[Title 12 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2012 Edition]
[From the U.S. Government Printing Office]



[[Page i]]

          

          Title 12

Banks and Banking


________________________

Parts 900 to 1099

                         Revised as of January 1, 2012

          Containing a codification of documents of general 
          applicability and future effect

          As of January 1, 2012
                    Published by the Office of the Federal Register 
                    National Archives and Records Administration as a 
                    Special Edition of the Federal Register

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As of January 1, 2012

Title 12, Part 900 to End

Revised as of January 1, 2011

Is Replaced by

Title 12, Parts 900 to 1099

and

Title 12, Part 1100 to End



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                            Table of Contents



                                                                    Page
  Explanation.................................................     vii

  Title 12:
          Chapter IX--Federal Housing Finance Board                  3
          Chapter X--Bureau of Consumer Financial Protection        85
  Finding Aids:
      Table of CFR Titles and Chapters........................    1131
      Alphabetical List of Agencies Appearing in the CFR......    1151
      List of CFR Sections Affected...........................    1161

[[Page vi]]





                     ----------------------------

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus,  12 CFR 900.1 refers 
                       to title 12, part 900, 
                       section 1.

                     ----------------------------

[[Page vii]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
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into 50 titles which represent broad areas subject to Federal 
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parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
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[[Page viii]]

Many agencies have begun publishing numerous OMB control numbers as 
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[[Page ix]]

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    Director,
    Office of the Federal Register.
    January 1, 2012.







[[Page xi]]



                               THIS TITLE

    Title 12--Banks and Banking is composed of nine volumes. The parts 
in these volumes are arranged in the following order: Parts 1-199, 200-
219, 220-229, 230-299, 300-499, 500-599, part 600-899, 900-1099 and 
1100-end. The first volume containing parts 1-199 is comprised of 
chapter I--Comptroller of the Currency, Department of the Treasury. The 
second, third and fourth volumes containing parts 200-299 are comprised 
of chapter II--Federal Reserve System. The fifth volume containing parts 
300-499 is comprised of chapter III--Federal Deposit Insurance 
Corporation and chapter IV--Export-Import Bank of the United States. The 
sixth volume containing parts 500-599 is comprised of chapter V--Office 
of Thrift Supervision, Department of the Treasury. The seventh volume 
containing parts 600-899 is comprised of chapter VI--Farm Credit 
Administration, chapter VII--National Credit Union Administration, 
chapter VIII--Federal Financing Bank. The eighth volume containing parts 
900-1099 is comprised of chapter IX--Federal Housing Finance Board, and 
chapter X--Bureau of Consumer Financial Protection. The ninth volume 
containing part 1100-end is comprised of chapter XI--Federal Financial 
Institutions Examination Council, chapter XIV--Farm Credit System 
Insurance Corporation, chapter XV--Department of the Treasury, chapter 
XVII--Office of Federal Housing Enterprise Oversight, Department of 
Housing and Urban Development and chapter XVIII--Community Development 
Financial Institutions Fund, Department of the Treasury. The contents of 
these volumes represent all of the current regulations codified under 
this title of the CFR as of January 1, 2012.

    For this volume, Jonn V. Lilyea was Chief Editor. The Code of 
Federal Regulations publication program is under the direction of 
Michael L. White, assisted by Ann Worley.

[[Page 1]]



                       TITLE 12--BANKS AND BANKING




                 (This book contains parts 900 to 1099)

  --------------------------------------------------------------------
                                                                    Part

chapter ix--Federal Housing Finance Board...................         900

chapter x-- Bureau of Consumer Financial Protection.........        1004

[[Page 3]]



