchant is in 
the best position to provide the notice. 
According to one commenter, the 
consumer’s financial institution has no 
control over a consumer receiving 
proper notice for purposes of 
authorization. A few commenters noted 
the importance of covering merchants 
and other payees for enforcement 
purposes. Several commenters also 
noted that requiring merchants and 
other payees to adhere to minimum 
authorization and related notice 
provisions will better inform consumers 
on a consistent basis about ECK 
transactions. Moreover, according to 
these commenters, the authorization 
requirement would not pose new or 
significant compliance burdens since 
payment system rules currently impose 
an authorization requirement on 
merchants and other payees. While 
supporting the proposed requirement, a 
few commenters requested clarification 
that merchants and other payees would 
be covered solely for the limited 
purpose of the authorization 
requirement for ECK transactions. 
Some industry commenters opposed 
the proposed requirement. A few 
commenters believed merchants and 
other payees should not be required to 
assume the liability risks that may be 
associated with ECK transactions. A few 
commenters requested clarification of 
the FTC’s enforcement authority for 
merchants and other payees not 
regulated by federal banking agencies. A 
few commenters believed the 
requirement is an unnecessary 
duplication of payment system rules. 
The Board believes coverage of 
merchants and other payees in 
§ 205.3(b)(2)(ii) for the limited purpose 
of providing a notice to obtain consumer 
authorization for ECK transactions is 
appropriate to ensure consumers 
understand that checks will be 
processed as EFTs. Without such a 
notice requirement, different 
information may be given by merchants 
to consumers, or information may be 
given solely by signage or other forms 
that may not be easily discernable by 
consumers. In addition, coverage of 
merchants and other payees for the 
limited purpose of obtaining consumer 
authorization for ECK transactions will 
provide a mechanism to ensure that 
consumers, in fact, receive appropriate 
notice of check conversion. For those 
entities subject to FTC enforcement, the 
FTC would have enforcement authority 
pursuant to Section 917(c) of the EFTA 
and under the Federal Trade 
Commission Act. Merchant coverage 
would also enable the Board to provide 
model clauses that will aid consumer 
understanding of ECK transactions. The 
model clauses provide a safe harbor 
from liability, thereby reducing liability 
risks. See § 205.3(b)(2)(iv). 
General authorization requirements. 
As previously noted, revised 
§ 205.3(b)(2)(i) provides that a consumer 
must authorize an ECK transaction. The 
current commentary states that a 
consumer authorizes an ECK transaction 
when the consumer receives notice that 
the transaction will be processed as an 
EFT and completes the transaction. See 
comment 3(b)–3. This guidance, 
originally proposed to be placed in 
comment 3(b)(2)–1, is moved to 
§ 205.3(b)(2)(ii) of the final rule. The 
phrase ‘‘completes the transaction’’ is 
replaced with ‘‘goes forward with the 
transaction’’ to clarify that it is not 
necessary for a transaction to clear or 
settle in order for authorization to occur. 
In addition, under the final rule, for 
POS transactions, a notice must be 
posted in a prominent and conspicuous 
location, and a copy of the notice must 
be provided to the consumer at the time 
of the transaction, such as on a receipt. 
In the proposal, the Board stated that 
at POS, a written, signed authorization 
may be a more effective means than 
posted signage for informing consumers 
that their checks are being converted. 
The Board did not propose to require 
merchants or other payees to obtain the 
consumer’s signed authorization to 
convert checks received at POS, but 
specifically solicited comment on 
whether this should be required. The 
final rule does not require a merchant or 
other payee to obtain the consumer’s 
signed authorization for an ECK 
transaction. 
Some commenters supported a signed 
authorization requirement for POS 
transactions. Several of these 
commenters stated the requirement 
would be beneficial for enforcement 
purposes to ensure that consumer 
authorization is, in fact, obtained by a 
payee. A few commenters stated that the 
Regulation E rule should be consistent 
with the rules established by NACHA— 
the Electronic Payments Association 
(NACHA rule(s))—which requires a 
consumer’s written, signed 
authorization. One such commenter 
stated making the rules consistent 
would address consumer confusion 
issues. Another commenter stated that 
the current difference between the 
NACHA rule and Regulation E creates 
the potential for monetary penalties 
imposed by NACHA if the payee follows 
the Regulation E notice rule and does 
not also comply with NACHA’s signed 
authorization rule. A few commenters 
noted that there would be no additional 
regulatory burden associated with a 
signed authorization requirement since 
it is already required by NACHA. Some 
commenters expressed the view that a 
signed authorization requirement calls a 
consumer’s attention to, and reinforces 
an awareness of, check conversion. 
The majority of commenters opposed 
a signed authorization requirement for 
POS transactions under Regulation E. 
Specifically, some of these commenters 
stated that the NACHA rule is sufficient, 
and that a payments system rules-driven 
approach is preferable to regulation. 
Several commenters expressed concern 
that such a requirement would 
unnecessarily delay transactions at POS. 
According to one commenter, a signed 
authorization requirement could impede 
the general movement toward 
facilitating paperless payments. A few 
commenters stated the requirement may 
limit the industry’s flexibility to deal 
with changing market circumstances. 
Some commenters expressed concern 
that a signed authorization requirement 
may stifle the creation and development 
of payment system innovations. 
The final rule sets forth the 
authorization requirements for ECK 
transactions under § 205.3(b)(2)(ii). 
Generally, a consumer authorizes a one- 
time EFT (in providing a check to a 
merchant or other payee for the MICR 
encoding) when the consumer receives 
a notice that the transaction will be 
processed as an EFT and goes forward 
with the transaction. This guidance was 
originally in proposed comment 3(b)(2)– 
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1 Pub. L. 108–100, 117 Stat. 1177 (codified at 12 
U.S.C. 5001–5018). 
1. (Existing comment 3(b)–3 is deleted.) 
The phrase ‘‘completes the transaction’’ 
is replaced with ‘‘goes forward with the 
transaction’’ to clarify that it is not 
necessary for the transaction to clear or 
settle, for example, in order for 
authorization to occur. Section 
205.3(b)(2)(ii) also addresses the 
possibility that a payee might elect to 
obtain a consumer’s authorization either 
to convert a check provided as payment 
to an EFT or to process the check as a 
check transaction. See also comment 
3(b)(2)–2 (further discussed below). 
For ARC transactions, a payee (such 
as a utility company) obtains a 
consumer’s authorization when it 
provides notice of its intent to convert 
checks received as payment—for 
example, on a monthly billing statement 
or invoice—and the consumer provides 
or mails a check as payment. 
For transactions at POS, the final rule 
requires payees to post the notice in a 
clear and prominent location. The 
requirement for posted signage is 
necessary to alert consumers that a 
check provided as payment will be 
converted to an EFT before the 
consumer selects a payment method. 
The Board believes that providing this 
notice on a sign enables the consumer 
to authorize the ECK transaction after 
being given prior notice. The final rule 
also requires merchants and other 
payees at POS to provide consumers 
with a copy of the notice in a form the 
consumer can keep at the time of the 
transaction. For example, merchants 
and other payees could provide the 
notice on the receipt given to the 
consumer. The written receipt allows 
consumers to refer to the notice later, if 
necessary. 
The final rule does not require 
merchants or other payees at POS to 
obtain a consumer’s signed 
authorization for ECK transactions. The 
Board believes that a signed 
authorization requirement would 
provide minimal additional benefit 
given that consumers will be given 
notice that their checks will be 
converted at two different points during 
the ECK transaction, first through 
posted signage which consumers can 
read prior to providing a check as 
payment, and second on a receipt 
provided to the consumer, presumably 
after the check has been provided to the 
merchant. In addition, the periodic 
statement provided by the consumer’s 
bank will typically reflect ECK 
transactions in a different manner than 
check transactions. 
New comment 3(b)(2)–1 provides that 
a payee at POS does not violate the 
requirement to provide a copy of the 
check conversion notice to the 
consumer if the payee is unable to 
provide notice because of a bona fide 
unintentional error, so long as the payee 
maintains procedures reasonably 
adapted to avoid such occurrences. 
Thus, for example, a payee will not be 
deemed to have violated the regulation 
if it cannot provide a paper notice if its 
terminal printing mechanism jams, 
provided that the payee maintains 
procedures reasonably adapted to avoid 
such occurrences. 
Authorization language. Proposed 
comment 3(b)(2)–2 provided that a 
payee must obtain the consumer’s 
authorization to use information from 
his or her check to initiate an EFT or, 
alternatively, to process a check. The 
comment is adopted, largely as 
proposed. Model notices are provided in 
Appendix A–6 to assist merchants and 
other payees in complying with the 
requirements. See § 205.3(b)(2)(iv). 
Regulation E coverage of ECK 
transactions continues to be predicated 
on the consumer’s authorization to 
allow the merchant or other payee to 
use a check as a source of information 
to initiate an ECK transaction. 
Due to processing or technical errors, 
a transaction authorized as an ECK 
transaction ultimately may not be 
processed as an EFT. Furthermore, in 
some cases, a payee may decide to 
process the original check or create a 
demand draft, or the payee may choose 
to create a substitute check in 
accordance with the Check Clearing for 
the 21st Century Act (Check 21).1 
Currently, if a payee obtained a 
consumer’s authorization solely to 
initiate an EFT using information from 
the consumer’s check, the payee may 
have difficulty processing the same 
document as a check because such an 
action would arguably fall outside the 
consumer’s payment instructions. Thus, 
without the consumer’s authorization to 
alternatively process the transaction as 
a check, the payee may not be able to 
obtain payment. In other cases, a 
merchant or payee operating in multiple 
states may choose to pilot ECK in some 
locations while processing the payments 
as checks in others. To address these 
and similar concerns, and to provide 
flexibility, the Board proposed three 
authorization approaches for ECK 
transactions. 
First, the Board proposed to allow a 
payee to obtain a consumer’s 
authorization to use information from 
his or her check to initiate an EFT or, 
alternatively, to process the transaction 
as a check. See proposed Model Clause 
A–6(a). The Board specifically solicited 
comment, however, on whether this 
alternative authorization approach may 
result in any consumer harm or create 
any other risks. In particular, comment 
was solicited on whether payees that 
obtain alternative authorization should 
be required to specify the circumstances 
under which a check that can be used 
to initiate an EFT will be processed as 
a check. Second, the Board proposed an 
optional authorization clause for use by 
payees that intend to convert all checks 
to ECK transactions. See proposed 
Model Clause A–6(b). Third, the Board 
proposed an optional authorization 
clause for use by payees that choose to 
disclose the specific circumstances 
when checks will not be converted to 
ECK transactions. See proposed Model 
Clause A–6(c). 
Most industry commenters supported 
the alternative authorization approach 
as illustrated in proposed Model Clause 
A–6(a), stating that the approach 
provides needed flexibility. The 
majority of these commenters did not 
believe any consumer harm would 
result from the lack of specification of 
circumstances under which check 
conversion would or would not occur. 
One commenter did not believe 
consumers would be confused about 
their rights since many account-holding 
financial institutions list EFT and check 
transactions separately on periodic 
statements given to consumers. A few 
commenters stated that consumers will 
have sufficient protections regardless of 
how the transactions are processed. 
Some industry commenters supported 
alternative authorization, but stated that 
the Board should also require payees to 
disclose the circumstances under which 
conversion will not occur. One such 
commenter believed the disclosure of 
the specific circumstances would 
eliminate any risk of consumer harm. 
One federal enforcement agency 
observed generally that consumers may 
not understand the differences between 
checks and ECK transactions or the 
protections that apply to each, but did 
not otherwise express a view on the 
merits of permitting alternative 
authorization. This commenter thought 
that focus group testing of the model 
clauses would be useful to determine 
what information consumers 
understand. 
A few commenters opposed the 
alternative authorization clause as 
unclear and potentially confusing to 
consumers. According to one industry 
commenter, confusion arising from an 
alternative authorization may cause 
consumers to instruct their financial 
institutions to state that ECK 
transactions were unauthorized. This 
commenter therefore believed the rule 
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should require the authorization notice 
to specify the circumstances when 
conversion would not occur. According 
to another commenter, requiring payees 
to specify the circumstances when a 
check will be processed as a check is 
consistent with the purpose of the 
EFTA—for consumers to know their 
rights, responsibilities, and liabilities 
when they engage in EFT services. This 
commenter believed such disclosure 
also enhances consumer understanding 
by making it clear that there are 
different methods to collect checks and 
by providing greater certainty as to 
which method is most likely to apply to 
a particular transaction. The commenter 
stated that given the efficiency of check 
conversion, there should be limited 
circumstances to disclose. Accordingly, 
the commenter requested that the Board 
delete Model Clause A–6(a) as an 
option. 
Some industry commenters supported 
the approach illustrated in proposed 
Model Clause A–6(b) for when a payee 
converted all checks, as long as the use 
of the clause is optional. One 
commenter believed the clause 
unworkable absent additional 
authorization to process the transaction 
as a check where the ECK will not clear 
for technical reasons. 
A few industry commenters also 
supported the specific authorization 
approach illustrated in Model Clause A– 
6(c) as long as it is optional. Other 
industry commenters did not believe the 
clause would provide a significant 
benefit to consumers. Several 
commenters believed a specific 
disclosure would be highly detailed and 
complex; if circumstances changed new 
disclosures would be required. One 
consumer group commenter was 
concerned that the burden of providing 
this notice could result in payees 
favoring substitute checks under Check 
21 which they believed would provide 
fewer consumer protections. A few 
industry commenters thought the clause 
should not be adopted. 
A few industry commenters stated 
that all three model clauses should be 
retained for flexibility. Other 
commenters believed that all three 
clauses should be consolidated to 
address various payment options 
available to payees. Several commenters 
supported having one model notice to 
avoid confusing consumers. Many 
commenters expressed concern about 
the length of the notices. A few 
commenters requested additional 
guidance on the clear and conspicuous 
standard as it pertains to the notices. 
In the final rule, Model Clause A–6(a) 
is retained as proposed, but proposed 
Model Clauses A–6(b) and (c) have been 
consolidated in a single Model Clause 
A–6(b) for simplicity and to facilitate 
compliance by payees. Model Clause A– 
6(a) may be used in all instances, 
including when a payee will process a 
check as an EFT in all circumstances, 
when the transaction is processed as a 
check for technical reasons, or because 
a payee simply chooses to process the 
transaction as a check. While the Board 
believes that most payees will likely 
choose to use Model Clause A–6(a) in 
all cases, the Board is aware that some 
payees may want to provide more 
specific information concerning their 
ECK practices for business reasons, such 
as for customer service and education, 
as well as to reduce possible consumer 
inquiries. Model Clause A–6(b) offers 
that flexibility. Thus, for example, 
payees may choose to use Model Clause 
A–6(b) to disclose the circumstances 
under which they will not process a 
check as an EFT, such as when it is 
impossible for technical or other 
processing reasons. 
Model Clauses A–6(a) and (b) have 
also been revised to clarify their 
application to transactions where a 
consumer’s check is provided as 
payment. Some commenters expressed 
concern that without this revision, 
consumers might mistakenly believe the 
notice applied to preauthorized 
transfers—where a consumer provides a 
check and a signed authorization in 
advance to authorize future payments. 
See § 205.10. 
Consistent with § 205.4(a)(1), notices 
provided to consumers regarding check 
conversion must be clear and readily 
understandable. For example, in ARC 
transactions, notices in small print and 
buried in the middle of unrelated 
information would likely not meet the 
standard. Payees may also consider 
using headings preceding the notice to 
call attention to the information 
presented. For POS transactions, signage 
informing consumers about check 
conversion should not be obscured by 
other information or signs that may also 
be located at POS. 
Notice for each transfer. ECK 
transactions are one-time, and not 
preauthorized, transfers. Therefore, 
under the final rule, a notice must be 
provided and an authorization must be 
obtained from the consumer for each 
transfer. Section 205.3(b)(2)(ii) contains 
the general rule that the person 
initiating an ECK transaction must 
provide notice of check conversion to 
the consumer before each transfer. 
Some industry commenters stated that 
while it may be appropriate to require 
notice for each transfer for most ECK 
transactions, there are certain 
circumstances where one advance 
notice may suffice. Coupon books were 
the most frequently-cited examples. 
Lenders provide coupon books to 
consumers typically for mortgages, 
automobile loans, personal loans, and 
other recurring loan payments. 
According to some commenters, coupon 
books do not present the same notice 
opportunities as POS and ARC 
transactions because they are provided 
in advance and include coupons for 
several payments. Some credit card 
issuers suggested that it may be 
similarly appropriate to allow a 
consumer to contract with its card 
issuer for regular ECK payments rather 
than requiring a notice to be sent on or 
with each periodic statement sent to the 
consumer. A few commenters stated 
that recurring notice is appropriate only 
for POS transactions. One commenter 
stated that the consumer benefit of 
receiving a notice with each periodic 
statement is negligible compared to the 
ongoing cost to institutions. 
Because a coupon book is designed so 
that a consumer must detach a coupon 
from the book and provide the coupon 
with each payment, the Board believes 
that it is unnecessary to require that a 
separate notice of check conversion be 
printed on each coupon. New comment 
3(b)(2)–3 provides that for coupon 
books, a notice placed on a conspicuous 
location of the coupon book that the 
consumer can retain is deemed to 
constitute the provision of notice on 
each coupon that accompanies a check 
provided as payment, for purposes of 
obtaining a consumer’s authorization to 
convert each check. The notice must be 
placed on a location of the coupon book 
that a consumer can retain—for 
example, on the first page, or inside the 
front cover. The Board believes this new 
comment will facilitate compliance with 
the requirements of the Act and 
regulation. 
Unlike coupon books which contain 
several payment coupons and are sent 
once near the beginning of the payment 
period, periodic statements for credit 
card accounts are typically sent on a 
monthly basis. Thus, the Board believes 
that credit card issuers have the 
capability of providing a notice of check 
conversion with each statement without 
an undue burden. In contrast, payees 
that send coupon books may not 
otherwise send monthly information; 
thus, requiring a separate monthly 
notice could be costly for these payees. 
Accordingly, comment 3(b)(2)–3 in the 
final rule is limited to coupon books. 
