NATIONAL CONSUMER LAW CENTER
CONSUMER ACTION
CONSUMER FEDERATION OF AMERICA
CONSUMER LAW CENTER OF THE SOUTH
NATIONAL CONSUMERS LEAGUE
U.S. PUBLIC INTEREST RESEARCH GROUPS
on
Truth in Lending - Regulation Z
Docket No. R-1043
PART TWO
Changes to Proposed Electronic Disclosure Rule to
Meet Essential Standards
I. Introduction
On November 15, 1999, the National Consumer Law Center, as well as
Consumer Action, the Consumer Federation of America, the Consumer Law Center of
the South, the National Consumers League, and the U.S. Public Interest Research
Groups filed Part One of a two-part comment which described the essential,
minimum standards that should apply to the delivery of TILA disclosures
electronically. Part Two provides and analysis of the extent to which the Board’s
current proposal meets the essential standards set forth in Part One. In
addition, wherever possible, we will furnish suggested language for final
regulations.
II. Standards and Proposed Changes
A. Electronic disclosures should only be permitted when the transaction is
truly electronic.
The provision of electronic disclosures should occur only when the
transaction is truly electronic. The rule (§§ 226.34(b) and (c)) does not
permit electronic disclosures if the consumer becomes "obligated in
person" in credit transactions in which credit is secured by a dwelling.
This prohibition is a critical step in protecting consumers against predatory
mortgage lenders and brokers who will provide computer access to credit where
the consumers do not have a home computer. Margot--what happens if
home-secured loan is consummated electronically once these uniform state
electronic laws get passed?
Even if the loan is consummated in person, however, the rule permits
electronic disclosures where the consumer previously requested the credit by
electronic communication, the credit is not secured by a dwelling, and the
special (d)(2) notice is given. As noted in Part One, segments of the lending
industry will abuse the loophole which this rule creates by requiring the
consumer to apply for credit electronically at a car dealership or through a lap
top computer that the seller brings door-to-door.
Further, the rule is vague as to when the (d)(2) notice is to be given in
order to trigger this exception. This critical notice must be given before
application to assure that the consumer is informed of his-her rights and
obligations regarding electronic disclosures before feeling committed to the
credit or paying any fee.
(b) Electronic communication between creditor and consumer. Except as
provided in paragraph (c) of this section, a creditor that complied with
paragraph (d) of this section may provide by electronic communication any
information required by Regulation Z to be in writing. The creditor shall
make the disclosures required by this part clearly and conspicuously and in a
form that the consumer may keep. Timing, format, and retainability
requirements contained in Regulation Z apply.All electronic disclosures
must be date and time stamped when provided.
(c) In-person exception. (2) Credit not secured by a dwelling.
For credit not secured by a dwelling, paragraph (c)(1) of this section does not
apply if the consumer previously requested the credit by electronic
communication at a location other than the creditor’s or seller’s office,
using computer equipment not owned or operated by the creditor or seller and
disclosures were provided in compliance with paragraph (d)(2)(i) and (d)(2)(ii)
of this section before an application for credit is accepted.
B. The consumer should be given the specific and optional opportunity
to agree -- or to disagree -- to accept disclosures electronically.
The § 226.34(d)(2) notice contains helpful information which will assist the
consumer in making and the decision about whether to proceed with obtaining
credit electronically. It does not go far enough, however, in validating whether
the consumer can actually access the information to be transmitted. In addition,
the consumer should be informed about the cost of providing paper copies of the
disclosures if the consumer is mistaken regarding her/his ability to access,
retain, or print the disclosures.
Proposed Changes
§ 226.34(d)(2)
(i) A creditor shall:
(A) Describe each of the disclosures and any other information which will
be provided electronically and specify whether the information is also
available in paper form or whether the credit is offered only with electronic
disclosures;
(B) Identify the address or location where the information will be provided
electronically; and if it is made available at a location other than the
consumer's electronic address, include a statement that the information will
remain available for the duration of the contract and state how it can be
obtained once that period ends;
(C) Specify any technical requirements for receiving and retaining
information sent electronically, and provide a means for the consumer to confirm
the availability of equipment meeting those requirements using a series of
questions which require the consumer to check the hardware and software capacity
of the computer being used to access the electronic disclosures;
(D) State the cost, if any, of providing paper copies of the disclosures
if the consumer is mistaken about the consumer’s capacity to access, retain,
or print the disclosures provided electronically or chooses paper disclosures
where electronic disclosures are optional.