                CHAPTER IX--FEDERAL HOUSING FINANCE BOARD




  --------------------------------------------------------------------

                    SUBCHAPTER A--GENERAL DEFINITIONS
Part                                                                Page
900             General definitions applying to all Finance 
                    Board regulations.......................           5
 SUBCHAPTER B--FEDERAL HOUSING FINANCE BOARD ORGANIZATION AND OPERATIONS
905             Description of organization and functions...           8
906             Operations..................................          12
907             Procedures..................................          13
911             Availability of unpublished information.....          22
912             Information regarding meetings of the Board 
                    of Directors of the Federal Housing 
                    Finance Board...........................          27
 SUBCHAPTER C--GOVERNANCE AND MANAGEMENT OF THE FEDERAL HOME LOAN BANKS
914             Data availability and reporting.............          33
917             Powers and responsibilities of Bank boards 
                    of directors and senior management......          33
  SUBCHAPTER D--FEDERAL HOME LOAN BANK MEMBERS AND HOUSING ASSOCIATES 
                               [RESERVED]
    SUBCHAPTER E--FEDERAL HOME LOAN BANK RISK MANAGEMENT AND CAPITAL 
                                STANDARDS
930             Definitions applying to risk management and 
                    capital regulations.....................          41
931             Federal Home Loan Bank capital stock........          42
932             Federal Home Loan Bank capital requirements.          46
933             Bank capital structure plans................          58
         SUBCHAPTER F--FEDERAL HOME LOAN BANK MISSION [RESERVED]
 SUBCHAPTER G--FEDERAL HOME LOAN BANK ASSETS AND OFF-BALANCE SHEET ITEMS
952             Community Investment Cash Advance Programs..          64

[[Page 4]]

955             Acquired member assets......................          68
       SUBCHAPTER H--FEDERAL HOME LOAN BANK LIABILITIES [RESERVED]
   SUBCHAPTER I--MISCELLANEOUS FEDERAL HOME LOAN BANK OPERATIONS AND 
                               AUTHORITIES
975             Collection, settlement, and processing of 
                    payment instruments.....................          72
977             Miscellaneous bank authorities..............          74
978             Bank requests for information...............          74
     SUBCHAPTER J--NEW FEDERAL HOME LOAN BANK ACTIVITIES [RESERVED]
               SUBCHAPTER K--OFFICE OF FINANCE [RESERVED]
                 SUBCHAPTER L--NON-BANK SYSTEM ENTITIES
995             Financing Corporation operations............          77
996             Authority for bank assistance of the 
                    Resolution Funding Corporation..........          80
997             Resolution Funding Corporation obligations 
                    of the banks............................          80
            SUBCHAPTER M--FEDERAL HOME LOAN BANK DISCLOSURES
998             Registration of Federal Home Loan Bank 
                    equity securities.......................          83

[[Page 5]]



                    SUBCHAPTER A_GENERAL DEFINITIONS





PART 900_GENERAL DEFINITIONS APPLYING TO ALL FINANCE BOARD 
REGULATIONS--Table of Contents



Sec.
900.1 Basic terms relating to the Finance Board, the Bank System and 
          related entities.
900.2 Terms relating to Bank operations, mission and supervision.
900.3 Terms relating to other entities and concepts used throughout 12 
          CFR chapter IX.

    Authority: 12 U.S.C. 1422b(a).

    Source: 67 FR 12842, Mar. 20, 2002, unless otherwise noted.



Sec. 900.1  Basic terms relating to the Finance Board, the Bank System
and related entities.