If a coupon book is issued before the 
effective date of the final rule, and will 
cover a time period when notice 
otherwise must be provided under the 
final rule, payees may provide a one- 
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time notice to obtain the consumer’s 
authorization to convert each check 
submitted with a coupon. For example, 
a payee may provide a separate mailing 
informing the consumer that by mailing 
a check with each payment coupon 
included in the book, the consumer 
authorizes the payee to convert each 
check provided as payment to an EFT. 
Without such relief, payees would have 
to re-issue coupon books at considerable 
expense in order to comply with the 
new rule. 
The final rule also clarifies that the 
notice regarding a payee’s intent to 
collect a service fee for insufficient or 
uncollected funds via an EFT and the 
notice providing additional information 
about the nature of ECK transactions 
(further discussed below) must also be 
provided for each transfer. However, the 
special exception regarding coupon 
books would also apply to notices 
regarding the electronic collection of 
service fees for insufficient or 
uncollected funds and the nature of ECK 
transactions. 
Imputed notice. Proposed 
§ 205.3(b)(2)(ii) provided that obtaining 
authorization from the consumer 
holding the account for which a check 
may be converted constitutes 
authorization for all checks provided for 
a single payment or invoice for that 
account. Proposed comment 3(b)(2)–4 
stated that notice of check conversion to 
the person holding the account for 
which a check may be converted may be 
imputed to anyone who writes a check 
as payment for the particular invoice or 
bill. In the final rule, comment 3(b)(2)– 
4 is adopted with certain revisions for 
clarity. The guidance in proposed 
§ 205.3(b)(2)(ii) is also moved to 
comment 3(b)(2)–4, with some revisions 
for clarity. 
All commenters who addressed the 
issue of imputed notice supported the 
proposal. One commenter noted that the 
rule is consistent with current industry 
practice. Another commenter stated that 
complying with a different rule would 
be unduly burdensome, if not 
impossible. A few commenters 
supported the proposal, but stated that 
alternative authorization would also be 
necessary to accommodate payees who 
may choose not to process multiple 
transactions all as EFTs. A few 
commenters also suggested that the 
authorization of the person holding the 
billing account should apply to all 
checks received prior to the next bill, 
not just to checks related to the 
particular invoice. 
In the final rule, comment 3(b)(2)–4 
provides that notice to the consumer 
listed on the billing account constitutes 
sufficient notice to convert all checks 
provided in payment for the billing 
cycle or the invoice for which notice has 
been provided, whether the check(s) is 
received from the consumer or someone 
else for that account. The notice applies 
to all checks submitted as payment until 
the provision of notice on or with the 
next invoice or statement. Thus, if a 
merchant or other payee receives a 
check as payment from the consumer 
listed on the billing account after 
providing notice that the check will be 
processed as a one-time EFT, the 
authorization from that consumer 
constitutes authorization to convert all 
other checks provided for a single 
invoice or statement. 
Other required notices for ECK 
transactions may also be similarly 
imputed to any other consumer who 
may provide a check for the same billing 
cycle or invoice if such notices are 
provided to the consumer listed on the 
billing account. Thus, for example, a 
notice to the consumer on the billing 
account informing the consumer that a 
service fee for insufficient or 
uncollected funds will be debited via an 
EFT from the consumer’s account 
constitutes notice to obtain 
authorization for electronically 
collecting the fee to any other consumer 
who may provide a check for the same 
billing cycle or invoice. 
Additional ECK disclosures. 
Consistent with the EFTA’s purpose to 
enable consumers to understand their 
rights, liabilities, and responsibilities 
concerning EFT services, and given the 
unique characteristics of ECK 
transactions, the Board believes it is 
appropriate to provide consumers with 
additional information to help them 
understand the nature and potential 
consequences of an ECK transaction. 
Proposed § 205.3(b)(2)(iii) thus required 
a person that initiates an ECK 
transaction to provide a notice to the 
consumer that when a check is used to 
initiate an electronic fund transfer, 
funds may be debited from the 
consumer’s account quickly, and, as 
applicable, that the consumer’s check 
will not be returned by the financial 
institution holding the consumer’s 
account. Under the proposal, this 
information would be provided at the 
same time a notice is provided to obtain 
authorization for the underlying ECK 
transaction. Section 205.3(b)(2)(iii) is 
adopted as proposed, with some 
revisions to address commenter 
concerns. Proposed comment 3(b)(2)–3 
is re-designated as comment 3(b)(2)–5, 
and provides additional guidance to 
facilitate compliance. 
Consumer group commenters stated 
that the additional information 
answered many of the common 
questions they receive from consumers 
about ECK transactions; thus, they 
believed that the additional information 
would help avoid consumer confusion 
and enhance consumer understanding 
of ECK transactions. A federal 
enforcement agency similarly noted that 
consumers may be more willing to 
engage in ECK transactions if they better 
understand them. In particular, the 
agency stated that the disclosure 
regarding the quick debiting of deposit 
accounts through ECK transactions 
could help consumers avoid the 
possibility of overdrafts for insufficient 
funds. 
Some industry commenters requested 
that the Board revise the requirement to 
state instead that the transaction will be 
reported on the consumer’s periodic 
account statement. One industry 
commenter stated that much of the 
consumer education responsibility for 
ECK transactions should be borne by the 
consumer’s financial institution. A few 
industry commenters were concerned 
about the length of the disclosures, 
particularly in combination with the 
authorization disclosure, and expressed 
concern that consumers may be 
discouraged from reading them. One 
industry commenter stated that the 
disclosures may not be feasible as an 
ongoing requirement. Another industry 
commenter expressed concern about the 
cost of reprogramming terminals. One 
industry commenter thought the Board 
should require financial institutions to 
include the disclosures in their account 
agreements or on each periodic 
statement that includes an ECK 
transaction. 
A number of industry commenters 
opposed the proposed disclosure that 
states when a consumer’s check is used 
for an ECK transaction, the transaction 
may clear quickly. Many of these 
commenters stated that in the majority 
of cases an EFT and a check will clear 
in roughly the same period of time. 
Other commenters stated that under 
Check 21, checks may clear as fast or 
faster than EFTs, and expressed concern 
that the disclosure may mislead 
consumers. A few commenters stated it 
might be impossible to explain the 
meaning of ‘‘quickly’’ in different 
circumstances. 
Many industry commenters also 
opposed the proposed disclosure that 
the consumer’s check will not be 
returned by the consumer’s financial 
institution. The majority of these 
commenters stated the disclosure would 
be misleading, particularly to 
consumers whose checks currently are 
not returned by their financial 
institutions under the terms of their 
account agreements. A few commenters 
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asserted the disclosure might become 
less significant to consumers in light of 
Check 21. One commenter believed that 
consumers may confuse the disclosure 
with similar statements from their 
financial institution about check 
handling under Regulation CC, as 
amended to implement Check 21. 
As the payment system evolves, 
consumers’ checks are being used 
differently than in the past, and 
consumer rights with respect to EFT 
transfers are different than those for 
check transactions. Given the unique 
characteristics of ECK transactions, the 
Board believes it would be beneficial to 
provide additional information to 
consumers to help them better 
understand the nature of these 
transactions. The additional information 
highlights and may draw consumers’ 
attention to some of the key differences 
in the way payments are handled under 
the ECK process, and possibly reduce 
consumer confusion about ECK 
transactions. Moreover, the Board notes 
that some payees, particularly in the 
ARC environment, are currently 
providing this information to their 
customers to help reduce consumer 
inquiries and complaints. Requiring this 
notice could facilitate consumer 
understanding by ensuring that all 
consumers who engage in ECK 
transactions receive this information. 
Accordingly, the Board is exercising its 
authority under Sections 904(c) and 
904(d)(1) of the EFTA and adopting the 
proposed notice in the final rule, with 
certain modifications to address 
commenters’ concerns. 
The Board recognizes that a check 
may be processed as fast or faster than 
an ECK transaction in some instances 
based on current industry practices and 
potential changes in check processing 
facilitated by the Check 21 Act. 
Nevertheless, the Board believes it is 
important to draw a consumer’s 
attention to the fact that an ECK 
transaction ‘‘may’’ clear quickly. The 
purpose of the notice is to emphasize to 
consumers the importance of having 
sufficient funds in their accounts at the 
time of the transaction, since many 
consumers may still believe that use of 
a check will result in a significant time 
lag between the time the consumer 
provides a check as payment and when 
funds are in fact debited from the 
consumer’s account. To address 
commenter concerns about potential 
comparisons with check processing, the 
notice in § 205.3(b)(2)(iii) has been 
revised to state that funds may be 
debited from consumers’ accounts as 
soon as the same day payment is 
received. 
Section 205.3(b)(2)(iii) also retains the 
requirement to notify consumers that 
they will not receive their checks back 
from their financial institution if their 
checks are converted. The disclosure 
addresses complaints received by the 
Board from consumers expressing 
confusion about not receiving their 
checks back in ECK transactions. In 
particular, some consumers may rely on 
the checks they receive back with their 
periodic statements for account 
reconciliation and recordkeeping 
purposes. Comment 3(b)(2)–5 clarifies 
that the statement that a check will not 
be returned by the consumer’s financial 
institution is not required at POS, if, as 
is typically currently the case, the 
merchant returns the check to a 
consumer. 
To provide flexibility and address the 
concerns about the length of ECK 
disclosures, payees at POS may provide 
the notice in § 205.3(b)(2)(iii) on posted 
signage, and need not also provide the 
notice on the receipt provided to the 
consumer at the time of the transaction. 
However, payees in ARC transactions 
must provide the notice with the general 
notice to obtain consumer authorization 
for the ECK transaction. The Board 
expects that ARC payees will likely 
provide the combined notice on a 
billing statement or invoice. As 
provided in § 205.3(b)(2)(iv), model 
clauses are provided in Appendix A–6 
to help payees comply with the 
additional disclosure requirements. 
Model Clause A–6(c) sets forth two 
different formulations for the statement 
regarding when funds may be debited 
from a consumer’s account, depending 
on where the payment is made. If the 
payment is made at POS, the statement 
refers to the possibility that funds may 
be debited from the consumer’s account 
as soon as the same day the consumer 
makes the payment. For ARC 
transactions, the statement refers to the 
date that the payee receives the 
payment. 
Consistent with § 205.4(a)(1), and as 
stated above in the context of the notice 
to obtain consumer authorization for an 
ECK transaction, the notice provided 
under § 205.3(b)(2)(iii) to consumers 
about the nature of ECK transactions 
must be clear and readily 
understandable. For example, notices in 
small print and buried in the middle of 
unrelated information would likely not 
meet the standard. Payees may also 
consider using headings preceding the 
notice to call attention to the 
information presented. If payees elect to 
provide the information under 
§ 205.3(b)(2)(iii) separately on a sign, the 
notice should not be obscured by other 
information or signs that may also be 
located at POS. 
As stated above, with ECK 
transactions, consumers’ checks are 
being used differently than in the past, 
and consumers may not be aware that 
the conversion of their checks to EFTs 
may impact the collection time for the 
payment, or that they will not receive 
their checks (or images of their checks) 
back with their statements as has been 
the case for check transactions in the 
past. Thus, the Board believes that these 
additional disclosures are appropriate at 
present. Moreover, many payees are 
already providing similar disclosures to 
reduce possible consumer inquiries. 
Nevertheless, the Board expects that 
over time, consumers will become more 
familiar with ECK transactions, thereby 
reducing the need for the additional 
information. Thus, the final rule 
provides a sunset date of three years 
from the mandatory compliance date of 
January 1, 2007 for the final rule, after 
which time payees will no longer be 
required to provide the notice set forth 
in § 205.3(b)(2)(iii). 
Transactions initiated by mistake. 
The supplementary information to the 
proposed rule clarified that where a 
merchant or other payee initiates an 
EFT in error, the transaction would not 
be covered by Regulation E where the 
transaction does not meet the definition 
of an EFT. Few commenters addressed 
the statement, but one requested 
clarification because the inability to 
process an item is not necessarily the 
result of an ‘‘error.’’ The Board agrees 
that the word ‘‘error’’ has a particular 
meaning in the EFTA, Regulation E and 
other rules, and that in some cases a 
transaction may not be able to be 
processed as an EFT for other reasons. 
Accordingly, the Board believes that the 
statement applies to transactions where 
a payee mistakenly initiates an ECK 
transaction, such as when the payee 
attempts to convert a money order. Such 
a transaction is not subject to the 
coverage of the EFTA and Regulation E, 
even if initiated as an ECK transaction. 
Collection of Service Fees Via Electronic 
Fund Transfer 
In the proposal, comment 3(b)–3 was 
added to clarify that an EFT from a 
consumer’s account to collect a service 
fee due to insufficient funds is covered 
by Regulation E, and must be authorized 
by the consumer. Under the proposal, 
the provision of notice to the consumer, 
coupled with the consumer’s decision to 
proceed with the transaction, would 
constitute authorization for the debit. 
This provision has been adopted in the 
regulation in new § 205.3(b)(3), which 
also requires payees to notify consumers 
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about the specific amount of the fee in 
order to obtain the consumer’s 
authorization for the transaction. 
Consistent with the authorization 
requirement at POS for ECK 
transactions, the final rule requires that 
where a service fee for insufficient or 
uncollected funds in connection with a 
POS transfer may be collected via an 
EFT, the notice must be posted in a 
prominent and conspicuous location, 
and a copy of the notice must be 
provided to the consumer. Comment 
3(b)(3)–1 clarifies that the requirement 
to obtain the consumer’s authorization 
does not apply to fees imposed against 
the consumer’s account by the 
consumer’s account-holding institution 
for paying overdrafts or returning a 
check or EFT unpaid. 
The majority of commenters generally 
agreed that EFTs initiated to collect 
service fees for insufficient funds 
should be covered by Regulation E. A 
few industry commenters stated 
coverage was appropriate as long as a 
merchant or other payee could obtain 
authorization of the service fee when it 
provides notice to the consumer that the 
fee will be debited electronically from 
the consumer’s account, and the 
consumer decides to proceed with the 
transaction. Other industry commenters 
generally supported the notice 
requirement, but believed the Board 
should also require signed 
authorization. Several industry 
commenters requested clarification that 
additional authorization requirements 
may be established by payment system 
rules. A few commenters requested 
clarification that the proposed rule did 
not intend to address ‘‘NSF’’ fees 
assessed by a consumer’s financial 
institution for returning a check unpaid. 
Some industry commenters requested 
revising the comment to clarify that a 
check might be returned for reasons 
other than ‘‘insufficient’’ funds. 
Consumer group commenters opposed 
the proposed comment. These 
commenters stated that notice and the 
consumer writing a check alone should 
not be sufficient to authorize the 
debiting of service fees, noting that 
while a consumer may reasonably 
anticipate a withdrawal from his or her 
account for the face amount of the 
check, the consumer would not expect 
an additional debit for the fee, absent 
additional prior, written authorization. 
Consumer groups also stated that a 
written, signed authorization 
requirement would encourage 
consumers to exercise more care in 
determining their actual balances before 
making a payment. 
Some industry commenters also 
opposed the proposed comment. One 
commenter asserted that providing 
notice at POS would not sufficiently 
inform the consumer of the possibility 
that a service fee could be debited 
electronically from the consumer’s 
account. A few commenters opposed the 
comment as inconsistent with the 
NACHA rule, which requires written, 
signed authorization for collection of 
service fees via an EFT. A couple of 
commenters believed it important to 
require signed authorization so a 
consumer will know and understand the 
fee imposed. One commenter expressed 
the concern that some payees believe 
the current Regulation E notice equals 
authorization comment grants a 
substantive right to collect a service fee, 
notwithstanding other federal or state 
law requirements that might apply. 
Proposed comment 3(b)–3 has been 
moved to the regulation as new 
§ 205.3(b)(3) in the final rule. In general, 
§ 205.3(b)(3) provides that a consumer 
authorizes the electronic collection of a 
fee for a check or EFT returned due to 
insufficient funds when the consumer 
receives notice of a payee’s intent to 
collect the fee via an EFT, and the 
consumer goes forward with the 
transaction. The final rule also requires 
payees to include the specific amount of 
the fee imposed in the notice provided 
to consumers to ensure that consumers 
are informed of the amount of the fee 
they may be charged in the event they 
have insufficient funds in their account. 
Section 205.3(b)(3) requires payees to 
obtain a consumer’s authorization for 
the debit regardless of whether the 
underlying transaction is an EFT or is a 
check transaction, as long as the payee 
intends to collect a service fee for 
insufficient funds via an EFT to the 
consumer’s account. See also comment 
3(c)(1)–1. 
In addition, section 205.3(b)(3) has 
been further revised to address some 
commenters’ concerns. First, the 
provision was not intended to address 
fees assessed on a consumer’s account 
by the consumer’s financial institution 
for the return of a check or EFT unpaid 
(commonly known as ‘‘NSF fees’’), but 
rather, to address service charges 
assessed by a payee because the 
consumer’s check or EFT was returned 
unpaid. Accordingly, references to 
‘‘NSF fees’’ in the proposed comment 
have been deleted and replaced with 
‘‘service fee(s)’’ in the final rule. New 
comment 3(b)(3)–1 further provides that 
the authorization requirement does not 
apply to fees imposed against the 
consumer’s transaction account by the 
consumer’s account-holding institution 
for paying overdrafts or returning a 
check or EFT unpaid. (However, where 
a financial institution holds the 
consumer’s deposit or checking account 
and also acts as a payee, such as in 
connection with a loan or credit card 
account, it would be required to obtain 
the consumer’s authorization in order to 
collect a service fee for insufficient or 
uncollected funds in connection with 
the underlying transaction, but not to 
collect any separate service fee that may 
be assessed against the deposit or 
checking account for returning the 
check or EFT unpaid.) 
Second, because a check or EFT may 
be returned for reasons other than 
insufficient funds in the consumer’s 
account, § 205.3(b)(3) states that the rule 
applies where an EFT or check is 
returned for ‘‘insufficient or 
uncollected’’ funds. 
