Electronic Disclosures

1
Electronic Disclosures Website Compliance

• Presented by
• Sean J. Kulczycki, CRCM
• Principal
• December 20, 2007

2
Electronic Disclosures Website Compliance

• Presented by
• Sean J. Kulczycki, CRCM
• Principal
• December 20, 2007

3
Topics Well Cover

• Confusion regarding Interim Final Rules
• Consumer consent provisions of E-Sign Act
• Changes to Regulations B, E, Z DD
• Common website exceptions

4
Regulations on E-BankingConfusion on Interim
Final Rules

• Many requirements currently listed within
• regulations are not actually required
• March 30, 2001 Federal Reserve issued Interim
  Final Rules amending Regulations B, E, M, Z DD
• August 2, 2001 Federal Reserve lifted mandatory
  compliance dates
• April 30, 2007 Federal Reserve proposed
  withdrawing interim final rules proposed new
  rules
• November 9, 2007 Federal Reserve issued Final
  Rules effective December 10, 2007, but mandatory
  October 1, 2008

5
E-Sign ActConsumer Consent Provisions

• Section 101(c) of E-Sign Act allows disclosures
• required to be in writing to be provided
  electronically
• If
• Consumer has affirmatively consented to such use
  has not withdrawn such consent
• Consumer, prior to consenting, is provided with
  clear conspicuous disclosure statement that
  meets certain requirements

6
E-Sign ActClear Conspicuous Statement

• E-Sign disclosure statement must
• Inform consumer of any right to have record
  provided or made available in non-electronic form
• Inform consumer of their right to withdraw
  consent of any conditions, consequences or fees
  in event of such withdrawal

7
E-Sign ActClear Conspicuous Statement

• Inform consumer of whether consent applies only
  to
• Particular transaction that gave rise to
  obligation to provide record
• To identified categories of records that may be
  provided or made available during course of
  parties relationship

8
E-Sign ActClear Conspicuous Statement

• Describe procedures consumer must use to withdraw
  consent to update information needed to contact
  consumer electronically
• Inform consumer how they may obtain paper copy of
  an electronic record after consent, whether
  any fee will be charged for such copy

9
E-Sign ActStatement of Hardware Software

• Consumer must also be provided with statement of
  hardware software requirements for access to
  retention of electronic records

10
E-Sign ActConfirmation of Consent

• Consumer must consent electronically or confirm
  consent in manner that reasonably demonstrates
  consumer can access information in electronic
  form that will be used to provide information
  that is subject of consent

11
E-Sign ActChange in Hardware or Software

• If change in hardware or software requirements
  creates a risk that consumers will not be able to
  access records, financial institution must

• Provide statement of revised hardware software
  needed
• Provide consumers right to withdraw consent
  without fee
• Provide right to withdraw consent without
  condition or consequence not previously disclosed
• Require consumer to re-consent electronically

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Truth in Savings E-Sign Not Required
Disclosures that can be provided without regard
to provisions of E-Sign Act

• 230.4(a)(2) Requests for disclosures when
  consumer is not present (if consumer agrees)
• 230.8 Advertising disclosures

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Truth in Savings Disclosures at Account Opening

• 2001 Interim Final Rule
• If providing account opening disclosures
  electronically, must
• Send to email address, or
• Make available at another location (such as
  website), 1) alert consumer of this 2) make
  available for at least 90 days

Final Rule Must be provided clearly
conspicuously (no other requirements)
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Truth in Savings Redelivery

• 2001 Interim Final Rule
• If an electronic disclosure was returned, banks
  were required to attempt redelivery using
  information from their files

2007 Final Rule Redelivery requirements have been
eliminated
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Truth in Savings Advertising Requirements

• 2001 Interim Final Rule
• If electronic advertisement displays triggering
  term, it must refer consumers to where
  disclosures begin, i.e., via web link

2007 Final Rule Final rule retains this provision
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Truth in Savings Other Requirements
Disclosures that may also be provided
electronically, subject to consumer consent
provisions of E-Sign Act

• 230.5 Subsequent disclosures, including time
  deposit maturity notices change in terms
  notices
• 230.6 Periodic statement disclosures

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Electronic Fund Transfers Disclosures Periodic
Statements

• 2001 Interim Final Rule
• If providing account opening disclosures
  periodic statements electronically, financial
  institutions must

• Send to email address, or
• Make available at another location (such as
  website), 1) alert consumer of this 2) make
  available for at least 90 days

21
Electronic Fund Transfers Disclosures Periodic
Statements
2007 Final Rule Disclosures must be clear
readily understandable, in writing, in form
consumer may keep
22
Electronic Fund TransfersRedelivery

