COMMENTS

of the

NATIONAL CONSUMER LAW CENTER
CONSUMERS UNION
CONSUMER ACTION
CONSUMER FEDERATION OF AMERICA
CONSUMER LAW CENTER OF THE SOUTH
NATIONAL ASSOCIATION OF CONSUMER ADVOCATES
NATIONAL CONSUMERS LEAGUE
U.S. PUBLIC INTEREST RESEARCH GROUP

on

On behalf of our low-income clients, the National Consumer Law Center¹, as well as Consumers Union², Consumer Action³, the Consumer Federation of America⁴, the Consumer Law Center of the South⁵, National Association of Consumer Advocates⁶, the National Consumers League⁷, and the U.S. Public Interest Research Group⁸ provide the following comments regarding the Federal Reserve Board's proposals to allow disclosures required under the Electronic Fund Transfer Act to be made electronically.

First, on behalf of our clients and constituents, we would like to express our appreciation for these new Proposed Regulations on Electronic Disclosure. While we believe there remain several areas of significant concern, we recognize the length to which the Board has already gone to address concerns that we and other representatives of consumers have raised. We hope that the issues raised in these comments will inspire a similar responsive reaction.

First, we would like to emphasize that our comments regarding improvements to the proposed regulations should not be construed to indicate that we are opposed in any way to facilitating electronic commerce. We are not. Indeed, we believe that once access to the Internet is more widely available to all Americans, especially the nation's poor and elderly, there may be many new and beneficial opportunities made available. However, for electronic commerce to benefit consumers, the same basic assumptions that protect consumers in the physical world must apply to electronic transactions. Although the Board has addressed some of our significant concerns, still, as currently written, the Proposed Regulations do not adequately protect consumers who are engaging in electronic financial transactions.

Electronic disclosures must in no way undermine consumers’ ability to receive or retain their Electronic Fund Transfer notices and disclosures. Some financial institutions will undoubtedly take advantage of the loopholes created by allowing electronic disclosures to effectively avoid providing consumers with the required information under the Electronic Fund Transfer Act.

1. Electronic disclosures should only be permitted when the transaction is initiated and consummated electronically and not in person. The Board has already recognized the necessity to permit electronic disclosures in only truly electronic transactions. However, exceptions are still permitted. The gaps should be closed to prevent abuses.

Electronic disclosures should only be permitted to replace paper writings in those situations where the parties are truly communicating electronically. In all transactions where the consumer and the financial institution are on the same premises -- the disclosures should be provided the old fashioned way, on paper. To allow otherwise is to extend a golden invitation to those elements of the leasing industry whose business is to take advantage of unwitting consumers.

The bottom line is that electronic disclosures should only be allowed in situations where the transaction is truly electronic.

2. The consumer should be given the specific and optional opportunity to consent -- or to refuse -- to accept disclosures electronically. The separate and optional consent form must be electronic, and must require the consumer to do something more than simply click a few times. The disclosures in the consent form should include, at a minimum, the following information to ensure affirmative consent:

a. A description of each of the disclosures that will be provided electronically.

b. A series of questions that require the consumer to check the hardware and software capacity of the computer being used to access the electronic disclosures, to ensure that it meets the requirements of Paragraph 3.

c. The cost (see Paragraph 4 below), if any, of providing paper copies of the disclosures if the consumer is mistaken regarding the computer’s capacity to access, retain, or print the disclosures provided electronically.

The list of required provisions should also include disclosures on the cost if any of providing paper copies of the disclosures if the consumer is mistaken regarding the computer's capacity to access, retain, or print the disclosures provided electronically. (see #4 below)

Further, when a consumer agrees to have notices sent by e-mail, the financial institution should send the following notice by regular mail:

a. This is to confirm that you have given us permission to send all future notices by e-mail at the following e-mail address: _______.

b. We may be sending you very important messages by e-mail. Therefore, it is important that you check your e-mail regularly.

c. It is important that you make sure your e-mail is operating properly and you are able to received messages. If your e-mail is not working, then notify us at 1-800-XXXX, so we can send you notices by regular mail until you notify us that your e-mail is working properly again. There is no charge for your temporarily changing to regular mail notice.

d. You must notify us immediately if you change your e-mail address. Notify us at: XXXX There is no charge for changing your e-mail address.

e. You may change your mind at any time and notify us that you no longer want to receive notices by e-mail. Call us at 1-800-XX or write to us at: XXX, or e-mail us at XXX. There will be no charge for changing to regular mail or to receiving future notices by regular mail.