Third, consistent with the 
authorization requirements for the ECK 
transaction, the Board is exercising its 
authority under Sections 904(c) and 
904(d)(1) of the EFTA to require payees 
at POS to provide notice of their intent 
to collect service fees for insufficient or 
uncollected funds via EFT, and to 
disclose the amount of the fee, on 
signage posted in a prominent and 
conspicuous location at POS. A copy of 
the notice must also be provided to the 
consumer at the time of the transaction, 
such as on the sales receipt. Payees in 
ARC transactions will typically provide 
written notice on a billing statement or 
invoice. Model Clause A–6 contains 
model language that payees may use to 
obtain a consumer’s authorization for 
the collection of the service fee for 
insufficient or uncollected funds via an 
EFT. 
The final rule does not require payees 
to obtain a consumer’s signature to 
authorize the collection of service fees 
for insufficient or uncollected funds via 
an EFT. Particularly at POS, the Board 
believes the added benefit of a signature 
would be minimal in light of the 
requirements to provide notice of the 
intent to collect the service fee via an 
EFT both on posted signage, and on a 
receipt provided to the consumer at the 
time of the transaction. The Board 
further notes that § 205.3(b)(3) addresses 
only the requirement that a payee obtain 
a consumer’s authorization for a service 
fee for insufficient or uncollected funds 
the payee intends to collect via EFT. 
The final rule does not, however, 
address whether a payee has a 
substantive right to collect the service 
fee—that is a matter of state or other 
law. The Board notes that other federal 
or state laws, such as the Fair Debt 
Collection Practices Act, as well as 
payment system rules, may impose 
additional requirements. 
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3(c) Exclusions From Coverage 
When payees re-present checks 
electronically, they may also seek to 
debit a service fee for insufficient funds 
via EFT from the consumer’s account. 
Although the electronic re-presentment 
of the returned check (RCK) is not 
covered by Regulation E because the 
transaction was originated by check, the 
separate electronic debit of the service 
fee is covered by the regulation. 
Proposed comment 3(c)(1)–1 clarified 
that a consumer authorizes the debit of 
the service fee when the consumer goes 
forward with the transaction after 
receiving notice that the fee will be 
collected electronically. No commenters 
opposed the clarification. Comment 
3(c)(1)–1 is revised, consistent with 
§ 205.3(b)(3), to add a reference to 
‘‘uncollected’’ funds and to provide that 
authorization at POS for the electronic 
debit of the service fee from the 
consumer’s account in connection with 
a re-presented check requires notice 
posted on signage, with a copy of the 
notice provided to the consumer. 
Section 205.5
Issuance of Access 
Devices 
Section 911 of the EFTA, which is 
implemented by § 205.5 of Regulation E, 
generally prohibits financial institutions 
from issuing debit cards or other access 
devices except (1) in response to 
requests or applications or (2) as 
renewals or substitutes for previously 
accepted access devices. Comment 
5(a)(2)–1 generally provides that a 
financial institution may not issue more 
than one access device as a renewal of 
or substitute for an accepted device (the 
‘‘one-for-one rule’’). Section 205.5(b) 
provides, among other things, that any 
access device issued on an unsolicited 
basis must not be validated at the time 
of issuance. Under the proposal, 
comment 5(b)–5 clarified that a 
financial institution may issue more 
than one access device in connection 
with the renewal or substitution of a 
previously accepted access device, 
provided it complied with the 
conditions set forth in § 205.5(b) for the 
additional unsolicited devices. The 
proposal retained the general one-for- 
one rule in comment 5(a)(2)–1; however, 
a cross-reference to proposed comment 
5(b)–5 was added. The revisions are 
being adopted substantially as 
proposed, with some modifications to 
address commenters’ concerns. 
Most commenters addressing this 
issue supported the proposal. One 
commenter asserted that since liability 
for unauthorized use is on a per-account 
(not per-device) basis, issuing additional 
devices would not impose added risk on 
the consumer. Another commenter 
agreed that an additional access device 
should be issued in unvalidated form, 
but suggested that new initial 
Regulation E disclosures should not be 
required to accompany the additional 
device. (One of the requirements for 
issuing an unsolicited access device 
under § 205.5(b) is to provide the initial 
disclosures required by § 205.7 that will 
apply to the device. See § 205.5(b)(3).) 
One commenter suggested that the 
proposed commentary changes be 
expanded to provide financial 
institutions flexibility to replace access 
devices having limited functions with 
devices having additional functions. For 
example, cards usable only at ATMs 
could, under this approach, be replaced 
with cards usable at POS as well. 
A few commenters suggested the 
Board clarify that when an additional 
access device is issued at the time of 
replacement or substitution, both the 
additional device and the device that 
replaces the accepted access device may 
be issued in unvalidated form and a 
single validation procedure may be used 
to validate both devices. Under such a 
procedure, the consumer would not 
have the option to validate only the 
device replacing the existing device and 
refuse to validate the additional device; 
the consumer would have to choose to 
validate both devices or neither device. 
The revisions to the commentary 
regarding the issuance of additional 
access devices are adopted as proposed, 
with a few clarifying changes as 
described below. Unlike credit cards, a 
consumer’s own funds are at risk of loss 
in the event of unauthorized use of a 
debit card or other access device. The 
potential for unauthorized use may 
increase if validated cards are 
intercepted in the mail and consumers 
are unaware that they may be receiving 
multiple cards as replacements for an 
existing access device. The validation 
requirement of § 205.5(b) limits the risk 
of monetary losses from the theft of 
debit cards sent through the mail. 
Although there would be no increase in 
a consumer’s liability where multiple 
access devices are issued, asserting a 
claim of unauthorized use can be 
inconvenient and time-consuming, and, 
at least temporarily, the consumer may 
be deprived of needed funds. Therefore, 
the Board believes the benefits afforded 
by the one-for-one rule and the 
validation requirements of § 205.5(b) are 
critical in the context of debit cards, and 
outweigh any benefits of providing 
greater flexibility to issue access 
devices. In addition to the validation 
requirement in § 205.5(b), the Board 
notes that where additional access 
devices are issued unsolicited, whether 
in connection with the issuance of a 
replacement or substitute device or 
otherwise, the other provisions of 
§ 205.5(b), including the requirement to 
provide new initial disclosures, also 
apply. (See, however, comment 2(a)–2, 
providing that the term ‘‘access device’’ 
does not include a check used as a 
source of information to initiate an 
EFT.) 
With respect to the suggestion to 
expand the proposed comment to 
provide financial institutions with 
flexibility to replace access devices with 
limited functions with devices having 
additional functions, comment 5(a)(2)–1 
already addresses the issue; institutions 
are permitted to expand functions upon 
replacement or substitution of access 
devices. When the proposed revisions to 
comment 5(a)(2)–1 were issued, existing 
commentary language on this point was 
not included for the sake of brevity. To 
clarify this matter, the language in 
question is set forth in full in the text 
of the final commentary revisions. Also, 
the language is modified slightly to 
make clear that either the access device 
replacing the existing device, or the 
additional access device (or both), may 
provide expanded functions compared 
to the existing device. 
Regarding validation procedures, an 
institution may require a consumer to 
choose to either validate all access 
devices provided by an issuer, including 
the replacement and any additional 
devices, or validate none of the issued 
devices. Also, although an institution is 
permitted to issue a validated access 
device to replace an existing accepted 
access device, the institution may 
choose instead to issue the replacement 
device in a form that requires 
validation. Furthermore, an institution 
may choose to link the validation of one 
access device with the validation of 
another one. Accordingly, comment 
5(b)–5 is revised to include a 
clarification on this issue. The comment 
also notes that an institution using such 
a validation procedure should disclose 
to the consumer in a clear and readily 
understandable manner that the single 
validation will validate both access 
devices, to ensure that the consumer 
will not, for example, improperly 
discard the additional, now validated, 
device. 
Section 205.7
Initial Disclosures 
7(a) Timing of Disclosures 
Electronic check conversion 
transactions are a new type of EFT 
requiring new disclosures. See 
discussion below under § 205.7(c). The 
Board proposed to revise comment 7(a)– 
1 to provide that an institution may 
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choose to provide disclosures about 
ECK transactions early, i.e., prior to the 
first ECK transaction involving the 
consumer’s account. Commenters 
supported the proposed revision. One 
trade association representing credit 
unions observed that early notification 
is a cost-effective way of enabling 
institutions to establish a single means 
of notifying and educating consumers 
about their rights concerning electronic 
fund transfers. Comment 7(a)–1 is 
adopted as proposed, with a minor 
revision. See also comment 7(a)–2 
(permitting an institution that has not 
received advance notice of a third party 
transfer to provide required disclosures 
as soon as reasonably possible after the 
first transfer). 
7(b) Content of Disclosures 
The Board proposed to clarify that 
financial institutions must list ECK 
transactions among the types of 
transfers that a consumer can make. See 
proposed comment 7(b)(4)–4. As further 
discussed below under § 205.7(c), the 
Board adopts comment 7(b)(4)–4 as 
proposed. 
7(c) Addition of Electronic Fund 
Transfer Services 
Former comment 7(a)–4 stated that if 
an EFT service is added to a consumer’s 
account and is subject to terms and 
conditions different from those 
described in the initial disclosures, 
disclosures for the new service are 
required. Under the final rule, as 
proposed, this interpretation is moved 
to § 205.7(c) of the regulation for 
consistency with other regulations. See, 
e.g., § 226.9(b)(2) of Regulation Z. New 
comment 7(c)–1 is adopted as proposed 
to provide that ECK transactions are a 
new type of transfer requiring new 
disclosures to the consumer, to the 
extent applicable. The model clauses for 
initial disclosures are revised to provide 
guidance to institutions regarding their 
disclosure obligations to consumers 
about ECK transactions. See Appendix 
A, Model Clauses in A–2. 
The Board proposed comment 7(c)–1 
to address industry uncertainty about 
the extent of an account-holding 
institution’s disclosure obligations to 
new and existing consumers regarding 
ECK transactions. As stated in the 
proposal, new disclosures about ECK 
transactions are necessary because a 
consumer’s check can be used 
differently than in the past, that is, 
information from the check can be used 
to initiate EFTs. Industry comments 
generally favored including information 
about ECK transactions in initial 
disclosures, and many noted that they 
already have adjusted their disclosures 
to reflect the fact that ECK transactions 
are a new type of transfer that may be 
made to or from the consumer’s 
account. One commenter stated that 
ECK transactions should not be treated 
as a new type of transfer because the 
consumer intended to pay by check, 
rather than by EFT. The Board notes, 
however, that if a merchant or other 
payee provides proper notice about the 
transaction (see § 205.3(b)(2)), a 
consumer, by providing the check as 
payment, authorizes the use of the 
check as a source of information to 
initiate a one-time EFT from the 
consumer’s account. Comment 7(c)–1 is 
thus adopted as proposed. 
To assist institutions in implementing 
the new disclosure requirements, the 
Board also proposed model initial 
disclosure language to reflect that one- 
time EFTs are a new type of transfer that 
may be made from a consumer’s account 
using information from the consumer’s 
check, and to further instruct consumers 
to notify account-holding institutions 
when an unauthorized EFT has 
occurred using information from their 
check. Commenters supporting the new 
model language stated that the proposed 
language was clear, concise, and 
helpful. A few commenters requested 
sufficient time for institutions to make 
the new disclosures. 
A few industry commenters stated 
that certain of the disclosures were 
unnecessary. Two commenters observed 
that referring specifically to ECK 
transactions in the initial disclosures 
regarding error resolution might mislead 
consumers to believe that they only had 
error resolution rights when their check 
is converted to an EFT. Another 
commenter, however, believed that 
including information about ECK 
transactions in the liability provisions 
was appropriate, but this commenter 
objected to listing ECK transactions as a 
new type of transfer since the consumer 
intended to pay by check, and not by 
EFT, and therefore ECK transactions 
should not be considered to be EFTs. 
The Board notes that the model 
language informs consumers that, in 
addition to notifying their bank when 
their card or code has been lost or 
stolen, or when money has been 
transferred from their account without 
their permission, they may also contact 
their institution if an unauthorized 
transfer has been made using the 
information from their check. 
Consumer groups commented that the 
new model disclosure language was 
helpful, but urged the Board to also 
include other practical information 
about the nature of ECK transactions, 
and to include information about 
consumers’ rights under check law to 
differentiate such transactions from ECK 
transactions. For example, while the 
current model disclosures describe the 
60-day time frame for consumers to 
exercise their error resolution rights 
with respect to EFTs, including ECK 
transactions, shorter time periods for 
asserting errors may apply to checks 
processed by means other than check 
conversion. While institutions may 
choose to provide consumers with 
additional information regarding their 
rights when a check is processed by 
other means, the model disclosures are 
solely intended to address consumers’ 
rights under the EFTA when the 
transaction involves an EFT to the 
consumer’s account. Other error 
resolution rights which may exist under 
other laws, including state check law, 
are outside the scope of this rulemaking. 
Consumer groups further suggested that 
the error resolution notice should state 
more clearly that an institution ‘‘must’’ 
correct any error within 10 business 
days, rather than use the current 
language that an institution ‘‘will 
correct any error promptly.’’ However, 
under certain circumstances, including 
where an institution provides a 
provisional credit to the consumer’s 
account or where the error involves a 
new account, an institution may extend 
their investigation period to up to 90 
days. Therefore, the Board believes the 
current language is more accurate. 
Consumer groups also urged the 
Board to subject the model notices to a 
complete review for readability and 
understandability. For instance, 
consumer groups observed that the term 
‘‘code’’ may not be as well understood 
as ‘‘PIN’’ or even ‘‘access code.’’ Based 
on the Flesch-Kincaid scale, the model 
initial disclosures in the final rule score 
at a 9.9 grade level, with a Flesch 
reading ease score of 60.3 on a 100.0 
scale, indicating a high level of 
readability. The Board agrees that in 
general consumer disclosures benefit 
from consumer testing, and anticipates 
that testing of this and other notices 
could be made part of a future 
comprehensive review of the regulation. 
One trade association and a company 
that provides compliance forms for 
institutions expressed their concerns 
about the scope of the proposed 
disclosures, stating that the Board’s 
model disclosures were not broad 
enough to address other types of third- 
party initiated EFTs which may be 
initiated using account information 
from a check, in particular those 
initiated via a telephone or the Internet. 
As noted previously in the discussion of 
§ 205.3(b), while telephone and Internet 
transactions are covered by Regulation 
E, the proposed rule was intended to 
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address ECK transactions only; other 
types of EFTs are not addressed by these 
provisions in the final rule. 
A few industry commenters asserted 
that since most banks have considered 
electronically converted checks to be 
EFTs since adoption of the 2001 
commentary, and have already amended 
their initial disclosures to include ECK 
transactions, institutions should not be 
required to amend their disclosures 
again to include additional detail that is 
only applicable to ECK transactions. 
These institutions also stated that the 
cost of reprinting and mailing the 
revised disclosures would far exceed 
any consumer benefit of receiving a 
notice that explains a process that 
financial institutions have already been 
following. Two commenters asked the 
Board to clarify that the introduction of 
ECK services would not require change- 
in-terms notices to existing consumers, 
because none of the terms of the 
underlying account agreement are 
affected by the new type of transfer. 
Under the final rule, for customers 
opening accounts after the mandatory 
compliance date of January 1, 2007, 
institutions must include in initial 
disclosures that ECK transactions are 
among the types of transfers that a 
consumer can make. Where institutions 
have already amended their disclosures 
to notify their consumers that ECK 
transactions may be made from their 
account, they would not be required to 
make new disclosures about such 
transactions to those consumers. New 
disclosures to existing customers would 
be required to be provided after the 
mandatory compliance date, however, if 
an institution has not disclosed to those 
consumers that ECK transactions may be 
made, even if other terms of the 
underlying account agreement would 
equally apply to the new type of 
transfer. See comment 7(c)–1. 
The Board specifically solicited 
comment on whether six months 
following adoption of the final rule 
would provide sufficient time for 
financial institutions to revise their 
disclosures to comply with the rule. The 
vast majority of industry commenters 
urged the Board to extend the time for 
compliance to one year. The final rule 
reflects commenters’ suggestions; 
institutions will have until the 
mandatory compliance date of January 
1, 2007 to revise their initial disclosures 
to reflect ECK transactions, and to 
provide new disclosures to existing 
customers if necessary. The Board 
anticipates that institutions will have 
depleted their existing stocks of initial 
disclosures by that time. Institutions are 
not required to provide new disclosures 
reflecting ECK transactions until the 
mandatory compliance date. 
Section 205.10
Preauthorized 
Transfers 
10(b) Written Authorization for 
Preauthorized Transfers From 
Consumer’s Account 
Under § 205.10(b), preauthorized 
EFTs from a consumer’s account may be 
authorized only by a writing signed or 
similarly authenticated by the 
consumer. Under existing comment 
10(b)–3, a merchant or other payee 
could not obtain authorization by tape 
recording a telephone conversation with 
a consumer who agrees to recurring 
debits. Comment 10(b)–3 was adopted 
prior to the enactment of the E-Sign Act. 
The final rule withdraws the 
interpretation in comment 10(b)–3 
would be withdrawn in light of the E- 
Sign Act, as proposed. 
The E-Sign Act provides, in general, 
that electronic records and electronic 
signatures satisfy legal requirements for 
traditional written records and 
signatures. Some have suggested that, 
given the E-Sign Act’s broad definitions 
of ‘‘electronic record’’ and ‘‘electronic 
signature,’’ a tape-recorded 
authorization, or certain types of tape- 
recorded authorizations, for 
preauthorized debits might be deemed 
to satisfy the Regulation E signed or 
similarly authenticated written 
authorization requirements. The Board 
proposed to withdraw the guidance 
regarding tape recordings because of E- 
Sign Act considerations, but did not 
propose to amend comment 10(b)–3 to 
address how the E-Sign Act should be 
interpreted with regard to tape 
recordings of telephone conversations. 
Many commenters, including several 
financial institutions and financial trade 
associations, as well as a retailer trade 
association, supported the proposed 
withdrawal. These commenters stated 
that without the proposed change, 
consumers who do not have, or do not 
want to use, credit cards would not be 
able to use the telephone to purchase 
goods or services involving recurring 
debits to their deposit accounts. One 
commenter noted that many less 
affluent consumers do not own 
computers, so such consumers would be 
unable to electronically authorize 
recurring payments unless the proposal 
is adopted. Another commenter noted 
that if the proposal is not adopted, 
merchants may tend to use alternatives 
such as demand drafts, which offer less 
consumer protection than debit cards. 