(E) Provide a toll-free telephone number and, at the creditor's
option, an address for questions about receiving electronic disclosures, for
updating consumers' electronic addresses, and for seeking technical or other
assistance related to electronic communication.
(ii) Response by consumer. A creditor shall provide a means for the consumer
to affirmatively accept or reject electronic disclosures before the
consumer applies for credit or pays any fee.
M-1 MODEL DISCLOSURES FOR ELECTRONIC COMMUNICATION (Sec. 226.34(d))
(Disclosures Available in Paper or Electronically)
You can choose to receive important information required by the Truth in
Lending Act in paper or electronically. Read this notice carefully and keep a
copy for your records.
You can choose to receive the following information in paper form or
electronically: (description of specific disclosures to be provided
electronically).
[We may provide the following additional disclosures electronically in the
future: (description of specific disclosures).]
[If you choose electronic disclosures, this information will be available at:
(specify location) for the length of the duration of the loan. After that, the
information will be available upon request (state how to obtain the
information). When the information is posted, we will send you a message at the
electronic mail address you designate here: (consumer's electronic mail
address).]
[If you choose electronic disclosures this information will be sent to the
electronic mail address that you designate here: (consumer's electronic mail
address).]
To receive this information you will need: (list hardware and software
requirements).
Do you own or have control of a personal computer?
_____Yes _____No
If so, do you have access to a computer that satisfies the hardware
requirements?
____ Yes ____ No
Do you have access to a computer that satisfies the software requirements?
____ Yes ____ No
Do you have access to a printer, or the ability to download information, in
order to keep copies for your records?
Are you using a computer located in a public place, for example, a
library?
If so, does this computer satisfy the hardware requirements?
____ Yes ____ No
Does this computer satisfy the software requirements?
____ Yes ____ No
Does the computer have a floppy disk drive which you can use to download the
disclosures and do you have a disk to download?
____Yes ____ No
Is there a working printer attached to the computer?
____Yes ____ No
To update your electronic address, if you have questions about receiving
disclosures, or need technical or other assistance concerning these disclosures,
contact us at (telephone number).
The cost to receive disclosures in paper form, rather than
electronically, is ______.
How would you like to receive this information?
____ I want paper disclosures.
____ I want electronic disclosures.
C. If the consumer is wrong about the capacity of the computer to print
and/or retain the electronic record of the disclosures, the consumer must be
able to request paper copies to be provided at reasonable and bona fide cost,
and in a reasonable and timely manner.
The rule in its present form does not address
this issue.
Proposed Change
New § 226.34(d)(5):
If the consumer consummates a credit transaction but is unable to print or
retain the electronic disclosures and other information provided by the
creditor, the consumer may request that the disclosures be provided in paper
form. The consumer may make this request by telephone (to a toll-free number
provided by the creditor) or electronically. The creditor shall mail the paper
disclosures within three business days of the request.
D. The disclosures must actually be delivered to the consumer’s email
address with reply return requested, or must be retained on the creditor’s
website for the duration of the credit agreement.
The rule in its present form does not address this issue.
Proposed Changes
§ 226.34(e)
(e) Address or location to receive electronic communication. A
creditor that uses electronic communication to provide information required by
this regulation shall:
(1) Send the information to the consumer's electronic address with a
request that the consumer respond by email confirming that the consumer has
received and opened the disclosure; or
(2) Post the information for the duration of the credit agreement at a
website, not consummate the credit transaction unless and until the consumer
has either emailed a confirmation of receipt to the creditor or accessed the
website information through a private password, and if neither type of
confirmation is received, the creditor may:
(i) revert to paper disclosures and charge a reasonable and bona fide fee for
the disclosures;
(ii) contact the consumer, either electronically, via telephone, or in
writing, to determine if the consumer still wishes to proceed electronically;
(iii) or cancel the transaction.
E. The integrity of the electronic disclosures must be
assured. When signatures are required, the electronic signature technologies
used must be reasonable, tied to the consumer’s actual intent to sign the
document, and only be attached to documents which are unalterable after the
signature is attached.
The present rule addresses neither the integrity of the disclosures nor the
validity of electronic signatures that may be used by the consumer. These issues
highlight the enormous gap between the presumed tamper-proof nature of written
documents and a consumer’s own handwritten signature and their electronic
counterparts. To make the leap to allowing electronic disclosures and permitting
the electronic consummation of contracts to occur, is a quantum leap from the
centuries-old common law doctrine of the statute of frauds which requires a
writing to represent many types of transactions, including mortgage loans.