    As used throughout this chapter, the following basic terms relating 
to the Finance Board, the Bank System and related entities have the 
meanings set forth below, unless otherwise indicated in a particular 
subchapter, part, section, or paragraph:
    Act means the Federal Home Loan Bank Act, as amended (12 U.S.C. 1421 
through 1449).
    Bank, written in title case, means a Federal Home Loan Bank 
established under section 12 of the Act (12 U.S.C. 1432).
    Bank System means the Federal Home Loan Bank System, consisting of 
the 12 Banks and the Office of Finance.
    Board of Directors, written in title case, means the Board of 
Directors of the Federal Housing Finance Board; the term board of 
directors, written in lower case, has the meaning indicated in context.
    Chairperson means the Chairperson of the Board of Directors of the 
Finance Board.
    Executive Secretary means an employee within the Office of 
Management of the Finance Board who is responsible for records 
management.
    Finance Board means the Federal Housing Finance Board established by 
section 2A of the Act (12 U.S.C. 1422a).
    Financing Corporation or FICO means the Financing Corporation 
established and supervised by the Finance Board under section 21 of the 
Act (12 U.S.C. 1441) and part 995 of this chapter.
    Housing associate means an entity that has been approved as a 
housing associate pursuant to part 926 of this chapter.
    Member means an institution that has been approved for membership in 
a Bank and has purchased capital stock in the Bank in accordance with 
Sec. Sec. 925.20 or 925.24(b) of this chapter.
    Office of Finance or OF means the Office of Finance, a joint office 
of the Banks referred to in section 2B of the Act (12 U.S.C. 1422b) and 
established under part 985 of this chapter.
    Resolution Funding Corporation or REFCORP means the Resolution 
Funding Corporation established by section 21B of the Act (12 U.S.C. 
1441b) and addressed in parts 996 and 997 of this chapter.
    Secretary to the Board means employees within the Office of General 
Counsel of the Finance Board who are responsible for issues concerning 
meetings of the Board of Directors.

[67 FR 12842, Mar. 20, 2002, as amended at 68 FR 38169, June 27, 2003]



Sec. 900.2  Terms relating to Bank operations, mission and supervision.

    As used throughout this chapter, the following terms relating to 
Bank operations, mission and supervision have the meanings set forth 
below, unless otherwise indicated in a particular subchapter, part, 
section or paragraph:
    Acquired member assets or AMA means those assets that may be 
acquired by a Bank under part 955 of this chapter.
    Advance means a loan from a Bank that is:
    (1) Provided pursuant to a written agreement;
    (2) Supported by a note or other written evidence of the borrower's 
obligation; and
    (3) Fully secured by collateral in accordance with the Act and part 
950 of this chapter.
    Affordable Housing Program or AHP means the Affordable Housing 
Program, the CICA program that each Bank is required to establish 
pursuant

[[Page 6]]

to section 10(j) of the Act (12 U.S.C. 1430(j)) and part 951 of this 
chapter.
    Capital plan means the capital structure plan required for each Bank 
by section 6(b) of the Act, as amended (12 U.S.C. 1426(b)), and part 933 
of this chapter, as approved by the Finance Board, unless the context of 
the regulation refers to the capital plan prior to its approval by the 
Finance Board.
    CIP means the Community Investment Program, an advance program under 
CICA required to be offered pursuant to section 10(i) of the Act (12 
U.S.C. 1430(i)).
    Community Investment Cash Advance or CICA means any advance made 
through a program offered by a Bank under section 10 of the Act (12 
U.S.C. 1430) and parts 951 and 952 of this chapter to provide funding 
for targeted community lending and affordable housing, including 
advances made under a Bank's Rural Development Funding (RDF) program, 
offered under section 10(j)(10) of the Act (12 U.S.C. 1430(j)(10)); a 
Bank's Urban Development Funding (UDF) program, offered under section 
10(j)(10) of the Act (12 U.S.C. 1430(j)(10)); a Bank's Affordable 
Housing Program (AHP), offered under section 10(j) of the Act (12 U.S.C. 
1430(j)); a Bank's Community Investment Program (CIP), offered under 
section 10(i) of the Act (12 U.S.C. 1430(i)); or any other program 
offered by a Bank that meets the requirements of part 952 of this 
chapter.
    Community lending means providing financing for economic development 
projects for targeted beneficiaries, and, for community financial 
institutions (as defined in Sec. 925.1 of this chapter), purchasing or 
funding small business loans, small farm loans or small agri-business 
loans (as defined in Sec. 950.1 of this chapter).
    Consolidated obligation or CO means any bond, debenture, or note 
authorized under part 966 of this chapter to be issued jointly by the 
Banks pursuant to section 11(a) of the Act, as amended (12 U.S.C. 
1431(a)), or any bond or note issued by the Finance Board on behalf of 
all Banks pursuant to section 11(c) of the Act (12 U.S.C. 1431(c)), on 
which the Banks are jointly and severally liable.
    Data Reporting Manual or DRM means a manual issued by the Finance 
Board and amended from time to time containing reporting requirements 
for the Banks.
    Excess stock means that amount of a Bank's capital stock owned by a 
member or other institution in excess of that member's or other 
institution's minimum investment in capital stock required under the 
Bank's capital plan, the Act, or the Finance Board's regulations, as 
applicable.
    Financial Management Policy or FMP means the Financial Management 
Policy For The Federal Home Loan Bank System approved by the Finance 
Board pursuant to Finance Board Resolution No. 96-45 (July 3, 1996), as 
amended by Finance Board Resolution No. 96-90 (Dec. 6, 1996), Finance 
Board Resolution No. 97-05 (Jan. 14, 1997), and Finance Board Resolution 
No. 97-86 (Dec. 17, 1997).