Other commenters, including 
financial institutions and financial trade 
associations, retailer trade associations, 
automated clearing house organizations, 
and a federal government agency, 
supported the proposal but with 
modifications or conditions. A few 
commenters recommended that 
merchants be permitted to obtain 
authorization for recurring debits by 
telephone, without recording, followed 
by written confirmation, if the consumer 
was given the option to cancel the 
transaction. Because of concerns about 
deceptive telemarketing, other 
commenters suggested that the use of 
telephone authorization be limited to 
situations where (1) the consumer and 
the merchant have a preexisting 
relationship, or (2) the consumer 
initiates the telephone call. 
Several industry commenters urged 
the Board to remove uncertainty by 
explicitly stating that a recorded 
telephone conversation complies with 
the E-Sign Act and, therefore, 
Regulation E, to facilitate telephone 
authorizations of recurring debits. A few 
such commenters argued that merely 
withdrawing a portion of comment 
10(b)–3 as proposed would cause 
further confusion and, absent additional 
guidance, would lead merchants to 
adopt differing practices. One 
commenter, a federal enforcement 
agency, recommended that the Board 
state affirmatively that if a payee relies 
upon the E-Sign Act in connection with 
obtaining the consumer’s authorization, 
it must also fully comply with the E- 
Sign Act with respect to other 
provisions of the EFTA and Regulation 
E, including the requirement to provide 
a clear and conspicuous copy of the full 
authorization to the consumer. In 
contrast, a law firm representing 
retailers asserted that further 
clarifications regarding the E-Sign Act 
in the recurring debit context are 
unnecessary and may cause confusion 
in other instances when such 
clarifications are not provided. 
A few industry commenters opposed 
the proposed withdrawal of the 
guidance due to the potential abuses 
and increased unauthorized transfers 
that could result. One such commenter 
contended that tape recordings do not 
provide clear evidence of a consumer’s 
authorization, which may be important 
in the event of a dispute. This 
commenter also asserted that banks 
receive many complaints from 
consumers alleging that the consumer 
only authorized a one-time electronic 
debit, but that recurring debits are being 
processed. 
The final rule withdraws the existing 
guidance regarding whether a tape 
recording may satisfy the requirement to 
obtain a consumer’s written 
authorization for recurring debits as 
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2 See, e.g., section 106(5) of the E-Sign Act 
(definition of ‘‘electronic signature’’). 
proposed. The final rule does not 
interpret Regulation E to treat recorded 
telephone authorizations as written 
authorizations; however, the Board 
believes that the E-Sign Act’s provisions 
regarding written documents are 
applicable to the EFTA and Regulation 
E. As a result, if, under the E-Sign Act, 
a tape-recorded authorization, or certain 
types of tape-recorded authorizations, 
constitute a written and signed (or 
similarly authenticated) authorization, 
then the authorization would satisfy the 
Regulation E requirements. 
In addition to complying with the E- 
Sign Act,2 payees will need to ensure 
that they comply with the requirements 
of § 205.10(b) of Regulation E. 
Specifically, the authorization must be 
readily identifiable as such to the 
consumer, and the terms of the 
preauthorized debits must be clear and 
readily understandable to the consumer. 
See comment 10(b)–6. Payees must also 
provide the consumer a copy of the 
authorization. With respect to 
additional suggestions from commenters 
to permit authorization by telephone 
without recording but with written 
confirmation, or to limit the use of 
telephone authorizations to specific 
circumstances, such changes would 
require amendments to the EFTA or 
Regulation E rather than the staff 
commentary, and thus the Board has 
decided not to consider these 
suggestions at this time. 
Comment 10(b)–7 addresses 
authorizations for recurring payments 
obtained by telephone or on-line, and 
states that the payee’s failure to obtain 
written authorization is not a violation 
if the failure was not intentional and 
resulted from a bona fide error, 
notwithstanding the maintenance of 
procedures reasonably adapted to avoid 
any such error. For example, an error 
might occur where the consumer 
indicates that a credit card (for which 
no written authorization would be 
required) is being used for the 
authorization, when in fact the card is 
a debit card. 
Concerns were expressed by retail and 
other industry groups about what 
procedures would be deemed 
reasonably adapted to avoid error where 
a telemarketer seeks to obtain a 
consumer’s authorization for recurring 
payments for goods or services, such as 
newspaper subscriptions, using the 
consumer’s credit or debit card. The 
Board proposed to revise comment 
10(b)–7 to state that procedures 
reasonably adapted to avoid error will 
vary with the circumstances. The 
proposed revision also stated that asking 
the consumer to specify whether the 
card to be used for the authorization is 
a debit card or a credit card, using those 
terms, is a reasonable procedure. 
The Board also proposed to add an 
example of a payee learning, after the 
transaction occurred, that the card used 
was a debit card as a result of the 
consumer bringing the matter to the 
payee’s attention. For example, the 
consumer may call the merchant to 
assert a complaint about use of a debit 
card. 
Most industry commenters supported 
the proposal as written, and a few 
suggested modifications. No 
commenters opposed the proposal. One 
trade association representing retailers 
suggested that comment 10(b)–7 not 
provide the example of asking the 
consumer whether the card being used 
is a debit card or a credit card as the safe 
harbor for compliance. Another trade 
association requested that the comment 
not state that a reasonable procedure 
would require use of the term ‘‘debit 
card.’’ This commenter also 
recommended that the Board indicate in 
the comment that confirmation of the 
type of card being used is not necessary 
when the authorization is given in 
writing, including on-line. In contrast to 
the comments from the retailer trade 
associations, a federal enforcement 
agency urged the Board to require 
payees to ask whether the consumer is 
using a debit or credit card, in lieu of 
creating a safe harbor for that procedure. 
However, one law firm representing 
retailers opposed this suggestion 
contending that such a requirement 
would be unduly restrictive because 
merchants might have procedures that 
would not include asking whether the 
card is a debit or credit card. 
The federal enforcement agency also 
suggested that the Board clarify that, in 
some cases, merchants should consider 
additional information as part of 
reasonable procedures to avoid error. 
Such information might include, for 
example, repeated consumer complaints 
about unauthorized debits. This 
commenter suggested that the 
commentary provide that if a merchant 
becomes aware of repeated 
authorization problems, it should 
examine and possibly change its 
procedures. A law firm, however, 
argued that such a requirement would 
be unnecessary because merchants 
would have insufficient guidance as to 
what other information they should 
consider and under what circumstances. 
One consumer group stated that the 
final rule should require that where the 
merchant learns only later, after the 
telephone authorization, that the card 
used was a debit card, the merchant 
must obtain a written and signed (or 
similarly authenticated) authorization or 
cease debiting the consumer’s account. 
The Board adopts the revisions to 
comment 10(b)–7 as proposed, with 
minor revisions. As stated in the 
proposal, it may have been reasonable 
in the past, when relatively few debit 
cards were in use compared to credit 
cards, for payees to use procedures that 
did not involve asking questions about 
the type of card being used. Today, 
however, given the growth of debit card 
usage, the Board believes that 
reasonable procedures should include 
interaction with the consumer 
specifically designed to elicit 
information about whether a debit card 
is involved. Accordingly, the final rule 
retains the safe harbor example of a 
reasonable procedure of asking the 
consumer to specify whether the card to 
be used for the authorization is a debit 
(or check) card or a credit card. The 
final comment includes a reference to 
‘‘check cards’’ to reflect current 
terminology. To illustrate the safe 
harbor, assume that a consumer makes 
a purchase which will result in a series 
of recurring payments. After the 
merchant inquires about the payment 
method, the consumer indicates that 
they intend to use ‘‘Bank X’’ card, 
without stating whether the card is a 
debit card or a credit card. In order to 
fall under the safe harbor, the merchant 
should then ask the consumer whether 
the card is a debit (or check) card or a 
credit card. 
The final rule does not impose an 
express requirement of inquiring 
whether a card provided is a debit card 
or a credit card, because the 
determination of whether a procedure is 
reasonably adapted to avoid the error of 
failing to obtain a consumer’s written 
authorization for recurring debits may 
vary with the circumstances. Similarly, 
although it may be reasonable in some 
cases for a merchant to revise their 
authorization procedures to avoid error 
based on additional information about 
potential authorization problems, such 
as repeated consumer complaints about 
unauthorized debits, the Board believes 
it is unnecessary to add a specific 
provision to the commentary that would 
require revised procedures in those 
limited instances. 
The Board also does not believe that 
it is necessary to incorporate in the final 
rule a requirement that a merchant 
should promptly notify the consumer 
when it chooses to cease debiting the 
consumer’s account upon learning that 
the card used was a debit card. The 
Board believes that a merchant, due to 
its own interest, will likely contact the 
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consumer to arrange for some other 
means of payment. 
A few industry commenters also 
addressed the Board’s discussion in the 
proposal regarding whether merchants 
should be required to verify card 
numbers presented by consumers 
against lists of credit and debit card 
Bank Identification Numbers, 
commonly referred to as ‘‘BIN tables,’’ 
as a reasonable procedure to avoid error. 
See In re Visa Check/Mastermoney 
Antitrust Litigation, No. CV–96–5238 
(E.D.N.Y. 2003) (requiring Visa and 
MasterCard to make BIN tables available 
to merchants as part of a litigation 
settlement). These commenters agreed 
with the Board’s observation that to the 
extent that BIN tables are not available 
to merchants in an on-line, real-time 
form, it would be burdensome for 
merchants to verify card numbers 
presented by consumers against the BIN 
tables. Moreover, the Board understands 
that Visa and MasterCard debit cards 
issued after January 1, 2005, display the 
word ‘‘debit’’ on the front of the card. 
Accordingly, the final rule does not 
require merchants to obtain or consult 
BIN tables to maintain procedures 
reasonably adapted to avoid error. 
Similarly, merchants are not required to 
check card numbers already on file 
against BIN tables. 
10(c) Consumer’s Right To Stop 
Payment 
Proposed comment 10(c)–3 stated that 
an institution need not have the 
capability to block preauthorized debits, 
for example, where a preauthorized 
debit is made through a debit card 
system, and may instead use a third 
party to block the transfer(s), as long as 
such payments are in fact stopped. The 
proposal revised comment 10(c)–2 to 
cross-reference the new proposed 
comment. Comment 10(c)–2 is adopted 
as proposed, and comment 10(c)–3 is 
adopted with revisions for clarity. 
In the proposal, comment 10(c)–3 was 
added to address procedures for 
stopping recurring debits where the 
account-holding institution is unable to 
block a payment from being posted to 
the consumer’s account because, for 
example, the posting occurs soon after 
the transaction has been approved, such 
as where the transaction takes place 
over a debit card network. In these 
cases, the institution may not have 
sufficient time to identify payments 
against which stop-payment orders have 
been entered. The proposed comment 
provided an alternative procedure for 
how the account-holding institution can 
comply with the stop payment 
requirements of Regulation E in these 
circumstances. 
Most commenters addressing this 
issue supported the proposal. One 
commenter observed that in the case of 
debit card transactions, the interception 
of transactions at the network level may 
be more effective than blocking 
transactions at the level of the account- 
holding institution. Some commenters 
requested clarification on various 
points. A few industry commenters 
asked that the Board clarify that 
comment 10(c)–3 does not apply to 
recurring debits processed through 
batch systems, such as the ACH 
network. Consumer groups were 
concerned that the proposal might 
imply that even if a consumer revokes 
authority for all future recurring debits 
by a payee, the financial institution may 
comply by stopping a single payment; 
these commenters believed that the 
obligation should be to cancel the debits 
permanently. 
A number of commenters suggested 
that the Board adopt other revisions to 
the existing commentary under 
§ 205.10(c). Several industry 
commenters asserted that the EFTA and 
Regulation E only require a financial 
institution to stop a single 
preauthorized debit, and do not require 
the institution to take action to respond 
to a consumer’s revocation of authority 
for all future debits from a particular 
payee, as stated in comment 10(c)–2. 
The commenters suggested that the 
comment be removed or modified 
accordingly. In addition, some 
commenters suggested revising 
comment 10(c)–1 to state that a stop 
payment order need not be maintained 
by the consumer’s financial institution 
for more than six months, maintaining 
that such a revision would make the 
comment consistent with Uniform 
Commercial Code (UCC) provisions 
relating to stop payment orders on 
checks and with industry practice. 
Comment 10(c)–3 is adopted as 
proposed. The comment permits an 
institution, upon receiving a consumer’s 
stop payment order, to use a third party 
to block a preauthorized transfer if the 
institution does not have the capability 
to block the preauthorized debit from 
being posted to the consumer’s account, 
as long as the payment is in fact 
stopped, i.e., the consumer’s account is 
not debited for the payment. Comment 
10(c)–2 is also revised as proposed. The 
Board did not intend to imply that an 
institution’s obligation to honor a stop- 
payment request is limited to a single 
preauthorized debit. If a consumer 
revokes authority for all further 
payments from a particular payee, the 
institution (through its own procedures 
or by using those of a third party, as 
provided in new comment 10(c)–3 must 
make arrangements such that no further 
debits originated by that payee are made 
to the consumer’s account. However, the 
Board notes that under comment 10(c)– 
2, institutions may require the consumer 
to provide a copy of a written notice 
sent to the payee, revoking authority for 
the payee to originate debits to the 
consumer’s account. If the consumer 
does not provide the copy within 14 
days, the institution is not required to 
continue stopping payments to the 
payee. 
As stated above, the proposal was 
intended to address problems in 
stopping recurring debits that take place 
over debit card networks, where the 
account-holding institution may not be 
able to timely block a debit from being 
posted to the consumer’s account. 
Nevertheless, although comment 10(c)– 
3 primarily focuses on debits over debit 
card networks and other ‘‘real-time’’ 
systems, the comment is not limited to 
such systems and any institution that 
does not have the capability to block a 
preauthorized debit from being posted 
to the consumer’s account may instead 
use a third party to block the debit, so 
long as the consumer’s account is not 
debited for the payment. 
10(d) Notice of Transfers Varying in 
Amount 
When a preauthorized EFT from a 
consumer’s account will vary in amount 
from the previous transfer, or from the 
preauthorized amount, § 205.10(d) 
requires the designated payee or the 
consumer’s financial institution to send 
written notice of the amount and date of 
the transfer at least 10 days before the 
scheduled date of the transfer. 
Paragraph 10(d)(2) permits the payee or 
the institution to give the consumer the 
option of receiving notice only when a 
transfer falls outside a specified range of 
amounts or only when a transfer differs 
from the most recent transfer by more 
than an agreed-upon amount. Under the 
proposal, comment 10(d)(2)–2 would, in 
limited circumstances, relieve financial 
institutions of giving the consumer the 
option of receiving notice each time a 
transfer varies from the previous 
transfer. The final rule adopts proposed 
comment 10(d)(2)–2, with some 
revisions for consistency with the 
regulation. 
Some financial institutions have 
suggested that while the notice 
requirement is appropriate where 
consumer funds are transferred to a 
third party, it should not apply when 
the transfer is between accounts, as 
defined under Regulation E, that are 
owned by the same consumer, even 
when the accounts are held at different 
financial institutions. These institutions 
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3 Comment 6(b)(1)–2 states that the fact that a 
consumer has received a periodic statement that 
reflects unauthorized transfers cannot be deemed to 
represent conclusive evidence that the consumer 
had such knowledge. 
assert that the advance notice 
requirement is particularly burdensome 
for institutions that offer certificate of 
deposit (CD) products that allow 
customers to set up preauthorized 
transfers of interest from the CD account 
to another account of the consumer held 
at a different institution. For such 
products, monthly interest payments 
might vary solely because of the 
different number of days in each month, 
yet such variance would require the 
institution to send the consumer 
advance notice in each instance before 
transferring the funds. The proposed 
comment would give financial 
institutions flexibility to provide notice 
only when a preauthorized transfer falls 
outside a specified range where funds 
are transferred and credited to an 
account of the consumer held at a 
different financial institution. 
(Preauthorized transfers between 
accounts of the same consumer held at 
the same institution qualify for the 
intra-institutional exclusion from 
coverage in § 205.3(c)(5).) Also, the 
proposal provided that the range must 
be an acceptable range that could be 
anticipated by the consumer, and the 
institution would have to notify the 
consumer of the range. 
Commenters generally supported the 
proposed comment. Some industry 
commenters believed that the new 
comment could eliminate the need for 
unnecessary notices without detriment 
to consumers, while providing cost 
savings for those institutions that offer 
consumers the option of transferring 
funds to an account at another 
institution on a preauthorized basis. 
One industry commenter requested that 
the Board provide examples of 
acceptable ranges of balances and 
provide optional model language. 
Another industry commenter urged the 
Board to go further and exclude CD 
interest via ACH transfers from the 
scope of § 205.10(d) altogether, since CD 
accounts are not transaction accounts, 
and because transfers involve accrued 
interest only. 
In contrast, one ACH trade association 
suggested that it may not be appropriate 
to allow institutions to avoid providing 
notices with each varying transfer 
without first obtaining consumer 
consent given that identity theft is an 
increasingly prevalent problem. This 
commenter noted that the NACHA rules 
already allow for ranges, and few 
companies take advantage of that 
opportunity. Consumer groups believed 
that the proposed commentary 
provision could facilitate transfers out 
of a consumer’s account to repay payday 
loans, and urged the Board either to 
withdraw the proposed commentary 
provision, or to strictly limit the 
exception to transfers of interest earned 
in one account to another account held 
in the same name. 
The final rule adopts comment 
10(d)(2)–2 as proposed, with minor 
revisions for clarity. Given the express 
language in Section 907(b) of the EFTA, 
it is not appropriate to remove the 
notice requirement entirely. 