Before taking this plunge, not only must the procedures ensure that the
electronic record is accessible to the consumer (as discussed above), but also,
the disclosures must be in a form that are unalterable and date and time-stamped
so that the consumer and creditor can prove the terms and timing of the
disclosures. Further, the application of the consumer’s electronic signature
to the disclosures should only be permitted if the disclosures meet this
criteria, i.e., that they are unalterable and time and date-stamped.
Proposed Changes
New § 226.34(h):
The creditor shall ensure that disclosures provided electronically under this
regulation cannot be altered by the creditor or consumer. All electronic
disclosures must be date and time-stamped on the date and time when the creditor
emails them to the consumer or to a website in accordance with § 226.34(e). No
creditor may accept a consumer’s electronic signature on any electronic
disclosures that can be altered in any way by the creditor or consumer following
delivery to the consumer under this regulation.
F. Notices subsequent to the initial disclosures should be treated
differently depending upon whether they are subsequent periodic statements or
irregular and unexpected notices.
Truth In Lending requires periodic statements or notices to consumers
only in limited circumstances. For example, in open-end transactions, the
creditor must send periodic statements at the end of each billing cycle if
either a finance charge has been imposed during the cycle or if there is
outstanding debit or credit balance of more than $1 at the end of the cycle. The
billing statement must contain certain information. In addition, the creditor
must send the consumer a statement of the statutory protections for billing
errors in at least one billing cycle per year.
Other notices that may be provided subsequent to the opening of the account
are not periodic in nature and, therefore, unexpected from the consumer’s
standpoint. Examples of such notices include disclosure of changes in terms,
disclosure prior to renewal of a credit card account where the creditor charges
an annual or periodic fee, disclosure of a change in the interest rate in a
variable rate transaction, and disclosure of a change in a credit card account
insurance provider.
The electronic disclosure of these two types of notices should be treated
differently as indicated in the proposed rule below.
When the creditor chooses to make a change in the (d)(2) notice, the most
likely reason will be a change in the creditor’s hardware or software that may
make it impossible for a consumer to access notices that are delivered in the
future, e.g., periodic billing statements. In this case, the creditor should
obtain the consumer’s consent as provided in (d)(2)(ii). Further, the Board
should specify that the change notice be given within a specific number of days
before the effective date of the change to allow consumers the time to determine
if they can access future notices in light of any changes made to hardware or
software requirements.
Proposed Changes
§ 226.34(d)(3):
Changes
. (i) A creditor shall notify affected
consumers of any change to the information provided in the notice required by
paragraph (d)(2)(i) of this section. The notice shall include the effective date
of the change and must be provided at least 10 business days before that
date. The notice shall also include a toll-free telephone number, and, at the
creditor's option, an address for questions about receiving electronic
disclosures.
(ii) In addition to the notice under (d)(3)(i) of this section, if the change
involves providing additional disclosures by electronic communication, a
creditor shall provide the notice in paragraph
(d)(2)(i) of this section and obtain the consumer's consent. If notices
subsequent to initial disclosures are provided to the consumer that are not
periodic in nature, e.g., change of terms notices under § 226.9(c), notice
prior to renewal of a credit card account where the creditor imposes a fee under
§ 226.9(e)(1), the creditor shall first provide the notice under (d)(2)(i) in
the manner described therein and obtain consumer’s consent under (d)(2)(ii).
If the consumer entered into the transaction from a computer not owned or
controlled by the consumer, non-periodic notices provided subsequent to the
initial disclosure may not be given electronically.
(4) Exception. A solicitation or an application to open an account where
no fee is imposed to proceed with the application referenced in Sec. 226.5a
shall be exempt from paragraphs (d)(1) through (d)(3) of this section.
G.. There must be an effective remedy for violating these rules.
The present rule provides no specific remedy for
the failure to comply with its requirements. Failing to follow any final rule is
tantamount to failing to provide the disclosures at all. The rule should say so.
Proposed Change
New § 226.34(i):
If the creditor fails to comply with any provision of § 226.34, the consumer
shall have the same remedies as if the creditor had failed to provide such
disclosures in writing under §§ 226.5, 226.5a, 226.5b, 226.6, 226.7, 226.9,
227.13, 226.15, 226.17, 226.18, 226.19, 226.20, 226.23, 226.31, 226.32, 226.33,
whichever would have been applicable to the transaction had the disclosures been
in writing.
and NCLC