• 2001 Interim Final Rule
• If an electronic disclosure was returned, banks
  were required to attempt redelivery using
  information from their files

2007 Final Rule Redelivery requirements have been
eliminated for all electronic disclosures,
including new account disclosures periodic
statements
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Other Deposit RegulationsGeneral Requirements

• Revised regulations on electronic disclosures
  have not been issued on other deposit
  regulations, including

• Expedited funds availability
• Privacy of consumer financial information

However, electronic disclosures may be provided
subject to existing provisions of regulations
E-Sign Act
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Opening Accounts Online Required Disclosures
Disclosures that must generally be provided prior
to an account being opened online

• Initial Truth in Savings
• Initial Electronic Funds Transfer
• Initial Expedited Funds Availability
• Initial Privacy Disclosures
• Check 21 Disclosure (depending)

E-Sign disclosures are required for above
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Opening Accounts Online Method of Disclosure

• No special requirements regarding manner in which
  disclosures must be provided, e.g., direct on
  screen vs. link that cannot be bypassed
• Disclosures must be provided clearly
  conspicuously, in writing in form consumer may
  keep

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Truth in LendingE-Sign Not Required
Disclosures that can be provided without regard
to provisions of E-Sign Act

• 226.5a Credit card application disclosures
• 226.5b Home equity application disclosures
• 226.16 Open-end credit advertising
  disclosures
• 226.19(b) ARM loan application disclosures
• 226.24 Closed-end credit advertising
  disclosures

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Truth in Lending Application Disclosures

• Disclosures required to be provided at time of
  application

• 226.5a(a)(2) Credit card applications
  disclosure
• 226.5b(a) Home equity disclosure brochure
• 226.19(b) ARM program disclosure brochure

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Truth in Lending Application Disclosures

• 2001 Interim Final Rule
• Consumer must be able to access these disclosures
  at time blank application or reply form is made
  available by electronic communication

2007 Final Rule Requirement is essentially
unchanged, however, four illustrative examples
are provided in commentary
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Truth in Lending Application Disclosures
Examples

• Appear on Screen Disclosures could
  automatically appear on screen when application
  appears
• Same Web Page Disclosures could be on same
  webpage as application (even if not initially
  visible), if application contains clear
  conspicuous reference to location of disclosures
  indicates that disclosures contain rate, fee
  other cost information

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Truth in Lending Application Disclosures
Examples

• Link Could provide link to electronic
  disclosures on or with application, as long as it
  cannot be bypassed before submitting application
• Above Submit Button Could be located on same
  webpage as application without an additional
  reference, as long as it immediately precedes
  button that consumer must click to submit
  application

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Truth in Lending General-purpose Applications
(For HELOCs)

• Commentary to Section 226.5b(b) of Regulation Z
  states that disclosure brochure need not be
  provided if general purpose application is
  provided, unless application or accompanying
  information indicates that it can be used to
  apply for HELOC

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Online Loan Applications General-purpose
Applications (For ARMs)

• ARM Loan Applications
• No exception exists, as with HELOCs, stating that
  ARM disclosures need not be provided with generic
  application forms

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Truth in LendingAdvertising Requirements

• 2001 Interim Final Rule
• If an advertisement (for open- or closed-end
  credit) states triggering term, additional
  disclosures may be stated in advertisement or in
  separate table or schedule, as long as ad clearly
  refers to page or location where table begins,
  e.g., by use of link

2007 Final Rule The final rule retains these
provisions substantially unchanged
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Equal Credit OpportunityE-Sign Not Required

• Disclosures that can be provided electronically
  without regard to provisions of E-Sign Act

• Application-related Disclosures Disclosures
  required by Regulation B, typically made on
  application form itself
• Appraisal Notice Disclosure of an applicants
  right to receive copy of an appraisal report

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Equal Credit OpportunityOther Requirements
All other disclosures required by Regulation B
can be made electronically, subject to consumer
consent provisions of E-Sign Act
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Loan ApplicationsProviding Early Disclosures

• Financial institutions must comply with E-Sign
  Act prior to sending early disclosures,
  electronically, such as

• Good faith estimate
• Early TIL

• Mortgage servicing
• Insurance disclosure

41
Common Website Exceptions

• Full TIS advertising disclosures not provided
  when APY disclosed
• Term rate is used instead of interest rate
• Use of Regulation Z triggering terms without
  additional disclosures
• Providing loan applications without required
  disclosures

42
Summary

• In general, new regulations have made it easier
  to provide disclosures electronically
• E-Sign Act compliance is critical
• Application disclosures are generally required
  online when an application is provided

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Questions?
44
Contact Information
Sean J. Kulczycki, CRCM 314.231.5544 skulczycki_at_b
kd.com