Nevertheless, the Board believes that 
requiring a notice for each varying 
transfer where the transfer is between 
accounts owned by the same consumer 
provides little benefit to the consumer 
while imposing unnecessary costs on 
the financial institution making the 
transfer. Because this exception is 
limited to transfers of consumer funds 
between accounts held by the same 
consumer at different institutions, the 
Board believes the risk of loss from 
identity theft is minimal. In addition, 
because the transfers must be between 
consumer accounts held at different 
financial institutions, the exception 
would not be applicable to transfers to 
repay loans, including payday loans, 
which are not accounts under 
Regulation E. The Board is not aware of 
any other circumstances that pose 
additional risks to a consumer’s account 
if this comment is adopted, and thus 
believes it is unnecessary to limit the 
exception to accounts solely involving 
transfers of CD interest. 
For consistency with § 205.10(d)(2), 
the final comment is revised to provide 
that a financial institution may elect to 
provide notice only when a 
preauthorized transfer falls outside a 
specified range, or differs from a 
specified amount from the most recent 
transfer, without providing the 
consumer the option of receiving notice 
of all varying transfers, if the funds are 
transferred and credited to an account of 
the consumer held at another financial 
institution. The range or amount of 
variance must be reasonably anticipated 
by the consumer, and the institution 
must notify the consumer of the range 
or amount at the time the institution 
obtains the consumer’s authorization for 
the preauthorized transfers. Comment 
10(d)(2)–2 includes an example of an 
acceptable range where the 
preauthorized transfers are for transfers 
of interest for a fixed-rate CD account. 
In this case, an institution could provide 
a range based on transfers of interest for 
months containing 28 days and for 
months containing 31 days. 
Section 205.11
Procedures for 
Resolving Errors 
11(b) Notice of Error From Consumer 
The Board proposed to clarify in 
comment 11(b)–7 that an institution 
need not comply with the procedures 
and time limits in § 205.11 for 
investigating a consumer’s assertion of 
an error when the consumer provides a 
notice of error after the time period 
specified in § 205.11(b). Where the error 
involves an unauthorized EFT, however, 
liability for the unauthorized transfer 
may not be imposed on the consumer 
unless the institution satisfies the 
requirements of § 205.6. Comment 
11(b)–7 is adopted generally as 
proposed, with some revisions to 
address commenters’ concerns. 
Commenters on the issue uniformly 
supported the proposed comment, 
although some industry commenters 
asked the Board to provide certain 
additional clarifications. A few 
commenters believed that it was unclear 
which provisions of § 205.6 were 
applicable where the asserted error 
involves an unauthorized transaction. 
For example, one commenter stated that 
the generic reference to § 205.6 is 
confusing in light of the limitation on 
liability in § 205.6(b)(1) when the 
consumer provides timely notice. The 
final rule retains the general reference 
because the requirements for the 
consumer to provide timely notice is 
different under § 205.6 than under 
§ 205.11. Under § 205.11, the consumer 
must provide notice 60 days after the 
financial institution sends the periodic 
statement on which the alleged error is 
reflected. In contrast, under § 205.6, the 
consumer must provide notice two 
business days after learning of the loss 
or theft of an access device. Moreover, 
the consequences to the consumer for 
failing to provide timely notice differ 
under §§ 205.6 and 205.11. For example, 
a consumer may not find out about the 
loss or theft of an access device until 
more than 60 days after a periodic 
statement is sent.3 In such case, the 
consumer’s liability could still be 
capped at $50 or less as provided under 
§ 205.6(b)(1), so long as the consumer 
notifies his or her financial institution 
within two business days after learning 
of the loss or theft of the access device, 
notwithstanding the fact that the 
procedures and time frames in § 205.11 
would not apply. 
Industry commenters also suggested 
that the Board conform the 60-day time 
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4 Under the NACHA rules, if the consumer 
executes a written statement under penalty of 
perjury within the prescribed time frame of 60 days 
from the date of the transaction, the financial 
institution will promptly re-credit the consumer’s 
account and return the transaction to the payee. 
frame for providing notices of error in 
§ 205.11 to time frames provided under 
other laws or payment system rules. 
Several commenters urged the Board to 
conform the time frame for reporting an 
error in § 205.11(b)(1) from 60 days after 
the date of availability of the periodic 
statement to 60 days after the settlement 
date of the transaction consistent with 
the NACHA rules. The 60-day time 
frame for providing a notice of error in 
connection with an EFT after a periodic 
statement is sent, however, is a statutory 
requirement under Section 908(a) of the 
EFTA. Some commenters believed that 
the Board should adopt a time 
limitation for asserting a claim of an 
unauthorized EFT of one year from the 
date of availability of the periodic 
statement, consistent with time frames 
established by Check 21 and § 4–408 of 
the UCC. The EFTA does not contain a 
time limitation for asserting a claim of 
unauthorized EFTs, and the Board did 
not propose such a limitation. 
Accordingly, the Board declines to 
adopt the suggested changes. 
Finally, one banking trade association 
recommended that the Board recognize 
the exception in § 205.6(b)(4) for 
extending the time frames for reporting 
an unauthorized transaction if the 
consumer’s delay in notification is due 
to extenuating circumstances. The 
Board agrees that where a consumer is 
unable to provide timely notice for an 
unauthorized EFT due to extenuating 
circumstances, such as extended travel 
or a hospitalization, an institution must 
extend the time frames provided in 
§ 205.6(b) for reporting the unauthorized 
transaction. 
11(c) Time Limits and Extent of 
Investigation 
Section 205.11(c)(4) permits an 
institution to limit the investigation of 
an alleged error to ‘‘a review of its own 
records’’ where the allegation pertains 
to a transfer to or from a third party with 
whom the institution has no agreement 
for the type of EFT involved. This is 
commonly referred to as the ‘‘four 
walls’’ rule. Comment 11(c)(4)–4 
provides that a financial institution does 
not have an agreement with a third 
party solely because it participates in 
transactions that occur under the federal 
recurring payments programs, or that 
are cleared through an ACH or similar 
arrangement for the clearing and 
settlement of fund transfers generally, or 
because it agrees to be bound by the 
rules of such an arrangement. Proposed 
comment 11(c)(4)–5 provided that an 
institution’s ‘‘own records’’ may not be 
limited to the payment instructions 
where additional information is 
available within the institution relevant 
to resolving the consumer’s particular 
claim. As explained in the 
supplementary information to the 
proposal, because the number and 
variety of ACH payments has expanded 
significantly since the ‘‘four walls’’ rule 
was first adopted in 1980, an 
institution’s review of additional 
information beyond the payment 
instructions may be necessary to 
provide consumers with a meaningful 
investigation of an allegedly erroneous 
or unauthorized payment. Comment 
11(c)(4)–5 is adopted as proposed, with 
some modifications to address 
commenter concerns. 
Some commenters favored the 
proposed comment, including consumer 
groups, a federal enforcement agency, 
and a few industry commenters. These 
commenters generally agreed with the 
Board’s stated rationale for the proposed 
comment. For example, several credit 
union commenters stated that it is 
reasonable to expect financial 
institutions to exhaust their review of 
internal records when responding to 
alleged errors regarding consumers’ 
Regulation E transactions. Consumer 
groups urged the Board to revise the 
comment to state that an institution’s 
reviews should consider records that 
could be helpful to resolving a 
consumer’s claim(s), not just those 
records that are dispositive. One 
industry commenter generally agreed 
with the proposal in light of both the 
increased variety of EFT transaction 
types and its belief that information 
relevant to an assertion of error could 
likely to be outside the payment 
instructions but within the institution’s 
‘‘four walls’’ and records. 
Most industry commenters opposed 
the proposed comment. Many industry 
commenters raised concerns about 
ambiguity as to the scope of the required 
investigation, the potential burden on 
institutions, and the low likelihood of 
yielding additional, helpful information. 
Several commenters asserted that it 
would unnecessarily require institutions 
to look beyond their own records and 
could potentially require that they seek 
to obtain information from additional 
parties to the transaction when payment 
instructions could resolve the claim of 
error. 
Many industry commenters were also 
concerned that the proposed comment 
might require that an institution look for 
any and all potentially relevant 
records—even in cases where a 
consumer may have many different 
relationships with the institution 
(deposit, credit, investment). One 
commenter stated that it would be 
impractical for a large bank to comply 
with the proposed comment, since it 
would require a review of information 
relating to other accounts and 
transactions stored in various locations. 
Similarly, a few commenters noted that 
a bank employee conducting an 
investigation might not be aware of all 
of these relationships or may lack a 
practical ability to obtain all 
information about the bank’s dealings 
with that customer. These commenters 
argued that a reasonable interpretation 
of the ‘‘four walls’’ rule must limit the 
bank’s duty to inquire not just about 
information within the institution’s own 
records relevant to resolving the 
consumer’s particular claim, but to 
information that is reasonably available 
to the bank employee investigating the 
consumer’s claim. 
Several ACH associations asserted 
that the proposal could further confuse 
what is already a troublesome section of 
the Commentary for their members. 
These and other commenters generally 
believed that institutions would be 
unlikely to have readily available 
information in their records beyond the 
payment instructions that would assist 
in the review of the particular 
transaction, noting, for example, that the 
consumer’s authorization for the 
transaction would be in the possession 
of the originator-payee, not the 
consumer’s institution. These 
commenters stated that searching for, 
and obtaining, such additional 
information would be time-consuming 
and costly. They added that since 
authorization is between the consumer 
and the originator of the transaction, the 
proposed comment could 
inappropriately place the consumer’s 
institution in the position of deciding 
the legitimacy of the authorization. In 
their view, this issue should be resolved 
between the merchant or other payee 
and the consumer—not by the 
consumer’s financial institution. 
Many industry commenters, including 
ACH associations, noted that the 
NACHA rules already ensure a remedy 
under which the consumer is already 
made whole in a timely manner.4 One 
industry commenter, however, argued 
that the NACHA rules were insufficient 
because of the shorter time period for 
reversing transactions (chargebacks), 
urging instead that the Board withdraw 
the proposed comment and encourage 
NACHA to amend its rules to conform 
its chargeback period to the period set 
forth under § 205.11 for reporting 
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1654 
Federal Register / Vol. 71, No. 6 / Tuesday, January 10, 2006 / Rules and Regulations 
5 Section 205.11(b) of Regulation E generally 
requires a financial institution to investigate a claim 
of error that is received no later than 60 days after 
the institution sends the periodic statement on 
which the alleged error is first reflected. 
alleged errors.5 This commenter 
asserted that this change would 
properly place the burden of assuring 
proper authorization of transactions on 
the originating merchant and financial 
institution—the two parties best 
positioned to monitor and ensure 
compliance with this requirement. This 
commenter maintained that the 
automatic right to charge back under the 
NACHA rules works well for most ACH 
disputes and that extending the time 
period for permitting charge backs 
would not impose significant additional 
costs on merchants or its financial 
institution. 
Many industry commenters 
recommended that the regulation 
require a ‘‘reasonable’’ investigation and 
to provide examples of appropriate 
steps to be taken to minimize the 
compliance burden similar to existing 
guidance under Regulation Z. See, e.g., 
§ 226.12(b)–3. In their view, a 
reasonable investigation might, for 
example, consist of an examination of 
the institution’s records for the account 
in question, but not all accounts held by 
the particular consumer at the financial 
institution. These commenters believed 
that a ‘‘reasonable investigation’’ 
standard would enable institutions to 
take measures appropriate to the nature 
of the error and the size of the 
institution. 
A few commenters, including 
consumer groups, asked the Board to 
clarify an institution’s error resolution 
responsibilities under the ‘‘four walls’’ 
rule when it has outsourced relevant 
aspects of its operations, such as 
payment processing or the investigation 
of disputes. These commenters believe 
that in such cases an institution’s 
records should include a review of 
information that is within the 
institution’s possession or control and 
not merely within the institution’s 
physical offices. Another commenter 
inquired how the proposed error 
resolution process would work where 
an EFT service provider (rather than an 
account holding institution) is 
providing the EFT service. This 
commenter asserted that currently, 
account holding institutions have 
limited error-resolution obligations with 
respect to errors resulting from a third- 
party service provider, and that the 
proposed commentary language should 
clarify whether there is any intended 
change in the error resolution 
responsibilities between the service 
provider and account holding 
institution. 
As stated in the proposal, the ‘‘four 
walls’’ rule was adopted when most 
third party transfers involved 
preauthorized credits to a consumer’s 
account to pay salary or other 
compensation, or preauthorized debits 
from a consumer’s account to pay a 
utility company or other payee. In the 
absence of an agreement between the 
financial institution and the third party, 
it was deemed reasonable to permit an 
institution to limit its investigation to 
the institution’s own records. See 45 FR 
8248 (Feb. 6, 1980). Historically, alleged 
errors often pertained to the amount of 
the transfer. Consequently, an 
institution would likely have very 
limited information—such as the ACH 
payment instructions—for purposes of 
conducting its investigation. The ‘‘four 
walls’’ approach thus sought to strike a 
balance between an institution’s 
investigatory burden relative to the 
types of errors commonly asserted and 
the institution’s practical ability to 
procure relevant information in light of 
its lack of an agreement with the third 
party. 
In the twenty-five years since the 
‘‘four walls’’ analysis was adopted, the 
increasing use of ACH as a means to 
effectuate a wide variety of third-party 
transfers (and preauthorized transfers) 
has expanded significantly, and, as a 
result, the types of errors that may occur 
is far greater than those originally 
contemplated. For example, the ACH 
network today is used to process ECK 
transactions. Similarly, a merchant may 
use the ACH network in an on-line or 
telephone transaction to initiate an EFT 
from a consumer’s account using the 
consumer’s checking account number. 
In these cases, consumers may 
encounter errors concerning 
authorizations and the types of 
transfers, in addition to errors regarding 
the amounts of the resulting ACH 
debits. The risk that a consumer’s check 
or checking account number could be 
used in a fraudulent manner to make an 
ACH transfer from the consumer’s 
account was not a concern when the 
‘‘four walls’’ analysis was adopted, 
since the typical ACH transfer then 
involved a preauthorized transfer to or 
from a known party. 
Today, when a consumer believes that 
a transaction is unauthorized, 
information such as the location of the 
payee, the particular number of the 
check (to determine if it is notably out 
of order), or prior consumer account 
transactions with the same payee, that 
could be relevant to the investigation 
would more likely be within the 
institution’s own records. Thus, for 
ACH and ECK transactions, for example, 
the Board believes that an institution’s 
review of its ‘‘own records’’ should not 
be confined to a mere confirmation of 
the payment instructions when other 
information within the institution’s 
‘‘four walls’’ could also be reviewed. 
Any investigation conducted under 
the four walls rule must be reasonable. 
Because the nature of a consumer’s 
allegation of error can vary, the scope of 
an investigation may vary. In each case, 
an institution should use relevant 
information available within its own 
records for purposes of determining 
whether an error occurred. Given the 
potential size and complexity of 
institutions and their many different 
relationships with a single consumer, 
however, it may be impractical and 
burdensome for an institution to look 
throughout its entire operation for 
potentially relevant records. The final 
rule clarifies that the information 
reviewed should pertain to the account 
for which the assertion of error is made 
and cover a reasonable period of time. 
The revised comment also provides 
examples of information that an 
institution might review. These 
examples are not set forth as an 
exclusive list. 
Institutions have flexibility to 
determine what information is relevant 
to a meaningful investigation of the 
error in question. To the extent that an 
account-holding institution has 
outsourced relevant aspects of its 
operations, the investigation should 
include a review of service provider 
records if such records could help to 
resolve the consumer’s claim. Under the 
‘‘four walls’’ rule, the institution need 
not, however, include a review of 
records that are not within its 
possession or control—such as the 
consumer’s authorization for the 
transaction if such authorization is in 
the possession of a third-party payee. 
Additional requirements may be 
established by payment system or other 
rules, however. 
The proposal also solicited comment 
as to whether there are circumstances in 
which the ‘‘four walls’’ rule should not 
apply. Industry commenters generally 
stated that they were unaware of such 
circumstances at this time, and that 
there is typically no need to require 
banks to conduct investigations outside 
of their own records. The Board will 
continue to monitor institutions’ error 
resolution practices to assess the 
continued viability of the ‘‘four walls’’ 
approach to error investigation. 
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1655 
Federal Register / Vol. 71, No. 6 / Tuesday, January 10, 2006 / Rules and Regulations 
6 Banking Committee OKs Roukema ATM Fee 
Disclosure (March 10, 1999), http:// 
finanialservices.house.gov/banking/3109rou.htm. 
Section 205.16
Disclosures at 
Automated Teller Machines 
Section 205.16 requires an ATM 
operator that imposes a fee on a 
consumer for initiating an EFT or a 
balance inquiry to provide notice to the 
consumer that a fee will be imposed for 
providing the EFT service or for a 
balance inquiry and to disclose the 
amount of the fee. An ATM operator is 
any person who operates an ATM at 
which consumers initiate an EFT or a 
balance inquiry, and that does not hold 
the account to or from which the 
transfer is made, or about which an 
inquiry is made. Notice of the 
imposition of the fee must be provided 
in a prominent and conspicuous 
location on or at the ATM. The operator 
must also provide notice that the fee 
will be charged and the amount of the 
fee either on the screen of the ATM or 
by providing it on paper, before the 
consumer is committed to paying a fee. 
In the September 2004 proposal, the 
Board proposed to revise comment 
205.16(b)(1)–1 to clarify that ATM 
operators can disclose on the ATM 
signage that a fee may be imposed or 
specify the type of EFTs or consumers 
for which a fee is imposed, if there are 
circumstances in which an ATM 
surcharge will not be charged for a 
particular transaction. (69 FR at 56005.) 
After consideration of the comments 
received, the Board withdrew the 
proposed commentary revisions and 
instead proposed to amend § 205.16(b) 
to clarify that ATM operators may 
disclose on ATM signage that a fee will 
be imposed or, in the alternative, that a 
fee may be imposed on consumers 
initiating an EFT or for a balance 
inquiry if there are circumstances under 
which some consumers would not be 
charged for such services. (70 FR 49891 
(Aug. 25, 2005).) The proposed 
commentary was revised to clarify that 
ATM operators that impose an ATM 
surcharge in all cases must provide 
notice on the ATM signage that a fee 
will be imposed. The revisions are 
adopted largely as proposed, with 
certain revisions for clarity. 