[67 FR 12842, Mar. 20, 2002, as amended at 71 FR 35499, June 21, 2006; 
71 FR 78050, Dec. 28, 2006]



Sec. 900.3  Terms relating to other entities and concepts used 
throughout 12 CFR chapter IX.

    As used throughout this chapter, the following terms relating to 
other entities and concepts used throughout 12 CFR chapter IX have the 
meanings set forth below, unless otherwise indicated in a particular 
subchapter, part, section or paragraph:
    Appropriate Federal banking agency has the meaning set forth in 
section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. 1813(q)) 
and, for federally-insured credit unions, means the NCUA.
    Appropriate state regulator means any state officer, agency, 
supervisor or other entity that has regulatory authority over, or is 
empowered to institute enforcement action against, a particular 
institution.
    Fannie Mae means the Federal National Mortgage Association 
established under authority of the Federal National Mortgage Association 
Charter Act (12 U.S.C. 1716, et seq.).
    FDIC means the Federal Deposit Insurance Corporation.
    FRB means the Board of Governors of the Federal Reserve System.

[[Page 7]]

    Freddie Mac means the Federal Home Loan Mortgage Corporation 
established under authority of the Federal Home Loan Mortgage 
Corporation Act (12 U.S.C. 1451, et seq.).
    Generally Accepted Accounting Principles or GAAP means accounting 
principles generally accepted in the United States.
    Ginnie Mae means the Government National Mortgage Association 
established under authority of the Federal National Mortgage Association 
Charter Act (12 U.S.C. 1716, et seq.).
    GLB Act means the Gramm-Leach-Bliley Act (Pub. L. 106-102 (1999)).
    HUD means the United States Department of Housing and Urban 
Development.
    NCUA means the National Credit Union Administration.
    NRSRO means a credit rating organization regarded as a Nationally 
Recognized Statistical Rating Organization by the Securities and 
Exchange Commission.
    OCC means the Office of the Comptroller of the Currency.
    OTS means the Office of Thrift Supervision.
    SBIC means a small business investment company formed pursuant to 
section 301 of the Small Business Investment Act (15 U.S.C. 681).
    SEC means the United States Securities and Exchange Commission.
    State means a state of the United States, American Samoa, the 
Commonwealth of the Northern Mariana Islands, the District of Columbia, 
Guam, Puerto Rico, or the United States Virgin Islands.
    1934 Act means the Securities Exchange Act of 1934 (15 U.S.C. 78a et 
seq.).