3. The computer being used by the consumer must have the capacity to print and/or retain in electronic form. The proposed rule requires only that the disclosure notice include a description of the hardware and software necessary to receive disclosure electronically. The issue must not be addressed simply by including a description of the hardware and software necessary in the disclosure provided to the consumer before the consumer consents to receive disclosures electronically. Instead, the disclosure regarding the provision of information electronically should lead the consumer through a series of questions which enable the consumer to actually assess this capacity.

Specific questions must be asked of the consumer regarding:

Whether the consumer is accessing the data electronically through a computer within his or her own control, and if so, does it have the necessary hardware and software to allow the consumer to access, retain and print the disclosures.

Or, if the access is from a public computer,

does this computer have the requisite hardware and software to allow the consumer to access the disclosures; and

is there a working printer attached to the computer; and

does the computer have a floppy drive which the consumer can use to download the disclosures in electronic form, and does the consumer have a disc on to which the consumer can download the disclosures.

4. 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. This is an extremely important point for many consumers, and will ease the transition for many into electronic commerce. Everyone who has ever used a computer has experienced the situation where they were not able to open, download or print an electronic file sent to them. Indeed, even consumers who are fairly knowledgeable about computer software can find themselves stymied with some electronic transmissions.

The rule in its present form does not address this critical issue. It should be amended to include a provision that if the consumer is unable to print or retain the electronic disclosures and other information provided by the financial institution, the consumer may request that the disclosures be provided in paper form. The financial institution should be required to mail the paper disclosures within three business days of the request. The EFTA disclosures provided to consumers are important. If a consumer mistakenly consents to receive disclosures electronically that the consumer cannot actually access, the consumer should be provided the opportunity to request paper copies of these disclosures.

The fee, if any, for these paper copies should be limited to a reasonable and bonafide fee. The definition of reasonable and bonafide in this context should be the lesser of i) the actual cost of printing out the paper disclosure and mailing it to the consumer, and ii) the difference between the cost of the electronic financial transaction and the same transaction with paper disclosures.

Further, requiring the financial institution to provide paper copies is the best deterrent to those financial institutions who might deliberately use the electronic disclosure format to avoid providing accessible disclosures to consumers. We know that some financial institutions (such as those engaged in pay day lending) would use any possible opportunity to prevent consumers from actually receiving their disclosures. One of the best ways of deterring this behavior is require that the financial institution provide paper copies -- at cost and no more -- to consumers who were unable to open, retain or print the electronic disclosure.

5. The disclosures must actually be delivered to the consumer’s email address with a manual reply return requested, or must be retained on the financial institution’s website for 3 years. Delivering disclosures to a consumer’s email address only works if the consumer has an email address. The financial institution should not be permitted to establish an email address for the consumer, because this would imply that the consumer may not really have access to the information at a computer which has the capacity to retain and print the disclosures. Different rules should be established for consumers who have existing email addresses and those who intend to access the information at the lessor’s website.

Delivery to an email address. In 1999, there is still a vast and significant difference between the integrity of the email system and the U.S. Postal Service. At least as an interim measure, until there have been formal findings by reputable evaluators of the reliability of the email system, some precautions are necessary to ensure that the consumer actually receives email communications. The consumer must be required to manually email back to the financial institution a reply that he has received and opened the disclosures.

Delivery through access at financial institution’s website. Presumably this option will be the most effective for consumers who do not own personal computers or have access to one through work. As of this time, over two-thirds of U.S. households do not own computers. To allow these consumers equal access to the available electronic transaction on the web, providing the information through a financial institution's website may be sufficient. The website information should be accessible only through a private password.

The financial institution should not be permitted to satisfy the EFTA requirement to provide disclosures to a consumer until the consumer has either emailed a confirmation of receipt back to the financial institution or the website information was accessed by consumer with the private password. If neither occurs, the financial institution should have the option of proceeding in one of the following three ways:

a. Revert to paper disclosures, and charge reasonable and bonafide fee for sending the paper disclosures (as defined in Paragraph 4).

b. Contact the consumer, either electronically, via telephone or in writing, to ask if the email address was correct and if the consumer still desires to proceed electronically. Or

c. Cancel the transaction.