Several large institutions have asked 
whether it is permissible under § 205.16 
to provide notice on the ATM that a fee 
‘‘may be’’ charged for providing EFT 
services because many ATM operators, 
particularly those owned or operated by 
banks, apply ATM surcharges to some 
categories of their ATM users, but not 
others. For example, an ATM operator 
might not charge a fee to holders of 
cards issued by foreign financial 
institutions, cardholders of banks that 
are part of a surcharge-free network or 
that have entered into a contractual 
relationship with the ATM operator 
with respect to surcharges, and holders 
of cards issued under governmental 
electronic benefit transfer (EBT) 
programs. (While many financial 
institutions do not impose ATM 
surcharges on their own cardholders, 
they are not ATM operators with respect 
to those cardholders for purposes of 
§ 205.16 because the institutions hold 
the cardholders’ accounts.) More 
recently, many banks voluntarily 
waived surcharges for consumers from 
areas affected by Hurricane Katrina. 
Also, an ATM operator might charge a 
fee for cash withdrawals, but not for 
balance inquiries. Accordingly, the 
Board recognized in its two proposals 
that a disclosure on the ATM that a fee 
‘‘will’’ be imposed in all instances could 
be overly broad with respect to 
consumers who would not be assessed 
a fee for usage of the ATM. 
Industry commenters strongly 
supported the August 2005 proposal, 
stating that it would give ATM operators 
the flexibility to more accurately 
disclose their surcharging practices, and 
thereby reduce consumer confusion. 
Several industry commenters asserted 
that a ‘‘will’’ disclosure could cause 
consumers who would not be charged a 
fee by the particular ATM to go to a 
different ATM, which could 
inconvenience the consumer, as well as 
possibly result in a fee surcharge at the 
second ATM that could have been 
avoided with a more accurate 
disclosure. Another industry commenter 
noted that most consumers will be 
unaware that the ATM signage 
disclosure is only required for 
consumers who do not hold accounts 
with the ATM operator, and that the use 
of ‘‘may’’ could easily be understood by 
ATM users as accommodating the ATM 
operator’s cardholders. 
Industry commenters also agreed with 
the Board’s observation in the August 
2005 proposal’s supplementary 
information that the signage disclosure 
is intended to allow consumers to 
identify ATMs that generally charge a 
fee for use, while the on-screen 
disclosure made after the consumer has 
entered his or her card into the machine 
but before the consumer is committed to 
the transaction provides a more specific 
disclosure regarding whether a fee will 
be incurred in that particular 
transaction. To support their view that 
the proposal is consistent with Sections 
904(d)(3)(A) and (B) of the EFTA, 
industry commenters cited a press 
release issued by the original act’s 
sponsor, Rep. Marge Roukema, which 
stated that the act ‘‘simply puts existing 
practice into law.’’ 6 One banking trade 
association noted that prior to the 
enactment of the Gramm-Leach-Bliley 
Act, the operating rules for one of the 
country’s largest ATM networks 
required ATM operators imposing a 
surcharge for use of their ATMs to post 
conspicuous notice on the ATM that the 
operator ‘‘may’’ charge a fee for cash 
withdrawals. The trade association 
further noted that this practice of 
disclosing that a fee ‘‘may’’ be imposed 
on signage followed by a more 
transaction-specific on-screen 
disclosure was, and continues to be, the 
common practice of some of the other 
larger ATM networks in the United 
States. 
Several industry commenters 
specifically addressed the Board’s 
decision to amend the regulation in the 
August 2005 proposal, instead of 
revising the commentary as originally 
proposed. One banking trade association 
stated that amending both the regulation 
and the commentary would facilitate 
industry understanding and 
compliance. Two other commenters, 
representing credit unions, observed 
that the proposal to amend only the 
commentary was arguably inconsistent 
with § 205.16’s current language, and 
therefore the Board’s new proposal was 
appropriate. A few industry commenters 
asked the Board to clarify that the 
revisions do not represent a change in 
the ATM disclosure scheme, but merely 
a restatement and clarification of the 
requirements of existing law. 
Although agreeing that the EFTA 
permits signage at the ATM machine 
indicating that the fee is not charged in 
every instance, consumer groups 
believed that the revised proposal did 
not sufficiently implement the statute 
because it did not ensure that 
consumers who ‘‘will’’ be charged a fee 
would be adequately notified of that 
fact. Consumer groups believed that the 
circumstances in which fees will not be 
charged generally are limited. Therefore, 
consumer groups proposed an 
alternative approach that would require 
ATM operators to generally disclose that 
a fee ‘‘will’’ be imposed along with a list 
of exceptions when a fee would not be 
imposed. Consumer groups believed 
that the revised disclosure would more 
adequately apprise consumers of the 
fact that a fee will be imposed while 
still allowing ATM operators the 
flexibility to make more accurate 
disclosures regarding their surcharging 
practices. 
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Federal Register / Vol. 71, No. 6 / Tuesday, January 10, 2006 / Rules and Regulations 
Industry commenters, however, noted 
that a rule requiring a ‘‘will’’ disclosure 
along with a list of the circumstances 
under which a fee would not be 
disclosed would likely result in lengthy 
and complicated signs that consumers 
are unlikely to read. Moreover, industry 
commenters also believed that the 
expense of replacing signs each time a 
surcharge policy is changed could have 
the unintended effect of discouraging 
ATM operators from waiving fees to 
accommodate consumers in special 
circumstances, such as in response to a 
natural disaster. 
A consumer rights attorney who 
opposed the Board’s September 2004 
proposal on this issue reiterated his 
view that the current rule and 
commentary more correctly implements 
the statute’s intent, and cited his prior 
comments. This attorney urged the 
Board to withdraw the current proposal. 
The August 2005 revisions are 
adopted as proposed under the Board’s 
authority under Section 904(d) of the 
EFTA. Amending both the rule and the 
commentary addresses any potential 
inconsistencies between the current 
language of § 205.16 and the earlier 
proposed commentary, thereby 
facilitating industry compliance. 
However, while the Board is amending 
the regulation to address this issue, this 
amendment does not represent a change 
in the Board’s interpretation of the 
rule’s requirements. 
The final rule clarifies the two-part 
disclosure scheme established in 
Section 904(d)(3)(B) of the EFTA. The 
first disclosure, on ATM signage posted 
on or at the ATM, allows consumers to 
identify quickly ATMs that generally 
charge a fee for use. This disclosure is 
not intended to provide a complete 
disclosure of the fees associated with 
the particular type of transaction the 
consumer seeks to conduct. Until a 
consumer uses his or her card at an 
ATM, the ATM operator does not know 
whether a surcharge will be imposed for 
that particular consumer. Rather, it is 
the second, more specific disclosure, 
made either on the ATM screen or on 
an ATM receipt, that informs the 
consumer before he or she is committed 
to the transaction whether, in fact, a fee 
will be imposed for the transaction and 
the amount of the fee. Thus, consumers 
who are charged a fee would not be 
adversely affected by a general notice 
that a fee ‘‘may’’ be imposed because 
they will have the opportunity to 
terminate the transaction after receiving 
the on-screen notice or receipt 
containing the transaction-specific 
disclosure. 
The Board further believes that an 
alternative rule requiring institutions to 
provide a general disclosure that a fee 
‘‘will’’ be imposed, while also 
specifying the circumstances under 
which a fee will not be imposed, would 
impose significant costs on ATM 
operators without corresponding benefit 
to consumers. Commenters indicated at 
least ten different circumstances in 
which a waiver may apply for a given 
ATM transaction, including surcharge- 
free networks, other contractual 
relationships, cards issued by foreign 
financial institutions, cards delivering 
governmental benefits, corporate 
affiliations with the ATM operator, and 
in response to special circumstances, 
such as to provide disaster relief. Thus, 
consumers could be confused or 
discouraged by signage containing 
potentially lengthy disclosures listing 
the many circumstances under which a 
fee would not be imposed. Such a rule 
could also require ATM operators to 
modify all of their signs each time they 
revised their surcharge practices, at 
considerable cost. Industry commenters 
estimated the cost of a systemwide 
change in ATM signage anywhere 
between $200,000 for an institution 
with approximately 6,000 ATMs to over 
$1 million for an institution with over 
16,500 ATMs. Moreover, the time 
necessary for changing all of the signs 
would render at least some of the signs 
inaccurate for a period of time. 
Accordingly, for the reasons 
discussed above, § 205.16(b) is revised 
to explicitly clarify that ATM operators 
may disclose on ATM signage that a fee 
will be imposed or, in the alternative, 
that a fee may be imposed on consumers 
initiating an EFT or for a balance 
inquiry if there are circumstances under 
which some consumers would not be 
charged for such services. The flexibility 
provided in the final rule allows ATM 
operators that currently disclose that a 
fee ‘‘will’’ be charged to continue to use 
existing signs even if a fee is not 
charged in all cases. Comment 16(b)(1)– 
1 is revised for consistency with the 
final rule, and to clarify that ATM 
operators that impose an ATM 
surcharge in all cases must provide 
notice on the ATM signage that a fee 
‘‘will’’ be charged. 
Appendix A—Model Disclosure Clauses 
and Forms 
A–2—Model Clauses for Initial 
Disclosures 
Model clauses for initial disclosures 
contained in Appendix A (Form A–2) 
are revised to provide disclosures about 
ECK transactions. In particular, model 
clauses (a) and (b) are revised to instruct 
consumers to notify their account 
holding institution when unauthorized 
EFTs have been made without the 
consumer’s permission using 
information from their checks. The 
discussion on the applicable liability 
limits remains generally unchanged, 
however, because the first two tiers of 
liability do not apply to unauthorized 
transfers made without an access device 
(for example, those made using 
information from a check to initiate a 
one-time ACH debit). See comments 
2(a)–2, 6(b)(3)–2. 
Model clause (d) also is revised to list 
as a new type of transfer a one-time 
electronic fund transfer made from a 
consumer account using information 
from the consumer’s check. See 
comment 7(b)(4)–4. 
A–3—Model Forms for Error-Resolution 
Notice 
Paragraph (b) of Model Form A–3 is 
included after its inadvertent deletion 
following publication of the March 2001 
interim final rule establishing uniform 
standards for the electronic delivery of 
disclosures required by the EFTA and 
Regulation E. 66 FR 17786 (April 4, 
2001). No changes are intended by the 
re-inclusion of paragraph (b). Paragraph 
(a) is reprinted for convenience. 
A–6—Model Clauses for Authorizing 
One-Time Electronic Fund Transfer 
Using Information From a Check 
(§ 205.3(b)(2)) 
Model Form A–6 is added to provide 
model clauses for the authorization 
requirements of § 205.3(b)(2) for a 
person that initiates an EFT using 
information from a consumer’s check. 
Consistent with comment 2 for 
Appendix A, the use of appropriate 
clauses in making disclosures will 
provide protection from liability under 
Sections 915 and 916 of the EFTA 
provided the clauses accurately reflect 
the institution’s EFT services. See also 
§ 205.3(b)(2)(iv). Model Clause A–6(a), 
which permits payees to obtain a 
consumer’s authorization to use 
information from his or her check to 
initiate an EFT or to process the 
transaction as a check, is adopted 
generally as proposed. Model Clause A– 
6(a) may be used in all instances. Model 
Clause A–6(b) is also adopted to 
accommodate those payees who may 
want to provide more specific 
information concerning their ECK 
practices for business reasons, and 
consolidates proposed Model Clauses 
A–6(b) and (c). The additional 
information about when funds may be 
debited from the consumer’s account 
and the non-return of checks is 
provided in Model Clause A–6(c) of the 
final rule. 
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1657 
Federal Register / Vol. 71, No. 6 / Tuesday, January 10, 2006 / Rules and Regulations 
V. Final Regulatory Flexibility Analysis 
The Board prepared an initial 
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 initial 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 
this final rule will not have a significant 
economic impact on a substantial 
number of small entities. 
1. Statement of the need for, and 
objectives of, the final rule. The Board 
is revising Regulation E to require a 
person initiating an EFT using 
information from a consumer’s check to 
obtain the consumer’s authorization. 
Generally, authorization would be 
obtained by the payee providing a 
notice that a check will or may be 
converted, and the consumer providing 
a check as payment. The requirement 
would enable the Board to promote 
consistency in the notice provided to 
consumers by merchants and other 
payees. 
Additional guidance is provided in 
the staff commentary about a financial 
institution’s error resolution obligations 
for certain transactions, and to clarify 
financial institution and merchant 
responsibilites for preauthorized 
transfers from consumer accounts. 
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 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 believes that the 
revisions to Regulation E discussed 
above 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. 
3. Small entities affected by the final 
rule. Merchants or other payees that 
initiate one-time EFTs from a 
consumer’s account using information 
from the consumer’s check are required 
under the regulation to obtain the 
consumer’s authorization for the 
transfers. For POS and ARC 
transactions, payees must provide a 
notice that a check will or may be 
converted. For ARC transactions, notice 
will likely be provided on a billing 
statement or invoice. At POS, notice 
also must be provided on posted 
signage, and a copy of the notice must 
be given to the consumer at the time of 
the transaction. Payees in ECK 
transactions must also provide notice 
that funds may be debited from a 
consumer’s account as soon as the same 
day payment is made or received and 
that the consumer’s check will not be 
returned by the consumer’s financial 
institution. In addition, before a payee 
may collect a service fee for insufficient 
or uncollected funds via EFT from a 
consumer’s account, the payee must 
provide a notice that such a fee may be 
collected by use of an EFT and disclose 
the amount of the fee. Account-holding 
institutions are required under the 
regulation to disclose to their consumers 
that electronic check conversion 
transactions are a new type of transfer 
that can be made from a consumer’s 
account. 
Merchants and other payees that 
engage in check conversion transactions 
must obtain consumers’ authorizations 
for electronic check conversion 
transactions and for the collection of 
fees debited via an EFT if a payment is 
returned unpaid, and generally do so via 
signage and on a transaction receipt at 
the POS. In particular, payment system 
rules require that authorization for one- 
time debits to a consumer’s account 
must be in writing and signed or 
similarly authenticated by the 
consumer. The Board further 
understands that many payees provide 
notice on receipts at POS. Similarly, 
payees are generally providing written 
notices in ARC transactions because 
payment system rules require written 
notices to be provided to consumers. 
Under the amendments to Regulation 
E, payees must review the notices that 
they presently provide in accordance 
with payment system rules, and may be 
required to revise these notices in some 
cases to ensure compliance with the 
amendments to Regulation E. The Board 
believes that these amendments will not 
have a significant economic impact on 
small entities because payees are 
generally providing notices regarding 
ECK and the collection of service fees 
for insufficient funds electronically in 
accordance with payment system rules. 
Furthermore, the Board believes that 
obtaining consumer authorization for 
ECK transactions via signage at the POS 
is less costly than obtaining 
authorization via signed receipts. 
Payees will have to revise their 
notices to inform consumers in ECK 
transactions that funds may be debited 
from their account soon after payment is 
received and, if applicable, that 
consumers’ checks will not be returned 
by their financial institutions. At POS, 
this additional information may be 
provided separately from the general 
authorization notice. The Board 
understands that many payees in ARC 
transactions are already providing 
notice to consumers regarding when 
funds may be debited from a consumer’s 
account when consumers’ checks are 
converted, and stating that consumers’ 
checks will not be returned by their 
financial institutions. For those payees 
that are not already providing some 
form of notice at POS or for ARC 
transactions, the final rule provides 
model language to facilitate compliance. 
Thus, the Board does not believe that 
the requirement to provide notice about 
the nature of ECK transactions will have 
a significant economic impact on small 
entities. 
Small financial institutions may need 
to review their initial disclosures, and 
perhaps revise them to reflect that 
electronic check conversion transactions 
are a new type of transfer that can be 
made from a consumer’s account. This 
disclosure is also ‘‘generic’’ and will not 
vary among consumers. Model language 
is provided in the rule to facilitate 
compliance. Thus, the Board believes 
this requirement also should not have a 
significant economic impact on small 
entities. The Board also understands 
that many institutions have already 
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Federal Register / Vol. 71, No. 6 / Tuesday, January 10, 2006 / Rules and Regulations 
revised their periodic statements to 
reflect that checks may be converted. 
4. Other federal rules. The Board 
believes no federal rules duplicate, 
overlap, or conflict with the final 
revisions to Regulation E. 
5. Significant alternatives to the 
proposed revisions. The Board solicited 
comment about potential ways to reduce 
regulatory burden. Several commenters 
urged the Board not to require written, 
signed authorization for checks 
converted at POS. In light of the 
potential impact on entities and limited 
additional consumer benefit, the final 
rule does not require a payee to obtain 
a consumer’s signature to convert a 
check. In the final rule, the Board is also 
providing a sunset period of three years 
for the additional ECK disclosures about 
when funds may be debited from the 
consumer’s account and the non-return 
of checks. The Board anticipates that 
increased consumer familiarity with 
ECK transactions over time will make 
unnecessary the provision of this 
additional information. 
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)(3), 205.3(b)(2) and 205.7. The 
Federal Reserve may not conduct or 
sponsor, and an organization is not 
required to respond to, this information 
collection unless the information 
collection displays a currently valid 
OMB control number. The OMB control 
number is 7100–0200. This information 
is required to provide benefits for 
consumers and is mandatory (15 U.S.C. 
1693 et seq.). The respondents/ 
recordkeepers are for-profit financial 
institutions, including small businesses. 
Institutions are required to retain 
records for 24 months. 