[67 FR 12842, Mar. 20, 2002, as amended at 69 FR 38811, June 29, 2004]

[[Page 8]]



 SUBCHAPTER B_FEDERAL HOUSING FINANCE BOARD ORGANIZATION AND OPERATIONS





PART 905_DESCRIPTION OF ORGANIZATION AND FUNCTIONS--Table of Contents



        Subpart A_Functions and Responsibilities of Finance Board

Sec.
905.1 [Reserved]
905.2 General statement and statutory authority.
905.3 Location and business hours.
905.4 Duties of the Finance Board.

Appendix A to Subpart A of Part 905--Federal Home Loan Banks

                     Subpart B_General Organization

905.10 Board of Directors.
905.11 Office of Inspector General.
905.12 Office of Management.
905.13 Office of Supervision.
905.14 Office of General Counsel.

                         Subpart C_Miscellaneous

905.25 Forms.
905.26 Official logo and seal.
905.27 OMB control numbers assigned under the Paperwork Reduction Act.

    Authority: 5 U.S.C. 552; 12 U.S.C. 1422b(a) and 1423; 44 U.S.C. 
3507; 5 CFR 1320.5 and 1320.8.

    Source: 56 FR 67155, Dec. 30, 1991, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000.



        Subpart A_Functions and Responsibilities of Finance Board



Sec. 905.1  [Reserved]



Sec. 905.2  General statement and statutory authority.

    (a) The Finance Board is an independent, executive agency in the 
Federal Government, responsible for regulating the Bank System. It is 
funded through assessments levied upon the Banks. These funds are not 
considered Government Funds or appropriated monies. The Finance Board is 
governed by a five-member Board of Directors and administered by a full-
time staff.
    (b) The members of the Board of Directors individually are referred 
to as Directors. Other than the Office of Inspector General and the 
Office of General Counsel, the heads of the administrative units, called 
offices, also are called Directors. The head of the Office of Inspector 
General is called the Inspector General and the head of the Office of 
General Counsel is called the General Counsel.
    (c) The Finance Board administers the Act and is authorized to issue 
rules, regulations and orders affecting the Bank System. The Finance 
Board performs all such duties and responsibilities as may be required 
by statute. As required by section 302(b)(2) of the Federal National 
Mortgage Association Charter Act (12 U.S.C. 1717(b)), it also conducts a 
monthly survey of all major lenders to calculate a national average for 
interest rates on mortgages for one-family homes, on behalf of the 
Fannie Mae. As required by section 305(b) of the Federal Home Loan 
Mortgage Corporation Act (12 U.S.C. 1454(b)), it conducts a similar 
survey for the Freddie Mac.

[56 FR 67155, Dec. 30, 1991, as amended at 65 FR 8256, Feb. 18, 2000; 67 
FR 12843, Mar. 20, 2002; 68 FR 38169, June 27, 2003]



Sec. 905.3  Location and business hours.

    (a) Location. All office units of the Finance Board are located at 
1777 F Street, NW., Washington, DC 20006.
    (b) Hours of operation. The regular hours of operation of the 
Finance Board are from 8:30 a.m. to 5:30 p.m., Monday through Friday.



Sec. 905.4  Duties of the Finance Board.

    (a) Bank System. The Finance Board supervises and regulates the 
Banks and the Office of Finance. Specifically, its duties are:
    (1) To ensure that the Banks operate in a safe and sound manner;
    (2) To supervise all business operations of the Banks, which may 
include:
    (i) Prescribing conditions upon which Banks may advance funds to 
their members and housing associates;
    (ii) Prescribing rules and conditions under which a Bank may borrow 
funds,

[[Page 9]]

pay interest on those funds, or issue obligations;
    (iii) Requiring examinations of the Banks; and
    (iv) Appointing the public interest members of the boards of 
directors of the Banks;
    (3) To ensure that the Banks fulfill their housing finance and 
community lending mission;
    (4) To ensure that the Banks remain adequately capitalized; and
    (5) To ensure that the Banks are able to raise funds in the capital 
markets.
    (b) Financing Corporation. The Finance Board also oversees the 
operations of the Financing Corporation, including its issuance of 
obligations.