6. When disclosures are provided to consumers through a financial institution’s website, they must be retained for the three years. This is a particularly crucial issue to provide equal access to electronic disclosures and the savings that they presumably represent for lower income people who do not have their own computers on which to retain the disclosures electronically. There is no reason for there to be any limit on the amount of time these disclosures are retained on the financial institution’s website. We know that the financial institution will be retaining an electronic record of the disclosures for the duration of the transaction. The cost, if any, of retaining the consumer’s ability to access the disclosures through the website, can only be minuscule⁹.

7. The integrity of the electronic disclosures must be assured. Whether the disclosures are given to the consumer through delivery at an email address, or through the financial institution’s website, they must be provided in a format which is reasonably assured to be tamper proof. If the disclosures are not required to be provided in a locked format, they will be useless to the consumer, should there be a dispute about the terms or format of the disclosure.

To translate the law’s requirement for a writing to the electronic arena, several assumptions about paper writings must be made explicit for the electronic medium. A paper writing is by its nature tangible, once handed to a person it will not disappear unless the person makes it disappear. The printed matter on the paper writing will not change every time someone looks at it, and the writing can be used at a later to prove its contents.

None of those assumptions apply to an electronic record. An electronic record could be provided in a format which is not retainable by the viewer. Even consumer is able to download the electronic record, it may not be printable in the same format in which it was viewed. electronic record is provided in a word processing format, the electronic record may be inadvertently changed by the consumer every time it is brought up on the screen. If this is possible the electronic record thus becomes useless to prove its contents in a court of law.

Electronic disclosures must be provided in an electronic record which is

a. accessible to the consumer to download and print;

b. in a form which is designed to be unalterable, so that the consumer can use the electronic record to prove the terms of the disclosures;

c. time and date stamped so that both the financial institution and the consumer have access to proof of the time and date the disclosures were electronically provided.

9. There must be an effective remedy for violating these rules. The failure to follow the requirements for providing disclosures electronically has the effect of preventing the consumer from actually receiving the disclosures in the mandated form. The Board needs to explicitly state that a failure to follow the electronic disclosure requirements carries the same remedy under the Electronic Funds Transfer Act as the failure to provide the disclosures in writing.

The proposed 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.

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¹ The National Consumer Law Center, Inc. (NCLC) is a nonprofit Massachusetts Corporation, founded in 1969, specializing in consumer issues, with an emphasis on consumer credit. Its primary focus and mission are the interests of low-income consumers. On a daily basis, NCLC provides legal and technical consulting and assistance on consumer law issues to legal services, government, and private attorneys representing low-income consumers across the country. NCLC publishes a series of thirteen practice treatises and annual supplements on consumer credit laws, including Truth In Lending, 3rd ed. (NCLC 1995) and Cost of Credit (NCLC 1995), as well as bimonthly newsletters on a range of topics related to consumer credit issues and low-income consumers.

² Consumers Union is the publisher of Consumer Reports.

³ Consumer Action is a California based information and advocacy organization.

⁴ The Consumer Federation of America is a nonprofit association of some 250 pro-consumer groups, with a combined membership of 50 million people. CFA was founded in 1968 to advance consumers' interests through advocacy and education.

⁵ The Consumer Law Center of the South is a non-profit, public interest organization, incorporated in Georgia in 1995. The Center's mission is to advocate for consumer protection through consumer education, legislative reform, involvement in the regulatory process and litigation and support. Professor Mark Budnitz of Georgia State School of Law is the Chairman of the Board.

⁶ The National Association of Consumer Advocates is a nationwide membership organization of advocates dedicated to seeking economic justice for consumers.

⁷ The National Consumers League, is America’s pioneer consumer organization. NCL is a private, non-profit membership organization dedicated to representing consumers.

⁸ The U.S. Public Interest Research Group is the national lobbying office for state PIRGs, which are non-profit, non-partisan consumer advocacy groups with half a million citizen members around the country.

⁹ If the Board is not convinced of the necessity of requiring that the disclosures be retained on the financial institution's website for a term of three years, then at the least the financial institution should be required to provide the electronic record to a consumer upon request. The financial institution will have these records stored electronically, and should be able to provide them to consumers at no cost at a later time.