All financial institutions subject to 
Regulation E, of which there are 
approximately 19,300, are considered 
respondents for the purposes of the PRA 
and may be required to provide notice 
to accountholders that electronic check 
conversion (ECK) transactions are a new 
type of transfer that may be made from 
a consumer’s account under § 205.7. In 
addition, all persons, such as merchants 
and other payees, that engage in ECK 
transactions, of which there are 
approximately 80,000, potentially are 
affected by this collection of 
information, because these merchants 
and payees will be required to obtain a 
consumer’s authorization for the 
electronic transfer under § 205.3(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 first disclosure requirement, 
described in § 205.7, is the initial 
disclosure that a financial institution 
must provide to their accountholders 
reflecting that ECK transactions are a 
new type of transfer that can be made 
from a consumer’s account. The Federal 
Reserve estimates that each of the 
institutions, for which it has 
administrative enforcement authority 
(collectively referred to in the following 
paragraphs as ‘‘respondents regulated by 
the Federal Reserve’’) will be required to 
provide a revised initial disclosure to 
their accountholders. Currently, all 
respondents regulated by the Federal 
Reserve are required to provide a 
disclosure of basic terms, costs, and 
rights relating to EFT services under 
Regulation E. For purposes of this PRA 
analysis, the Federal Reserve estimates 
that it will take financial institutions, on 
average, 8 hours (one business day) to 
reprogram and update systems to 
include the new notice requirement 
relating to ECK transactions; therefore, 
the Federal Reserve estimates that the 
total annual burden for all financial 
institutions for this requirement will be 
154,400 hours. With respect to the 1,289 
Federal-Reserve-regulated institutions 
which must comply with Regulation E, 
it is estimated that the total annual 
burden for this requirement will be 
10,312 hours. The final revisions to 
Regulation E provide institutions with 
model clauses for the initial disclosure 
requirement for ECK transactions 
(provided in Appendix A) that they may 
use to comply with the notice 
requirement. 
The second disclosure requirement, 
described in § 205.3(b)(2), is required 
when persons, such as merchants and 
other payees, engage in ECK 
transactions. Under the final rule, 
merchants and payees are generally 
required to provide written notice to 
obtain a consumer’s authorization for 
the one-time EFT. Merchants and 
payees will also be required to provide 
a written notice to obtain a consumer’s 
authorization to collect any service fees 
for insufficient or uncollected funds via 
an EFT to the consumer’s account. The 
notice must also disclose the amount of 
the service fee. Finally, merchants and 
payees that engage in ECK transactions 
must provide a notice to consumers that 
when a check is used to initiate an EFT, 
funds may be debited from a consumer’s 
account as soon as the same day 
payment is made or received and 
consumers’ checks will not be returned 
by their financial institution. 
The Federal Reserve estimates that of 
the 1,289 respondents regulated by the 
Federal Reserve that are required to 
comply with Regulation E, 
approximately 10 originate ECK 
transactions. The Federal Reserve 
estimates that it will take each 
respondent, on average, 8 hours (1 
business day) to reprogram and update 
their systems to include the new notice 
requirement relating to ECK 
transactions; therefore, the Federal 
Reserve estimates that the total annual 
burden is 80 hours. The final revisions 
to Regulation E provide institutions 
with model clauses (provided in 
Appendix A) for the new disclosure 
requirements. Using the Federal 
Reserve’s methodology, the total annual 
burden for all other merchants and 
payees engaging in ECK transactions is 
639,920 hours. 
A third disclosure requirement 
applies to ATM operators who are 
required to provide notice to consumers 
of an ATM surcharge. Under this final 
rule, ATM operators will be permitted 
to disclose on signage posted at the 
ATM that a surcharge ‘‘may’’ be 
imposed if there are circumstances 
under which a surcharge is not 
imposed. All financial institutions, of 
which there are approximately 19,300, 
potentially are subject to this 
requirement to the extent they are ATM 
operators under the rule. The extent to 
which this collection of information 
affects a particular financial institution 
depends on the number of ATMs an 
institution operates, and on whether the 
institution elects to revise its ATM 
signage disclosures. For purposes of this 
PRA analysis, the Federal Reserve 
estimates that it will take financial 
institutions, on average, 8 hours (one 
business day) to revise and update ATM 
signage; therefore the Federal Reserve 
estimates that the total annual burden 
for all depository institutions for this 
requirement will be 154,400 hours. With 
respect to the 1,289 Federal Reserve- 
regulated institutions which must 
comply with Regulation E, it is 
estimated that the total annual burden 
for this requirement will be 10,312 
hours. 
The Federal Reserve’s current annual 
burden for Regulation E disclosures is 
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Federal Register / Vol. 71, No. 6 / Tuesday, January 10, 2006 / Rules and Regulations 
estimated to be 63,047 hours. The final 
rule will increase the total burden under 
Regulation E for all Federal Reserve- 
regulated institutions by 20,704 hours, 
from 63,047 to 83,751 hours. (This 
burden estimate does not include the 
burden associated with the new 
disclosure requirements in connection 
with payroll card accounts as 
announced in a separate interim final 
rule (Docket No. R–1247).) Using the 
methodology explained above, the final 
rule would increase total burden under 
Regulation E for all other financial 
institutions by approximately 928,096 
hours. 
Because the records would be 
maintained by the institutions and the 
notices are not provided to the Federal 
Reserve, no issue of confidentiality 
arises under the Freedom of Information 
Act. 
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 amends 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 
continues to read as follows: 
Authority: 15 U.S.C. 1693b. 
■2.–3. Section 205.3 is amended by 
revising paragraph (a), redesignating 
paragraph (b) as paragraph (b)(1), 
revising paragraph (b)(1), and adding 
new paragraphs (b)(2) and (b)(3) to read 
as follows: 
§ 205.3
Coverage. 
(a) General. This part applies to any 
electronic fund transfer that authorizes 
a financial institution to debit or credit 
a consumer’s account. Generally, this 
part applies to financial institutions. For 
purposes of §§ 205.3(b)(2), 205.10(b), 
(d), and (e) and 205.13, this part applies 
to any person. 
(b) Electronic fund transfer—(1) 
Definition. The term electronic fund 
transfer means any transfer of funds that 
is initiated through an electronic 
terminal, telephone, computer, or 
magnetic tape for the purpose of 
ordering, instructing, or authorizing a 
financial institution to debit or credit a 
consumer’s account. The term includes, 
but is not limited to— 
(i) Point-of-sale transfers; 
(ii) Automated teller machine 
transfers; 
(iii) Direct deposits or withdrawals of 
funds; 
(iv) Transfers initiated by telephone; 
and 
(v) Transfers resulting from debit card 
transactions, whether or not initiated 
through an electronic terminal. 
(2) Electronic fund transfer using 
information from a check. (i) This part 
applies where a check, draft, or similar 
paper instrument is used as a source of 
information to initiate a one-time 
electronic fund transfer from a 
consumer’s account. The consumer 
must authorize the transfer. 
(ii) The person that initiates an 
electronic fund transfer using the 
consumer’s check as a source of 
information for the transfer shall 
provide a notice that the transaction 
will or may be processed as an EFT, and 
obtain a consumer’s authorization for 
each transfer. A consumer authorizes a 
one-time electronic fund transfer (in 
providing a check to a merchant or other 
payee for the MICR encoding, that is, 
the routing number of the financial 
institution, the consumer’s account 
number and the serial number) when 
the consumer receives notice and goes 
forward with the transaction. For point- 
of-sale transfers, the notice must be 
posted in a prominent and conspicuous 
location, and a copy of the notice must 
be provided to the consumer at the time 
of the transaction. 
(iii) The person that initiates an 
electronic fund transfer using the 
consumer’s check as a source of 
information for the transfer shall also 
provide a notice to the consumer at the 
same time it provides the notice 
required under paragraph (b)(2)(ii) that 
when a check is used to initiate an 
electronic fund transfer, funds may be 
debited from the consumer’s account as 
soon as the same day payment is 
received, and, as applicable, that the 
consumer’s check will not be returned 
by the financial institution holding the 
consumer’s account. For point-of-sale 
transfers, the person initiating the 
transfer may post the notice required in 
this paragraph (b)(2)(iii) in a prominent 
and conspicuous location and need not 
include this notice on the copy of the 
notice given to the consumer under 
paragraph (b)(2)(ii). The requirements in 
this paragraph (b)(2)(iii) shall remain in 
effect until December 31, 2009. 
(iv) A person may provide notices that 
are substantially similar to those set 
forth in Appendix A–6 to comply with 
the requirements of this paragraph 
(b)(2). 
(3) Collection of service fees via 
electronic fund transfer. A consumer 
authorizes a one-time electronic fund 
transfer from the consumer’s account to 
pay a fee for the return of an electronic 
fund transfer or a check unpaid due to 
insufficient or uncollected funds in the 
consumer’s account, when the 
consumer receives a notice stating that 
the fee will be collected by an electronic 
fund transfer from the consumer’s 
account, along with a disclosure of the 
amount of the fee, and the consumer 
goes forward with the transaction. If the 
service fee for insufficient or 
uncollected funds may be collected in 
connection with a point-of-sale transfer, 
the notice must be posted in a 
prominent and conspicuous location, 
and a copy of the notice must be 
provided to the consumer at the time of 
the transaction. 
* 
* 
* 
* 
* 
■4. Section 205.7 is amended by adding 
a new paragraph (c) as follows: 
§ 205.7
Initial disclosures. 
* 
* 
* 
* 
* 
(c) Addition of electronic fund 
transfer services. If an electronic fund 
transfer service is added to a consumer’s 
account and is subject to terms and 
conditions different from those 
described in the initial disclosures, 
disclosures for the new service are 
required. 
■5. Section 205.16 is amended by 
revising paragraph (c) as follows: 
§ 205.16
Disclosures at automated teller 
machines. 
* 
* 
* 
* 
* 
(c) Notice requirement. To meet the 
requirements of paragraph (b) of this 
section, an automated teller machine 
operator must comply with the 
following: 
(1) On the machine. Post in a 
prominent and conspicuous location on 
or at the automated teller machine a 
notice that: 
(i) A fee will be imposed for providing 
electronic fund transfer services or for a 
balance inquiry; or 
(ii) A fee may be imposed for 
providing electronic fund transfer 
services or for a balance inquiry, but the 
notice in this paragraph (c)(1)(ii) may be 
substituted for the notice in paragraph 
(c)(1)(i) only if there are circumstances 
under which a fee will not be imposed 
for such services; and 
(2) Screen or paper notice. Provide 
the notice required by paragraphs (b)(1) 
and (b)(2) of this section either by 
showing it on the screen of the 
automated teller machine or by 
providing it on paper, before the 
consumer is committed to paying a fee. 
* 
* 
* 
* 
* 
■6. In Appendix A to Part 205, 
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■a. In A–2
Model Clauses for Initial 
Disclosures (§ 205.7(b)), paragraphs (a), 
(b) and (d) are revised; 
■b. In A–3
Model Forms for Error 
Resolution Notice (§§ 205.7(b)(10) and 
205.8(b)), paragraph (a) is republished, 
and paragraph (b) is added; 
■c. Section A–6
Model Clauses for 
Authorizing One-Time Electronic Fund 
Transfer Using Information From a 
Check (§ 205.3(b)(2)) is added. 
Appendix A to Part 205—Model 
Disclosure Clauses and Forms 
* 
* 
* 
* 
* 
A–2
Model Clauses for Initial 
Disclosures (§ 205.7(b)) 
(a) Consumer Liability (§ 205.7(b)(1)). 
(Tell us AT ONCE if you believe your 
[card] [code] has been lost or stolen, or 
if you believe that an electronic fund 
transfer has been made without your 
permission using information from your 
check. Telephoning is the best way of 
keeping your possible losses down. You 
could lose all the money in your 
account (plus your maximum overdraft 
line of credit). If you tell us within 2 
business days after you learn of the loss 
or theft of your [card] [code], you can 
lose no more than $50 if someone used 
your [card][code] without your 
permission.) 
If you do NOT tell us within 2 
business days after you learn of the loss 
or theft of your [card] [code], and we 
can prove we could have stopped 
someone from using your [card] [code] 
without your permission if you had told 
us, you could lose as much as $500. 
Also, if your statement shows 
transfers that you did not make, 
including those made by card, code or 
other means, tell us at once. If you do 
not tell us within 60 days after the 
statement was mailed to you, you may 
not get back any money you lost after 
the 60 days if we can prove that we 
could have stopped someone from 
taking the money if you had told us in 
time. If a good reason (such as a long 
trip or a hospital stay) kept you from 
telling us, we will extend the time 
periods. 
(b) Contact in event of unauthorized 
transfer (§ 205.7(b)(2)). If you believe 
your [card] [code] has been lost or 
stolen, call: [Telephone number] or 
write: [Name of person or office to be 
notified] [Address] 
You should also call the number or 
write to the address listed above if you 
believe a transfer has been made using 
the information from your check 
without your permission. 
* 
* 
* 
* 
* 
(d) Transfer types and limitations 
(§ 205.7(b)(4))—(1) Account access. You 
may use your [card][code] to: 
(i) Withdraw cash from your 
[checking] [or] [savings] account. 
(ii) Make deposits to your [checking] 
[or] [savings] account. 
(iii) Transfer funds between your 
checking and savings accounts 
whenever you request. 
(iv) Pay for purchases at places that 
have agreed to accept the [card] [code]. 
(v) Pay bills directly [by telephone] 
from your [checking] [or] [savings] 
account in the amounts and on the days 
you request. 
Some of these services may not be 
available at all terminals. 
(2) Electronic check conversion. You 
may authorize a merchant or other 
payee to make a one-time electronic 
payment from your checking account 
using information from your check to: 
(i) Pay for purchases. 
(ii) Pay bills. 
(3) Limitations on frequency of 
transfers—(i) You may make only [insert 
number, e.g., 3] cash withdrawals from 
our terminals each [insert time period, 
e.g., week]. 
(ii) You can use your telephone bill- 
payment service to pay [insert number] 
bills each [insert time period] 
[telephone call]. 
(iii) You can use our point-of-sale 
transfer service for [insert number] 
transactions each [insert time period]. 
(iv) For security reasons, there are 
limits on the number of transfers you 
can make using our [terminals] 
[telephone bill-payment service] [point- 
of-sale transfer service]. 
(4) Limitations on dollar amounts of 
transfers—(i) You may withdraw up to 
[insert dollar amount] from our 
terminals each [insert time period] time 
you use the [card] [code]. 
(ii) You may buy up to [insert dollar 
amount] worth of goods or services each 
[insert time period] time you use the 
[card] [code] in our point-of-sale transfer 
service. 
* 
* 
* 
* 
* 
A–3
Model Forms for Error Resolution 
Notice (§§ 205.7(b)(10) and 205.8(b)) 
(a) Initial and annual error resolution 
notice (§§ 205.7(b)(10) and 205.8(b)). 
In Case of Errors or Questions About 
Your Electronic Transfers Telephone us 
at [insert telephone number], or Write 
us at [insert address] [or E-mail us at 
[insert electronic mail address]] as soon 
as you can, if you think your statement 
or receipt is wrong or if you need more 
information about a transfer listed on 
the statement or receipt. We must hear 
from you no later than 60 days after we 
sent the FIRST statement on which the 
problem or error appeared. 
(1) Tell us your name and account 
number (if any). 
(2) Describe the error or the transfer 
you are unsure about, and explain as 
clearly as you can why you believe it is 
an error or why you need more 
information. 
(3) Tell us the dollar amount of the 
suspected error. 
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 use of 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. 
(b) Error resolution notice on periodic 
statements (§ 205.8(b)). 
In Case of Errors or Questions About 
Your Electronic Transfers Telephone us 
at [insert telephone number] or Write us 
at [insert address] as soon as you can, 
if you think your statement or receipt is 
wrong or if you need more information 
about a transfer on the statement or 
receipt. We must hear from you no later 
than 60 days after we sent you the 
FIRST statement on which the error or 
problem appeared. 
(1) Tell us your name and account 
number (if any). 
(2) Describe the error or the transfer 
you are unsure about, and explain as 
clearly as you can why you believe it is 
an error or why you need more 
information. 
(3) Tell us the dollar amount of the 
suspected error. 
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We will investigate your complaint 
and will correct any error promptly. If 
we take more than 10 business days to 
do this, we will credit your account for 
the amount you think is in error, so that 
you will have the use of the money 
during the time it takes us to complete 
our investigation. 
* 
* 
* 
* 
* 
A–6
Model Clauses for Authorizing 
One-Time Electronic Fund Transfers 
Using Information From a Check 
(§ 205.3(b)(2)) 
(a)—Notice About Electronic Check 
Conversion 
When you provide a check as 
payment, you authorize us either to use 
information from your check to make a 
one-time electronic fund transfer from 
your account or to process the payment 
as a check transaction. 
[You authorize us to collect a fee of 
$l through an electronic fund transfer 
from your account if your payment is 
returned unpaid.] 
(b)—Alternative Notice About Electronic 
Check Conversion (Optional) 
When you provide a check as 
payment, you authorize us to use 
information from your check to make a 
one-time electronic fund transfer from 
your account. In certain circumstances, 
such as for technical or processing 
reasons, we may process your payment 
as a check transaction. 
[Specify other circumstances (at 
payee’s option).] 
[You authorize us to collect a fee of 
$l through an electronic fund transfer 
from your account if your payment is 
returned unpaid.] 
(c)—Notice For Providing Additional 
Information About Electronic Check 
Conversion 
When we use information from your 
check to make an electronic fund 
transfer, funds may be withdrawn from 
your account as soon as the same day 
[you make] [we receive] your payment[, 
and you will not receive your check 
back from your financial institution]. 
Supplement I to Part 205—Disclosures 
on Automated Teller Machines 
■7. In Supplement I to Part 205, the 
following amendments are made: 
■a. Under Section 205.2—Definitions, 
under 2(a) Access Device, paragraph 2. 
is revised; 
■b. Under Section 205.30—Coverage, 
under 3(b) Electronic Fund Transfer, a 
new heading ‘‘Paragraph 3(b)(1)— 
Definition’’ is added, paragraphs 1. and 
2. are redesignated as paragraphs 
3(b)(1)1 and 3(b)(1)2, and paragraph 3. 
is removed; 
■c. Under Section 205.3—Coverage, 
under 3(b) Electronic Fund Transfer, 
under Paragraph 3(b)(1)—Definition, 
paragraph 2.iv. is added; 
■d. Under Section 205.3—Coverage, 
under 3(b) Electronic Fund Transfer, a 
new heading ‘‘Paragraph 3(b)(2)— 
Electronic Fund Transfer Using 
Information From a Check’’ is added, 
and paragraphs 1. through 5. are added; 
■e. Under Section 205.3—Coverage, 
under 3(b) Electronic Fund Transfer, a 
new heading ‘‘Paragraph 3(b)(3)— 
Collection of Service Fees via Electronic 
Fund Transfer’’ is added, and paragraph 
1. is added; 
■f. Under Section 205.3—Coverage, 
under 3(c) Exclusions from coverage, 
under heading Paragraph 3(c)(1)— 
Checks, paragraphs 1. and 2. are revised; 
■g. Under Section 205.5—Issuance of 
Access Devices, under 5(a) Solicited 
Issuance, under Paragraph 5(a)(2), 
paragraph 1. is revised; 
■h. Under Section 205.5—Issuance of 
Access Devices, under 5(b) Unsolicited 
Issuance, paragraph 5. is added; 
■i. Under Section 205.7—Initial 
Disclosures, under 7(a) Timing of 
Disclosures, paragraph 1. is revised, 
paragraph 4. is removed, and paragraphs 
5. and 6. are redesignated as paragraphs 
4. and 5.; 
■j. Under Section 205.7—Initial 
Disclosures, under 7(b) Content of 
Disclosures, under Paragraph 7(b)(4)— 
Types of Transfers; Limitations, 
paragraph 4. is added; 
■k. Under Section 205.7—Initial 
Disclosures, a new heading ‘‘7(c) 
Addition of Electronic Fund Transfer 
Services’’ is added, and paragraph 1. is 
added; 
■l. Under Section 205.10— 
Preauthorized Transfers, under 10(b) 
Written Authorization for Preauthorized 
Transfers from Consumer’s Account, 
paragraphs 3. and 7. are revised; 
■m. Under Section 205.10— 
Preauthorized Transfers, under 10(c) 
Consumer’s Right to Stop Payment, 
paragraph 2. is revised, and paragraph 3. 
is added; 
■n. Under Section 205.10— 
Preauthorized Transfers, under 10(d) 
Notice of Transfers Varying in Amount, 
under Paragraph 10(d)(2)—Range, 
paragraph 2. is added; 
■o. Under Section 205.11—Procedures 
for Resolving Errors, under 11(b) Notice 
of Error from Consumer, under 
Paragraph 11(b)(1)—Timing; Contents, 
paragraph 7. is added; 
■p. Under Section 205.11—Procedures 
for Resolving Errors, under 11(c) Time 
Limits and Extent of Investigation, 
under Paragraph 11(c)(4)—Investigation, 
paragraph 5. is added; and 
■q. Under Section 205.16—Disclosures 
at Automated Teller Machines, under 
16(b) General, under Paragraph 16(b)(1), 
paragraph 1. is revised. 
The revisions and additions read as 
follows: 
Supplement I to Part 205—Official Staff 
Interpretations 
* 
* 
* 
* 
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Section 205.2—Definitions 
2(a) Access Device 
* 
* 
* 
* 
* 
2. Checks used to capture 
information. The term ‘‘access device’’ 
does not include a check or draft used 
to capture the MICR (Magnetic Ink 
Character Recognition) encoding to 
initiate a one-time ACH debit. For 
example, if a consumer authorizes a 
one-time ACH debit from the 
consumer’s account using a blank, 
partially completed, or fully completed 
and signed check for the merchant to 
capture the routing, account, and serial 
numbers to initiate the debit, the check 
is not an access device. (Although the 
check is not an access device under 
Regulation E, the transaction is 
nonetheless covered by the regulation. 
See comment 3(b)(1)–1.v.) 
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* 
* 
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* 
Section 205.3—Coverage 
* 
* 
* 
* 
* 
3(b) Electronic Fund Transfer 
Paragraph 3(b)(1)—Definition 
* 
* 
* 
* 
* 
2. Fund transfers not covered. 
* 
* 
* 
* 
* 
iv. Transactions arising from the 
electronic collection, presentment, or 
return of checks through the check 
collection system, such as through 
transmission of electronic check images. 
Paragraph 3(b)(2)—Electronic Fund 
Transfer Using Information From a 
Check 
1. Notice at POS not furnished due to 
inadvertent error. If the copy of the 
notice under section 205.3(b)(2)(ii) for 
ECK transactions is not provided to the 
consumer at POS because of a bona fide 
unintentional error, such as when a 
terminal printing mechanism jams, no 
violation results if the payee maintains 
procedures reasonably adapted to avoid 
such occurrences. 
2. Authorization to process a 
transaction as an EFT or as a check. In 
order to process a transaction as an EFT 
or alternatively as a check, the payee 
must obtain the consumer’s 
authorization to do so. A payee may, at 
its option, specify the circumstances 
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under which a check may not be 
converted to an EFT. (See model clauses 
in Appendix A–6.) 
3. Notice for each transfer. Generally, 
a notice to authorize an electronic check 
conversion transaction must be 
provided for each transaction. For 
example, a consumer must receive a 
notice that the transaction will be 
processed as an EFT for each transaction 
at POS or each time a consumer mails 
a check in an accounts receivable (ARC) 
transaction to pay a bill, such as a utility 
bill, if the payee intends to convert a 
check received as payment. Similarly, 
the consumer must receive notice if the 
payee intends to collect a service fee for 
insufficient or uncollected funds via an 
EFT for each transaction whether at POS 
or if the consumer mails a check to pay 
a bill. The notice about when funds may 
be debited from a consumer’s account 
and the non-return of consumer checks 
by the consumer’s financial institution 
must also be provided for each 
transaction. However, if in an ARC 
transaction, a payee provides a coupon 
book to a consumer, for example, for 
mortgage loan payments, and the 
payment dates and amounts are set out 
in the coupon book, the payee may 
provide a single notice on the coupon 
book stating all of the required 
disclosures under paragraph (b)(2) of 
this section in order to obtain 
authorization for each conversion of a 
check and any debits via EFT to the 
consumer’s account to collect any 
service fees imposed by the payee for 
insufficient or uncollected funds in the 
consumer’s account. The notice must be 
placed on a conspicuous location of the 
coupon book that a consumer can 
retain—for example, on the first page, or 
inside the front cover. 
4. Multiple payments/multiple 
consumers. If a merchant or other payee 
will use information from a consumer’s 
check to initiate an EFT from the 
consumer’s account, notice to a 
consumer listed on the billing account 
that a check provided as payment 
during a single billing cycle or after 
receiving an invoice or statement will be 
processed as a one-time EFT or as a 
check transaction constitutes notice for 
all checks provided in payment for the 
billing cycle or the invoice for which 
notice has been provided, whether the 
check(s) is submitted by the consumer 
or someone else. The notice applies to 
all checks provided in payment for the 
billing cycle or invoice until the 
provision of notice on or with the next 
invoice or statement. Thus, if a 
merchant or other payee receives a 
check as payment for the consumer 
listed on the billing account after 
providing notice that the check will be 
processed as a one-time EFT, the 
authorization from that consumer 
constitutes authorization to convert any 
other checks provided for that invoice 
or statement. Other notices required 
under this paragraph (b)(2) (for example, 
to collect a service fee for insufficient or 
uncollected funds via an EFT) provided 
to the consumer listed on the billing 
account also constitutes notice to any 
other consumer who may provide a 
check for the billing cycle or invoice. 
5. Additional disclosures about ECK 
transactions at POS. When a payee 
initiates an EFT at POS using 
information from the consumer’s check, 
and returns the check to the consumer 
at POS, the payee need not provide a 
notice to the consumer that the check 
will not be returned by the consumer’s 
financial institution. 
Paragraph 3(b)(3)—Collection of Service 
Fees via Electronic Fund Transfer 
1. Fees imposed by account-holding 
institution. The requirement to obtain a 
consumer’s authorization at POS to 
collect a fee via EFT for the return of an 
EFT or check unpaid due to insufficient 
or uncollected funds in the consumer’s 
account does not apply to fees assessed 
against the consumer’s account by the 
consumer’s account-holding institution 
for the return of an EFT or a check 
unpaid or for paying overdrafts. 
3(c) Exclusions From Coverage 
Paragraph 3(c)(1)—Checks 
1. Re-presented checks. The electronic 
re-presentment of a returned check is 
not covered by Regulation E because the 
transaction originated by check. 
Regulation E does apply, however, to 
any fee debited via an EFT from a 
consumer’s account by the payee 
because the check was returned for 
insufficient or uncollected funds. The 
person debiting the fee electronically 
must obtain the consumer’s 
authorization. 
2. Check used to capture information 
for a one-time EFT. See comment 
3(b)(1)–1.v. 
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* 
* 
* 
* 
Section 205.5—Issuance of Access 
Devices 
* 
* 
* 
* 
* 
5(a) Solicited Issuance 
* 
* 
* 
* 
* 
Paragraph 5(a)(2) 
1. One-for-one rule. In issuing a 
renewal or substitute access device, 
only one renewal or substitute device 
may replace a previously issued device. 
For example, only one new card and 
PIN may replace a card and PIN 
previously issued. A financial 
institution may provide additional 
devices at the time it issues the renewal 
or substitute access device, however, 
provided the institution complies with 
§ 205.5(b). (See comment 5(b)–5.) If the 
replacement device or the additional 
device permits either fewer or 
additional types of electronic fund 
transfer services, a change-in-terms 
notice or new disclosures are required. 
* 
* 
* 
* 
* 
5(b) Unsolicited Issuance 
* 
* 
* 
* 
* 
5. Additional access devices in a 
renewal or substitution. A financial 
institution may issue more than one 
access device in connection with the 
renewal or substitution of a previously 
issued accepted access device, provided 
that any additional access device 
(beyond the device replacing the 
accepted access device) is not validated 
at the time it is issued, and the 
institution complies with the other 
requirements of § 205.5(b). The 
institution may, if it chooses, set up the 
validation procedure such that both the 
device replacing the previously issued 
device and the additional device are not 
validated at the time they are issued, 
and validation will apply to both 
devices. If the institution sets up the 
validation procedure in this way, the 
institution should provide a clear and 
readily understandable disclosure to the 
consumer that both devices are 
unvalidated and that validation will 
apply to both devices. 
* 
* 
* 
* 
* 
Section 205.7—Initial Disclosures 
7(a) Timing of Disclosures 
1. Early disclosures. Disclosures given 
by a financial institution earlier than the 
regulation requires (for example, when 
the consumer opens a checking account) 
need not be repeated when the 
consumer later enters into an agreement 
with a third party to initiate 
preauthorized transfers to or from the 
consumer’s account, unless the terms 
and conditions differ from those that the 
institution previously disclosed. This 
interpretation also applies to any notice 
provided about one-time EFTs from a 
consumer’s account initiated using 
information from the consumer’s check. 
On the other hand, if an agreement for 
EFT services to be provided by an 
account-holding institution is directly 
between the consumer and the account- 
holding institution, disclosures must be 
given in close proximity to the event 
requiring disclosure, for example, when 
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the consumer contracts for a new 
service. 
* 
* 
* 
* 
* 
7(b) Content of Disclosures 
* 
* 
* 
* 
* 
Paragraph 7(b)(4)—Types of Transfers; 
Limitations 
* 
* 
* 
* 
* 
4. One-time EFTs initiated using 
information from a check. Financial 
institutions must disclose the fact that 
one-time EFTs initiated using 
information from a consumer’s check 
are among the types of transfers that a 
consumer can make. (See Appendix A– 
2.) 
* 
* 
* 
* 
* 
7(c) Addition of Electronic Fund 
Transfer Services 
1. Addition of electronic check 
conversion services. One-time EFTs 
initiated using information from a 
consumer’s check are a new type of 
transfer requiring new disclosures, as 
applicable. (See Appendix A–2.) 
* 
* 
* 
* 
* 
Section 205.10—Preauthorized 
Transfers 
* 
* 
* 
* 
* 
10(b) Written Authorization for 
Preauthorized Transfers from 
Consumer’s Account 
* 
* 
* 
* 
* 
3. Written authorization for 
preauthorized transfers. The 
requirement that preauthorized EFTs be 
authorized by the consumer ‘‘only by a 
writing’’ cannot be met by a payee’s 
signing a written authorization on the 
consumer’s behalf with only an oral 
authorization from the consumer. 
* 
* 
* 
* 
* 
7. Bona fide error. Consumers 
sometimes authorize third-party payees, 
by telephone or on-line, to submit 
recurring charges against a credit card 
account. If the consumer indicates use 
of a credit card account when in fact a 
debit card is being used, the payee does 
not violate the requirement to obtain a 
written authorization if the failure to 
obtain written authorization was not 
intentional and resulted from a bona 
fide error, and if the payee maintains 
procedures reasonably adapted to avoid 
any such error. Procedures reasonably 
adapted to avoid error will depend upon 
the circumstances. Generally, requesting 
the consumer to specify whether the 
card to be used for the authorization is 
a debit (or check) card or a credit card 
is a reasonable procedure. Where the 
consumer has indicated that the card is 
a credit card (or that the card is not a 
debit or check card), the payee may rely 
on the consumer’s statement without 
seeking further information about the 
type of card. If the payee believes, at the 
time of the authorization, that a credit 
card is involved, and later finds that the 
card used is a debit card (for example, 
because the consumer later brings the 
matter to the payee’s attention), the 
payee must obtain a written and signed 
or (where appropriate) a similarly 
authenticated authorization as soon as 
reasonably possible, or cease debiting 
the consumer’s account. 
10(c) Consumer’s Right to Stop Payment 
* 
* 
* 
* 
* 
2. Revocation of authorization. Once 
a financial institution has been notified 
that the consumer’s authorization is no 
longer valid, it must block all future 
payments for the particular debit 
transmitted by the designated payee- 
originator. (However, see comment 
10(c)–3.) The institution may not wait 
for the payee-originator to terminate the 
automatic debits. The institution may 
confirm that the consumer has informed 
the payee-originator of the revocation 
(for example, by requiring a copy of the 
consumer’s revocation as written 
confirmation to be provided within 14 
days of an oral notification). If the 
institution does not receive the required 
written confirmation within the 14-day 
period, it may honor subsequent debits 
to the account. 
3. Alternative procedure for 
processing a stop-payment request. If an 
institution does not have the capability 
to block a preauthorized debit from 
being posted to the consumer’s 
account—as in the case of a 
preauthorized debit made through a 
debit card network or other system, for 
example—the institution may instead 
comply with the stop-payment 
requirements by using a third party to 
block the transfer(s), as long as the 
consumer’s account is not debited for 
the payment. 
10(d) Notice of Transfers Varying in 
Amount 
* 
* 
* 
* 
* 
Paragraph 10(d)(2)—Range 
* 
* 
* 
* 
* 
2. Transfers to an account of the 
consumer held at another institution. A 
financial institution need not provide a 
consumer the option of receiving notice 
with each varying transfer, and may 
instead provide notice only when a 
debit to an account of the consumer falls 
outside a specified range or differs by 
more than a specified amount from the 
most recent transfer, if the funds are 
transferred and credited to an account of 
the consumer held at another financial 
institution. The specified range or 
amount, however, must be one that 
reasonably could be anticipated by the 
consumer, and the institution must 
notify the consumer of the range or 
amount at the time the consumer 
provides authorization for the 
preauthorized transfers. For example, if 
the transfer is for payment of interest for 
a fixed-rate certificate of deposit 
account, an appropriate range might be 
based on a month containing 28 days 
and a month containing 31 days. 
* 
* 
* 
* 
* 
Section 205.11—Procedures for 
Resolving Errors 
* 
* 
* 
* 
* 
11(b) Notice of Error from Consumer 
Paragraph 11(b)(1)—Timing; Contents 
* 
* 
* 
* 
* 
7. Effect of late notice. An institution 
is not required to comply with the 
requirements of this section for any 
notice of error from the consumer that 
is received by the institution later than 
60 days from the date on which the 
periodic statement first reflecting the 
error is sent. Where the consumer’s 
assertion of error involves an 
unauthorized EFT, however, the 
institution must comply with § 205.6 
before it may impose any liability on the 
consumer. 
* 
* 
* 
* 
* 
11(c) Time Limits and Extent of 
Investigation 
* 
* 
* 
* 
* 
Paragraph 11(c)(4)—Investigation 
* 
* 
* 
* 
* 
5. No EFT agreement. When there is 
no agreement between the institution 
and the third party for the type of EFT 
involved, the financial institution must 
review any relevant information within 
the institution’s own records for the 
particular account to resolve the 
consumer’s claim. The extent of the 
investigation required may vary 
depending on the facts and 
circumstances. However, a financial 
institution may not limit its 
investigation solely to the payment 
instructions where additional 
information within its own records 
pertaining to the particular account in 
question could help to resolve a 
consumer’s claim. 
Information that may be reviewed as 
part of an investigation might include: 
i. The ACH transaction records for the 
transfer; 
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ii. The transaction history of the 
particular account for a reasonable 
period of time immediately preceding 
the allegation of error; 
iii. Whether the check number of the 
transaction in question is notably out-of- 
sequence; 
iv. The location of either the 
transaction or the payee in question 
relative to the consumer’s place of 
residence and habitual transaction area; 
v. Information relative to the account 
in question within the control of the 
institution’s third-party service 
providers if the financial institution 
reasonably believes that it may have 
records or other information that could 
be dispositive; or 
vi. Any other information appropriate 
to resolve the claim. 
* 
* 
* 
* 
* 
Section 205.16—Disclosures on 
Automated Teller Machines 
16(b) General 
Paragraph 16(b)(1) 
1. Specific notices. An ATM operator 
that imposes a fee for a specific type of 
transaction—such as for a cash 
withdrawal, but not for a balance 
inquiry, or for some cash withdrawals, 
but not for others (such as where the 
card was issued by a foreign bank or by 
a card issuer that has entered into a 
special contractual relationship with the 
ATM operator regarding surcharges)— 
may provide a notice on or at the ATM 
that a fee will be imposed or a notice 
that a fee may be imposed for providing 
EFT services or may specify the type of 
EFT for which a fee is imposed. If, 
however, a fee will be imposed in all 
instances, the notice must state that a 
fee will be imposed. 
By order of the Board of Governors of the 
Federal Reserve System, December 30, 2005. 
Jennifer J. Johnson, 
Secretary of the Board. 
[FR Doc. 06–145 Filed 1–9–06; 8:45 am] 
BILLING CODE 6210–01–P 
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