[67 FR 12843, Mar. 20, 2002]



    Sec. Appendix A to Subpart A of Part 905--Federal Home Loan Banks

                    Federal Home Loan Bank District 1

(Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, 
Vermont)

                    Federal Home Loan Bank of Boston

111 Huntington Avenue, 24th Floor, Boston, MA 02199-7614

                    Federal Home Loan Bank District 2

(New Jersey, New York, Puerto Rico, Virgin Islands)

                   Federal Home Loan Bank of New York

101 Park Avenue, New York, NY 10178-0599

                    Federal Home Loan Bank District 3

(Delaware, Pennsylvania, West Virginia)

                  Federal Home Loan Bank of Pittsburgh

601 Grant Street, Pittsburgh, PA 15219-4455

                    Federal Home Loan Bank District 4

(Alabama, District of Columbia, Florida, Georgia, Maryland, North 
Carolina, South Carolina, Virginia)

                    Federal Home Loan Bank of Atlanta

1475 Peachtree Street, NE., Atlanta, GA 30309

                    Federal Home Loan Bank District 5

(Kentucky, Ohio, Tennessee)

                  Federal Home Loan Bank of Cincinnati

221 East Fourth Street, Suite 1000, Cincinnati, OH 45202

                    Federal Home Loan Bank District 6

(Indiana, Michigan)

                 Federal Home Loan Bank of Indianapolis

8250 Woodfield Crossing Boulevard, Indianapolis, IN 46240

                    Federal Home Loan Bank District 7

(Illinois, Wisconsin)

                    Federal Home Loan Bank of Chicago

111 East Wacker Drive, Suite 700, Chicago, IL 60601

                    Federal Home Loan Bank District 8

(Iowa, Minnesota, Missouri, North Dakota, South Dakota)

                  Federal Home Loan Bank of Des Moines

907 Walnut Street, Des Moines, IA 50309

                    Federal Home Loan Bank District 9

(Arkansas, Louisiana, Mississippi, New Mexico, Texas)

                    Federal Home Loan Bank of Dallas

8500 Freeport Parkway South, Suite 100, Irving, TX 75063-2547

                   Federal Home Loan Bank District 10

(Colorado, Kansas, Nebraska, Oklahoma)

                    Federal Home Loan Bank of Topeka

One Security Benefit Place, Suite 100, Topeka, KS 66606-2444

                   Federal Home Loan Bank District 11

(Arizona, California, Nevada)

                 Federal Home Loan Bank of San Francisco

600 California Street, San Francisco, CA 94108

                   Federal Home Loan Bank District 12

(Alaska, American Samoa, the Commonwealth of the Northern Mariana 
Islands, Guam, Hawaii, Idaho, Montana, Oregon, Utah, Washington, 
Wyoming)

                    Federal Home Loan Bank of Seattle

1501 Fourth Avenue, 19th Floor, Seattle, WA 98101-1693

[56 FR 67155, Dec. 30, 1991, as amended at 63 FR 3455, Jan. 23, 1998; 67 
FR 12843, Mar. 20, 2002; 68 FR 38170, June 27, 2003]



                     Subpart B_General Organization

    Source: 68 FR 38170, June 27, 2003, unless otherwise noted.

[[Page 10]]



Sec. 905.10  Board of Directors.

    (a) Board of Directors--(1) General. The Bank Act vests management 
of the Finance Board in a five-member Board of Directors consisting of 
four members appointed by the President with the advice and consent of 
the Senate to serve staggered seven-year terms, and one ex-officio 
member, the Secretary of the U.S. Department of Housing and Urban 
Development. The four appointed directors must have backgrounds in 
housing finance or a demonstrated commitment to providing specialized 
housing credit and at least one appointed director must have a 
background with an organization with a two-year record of representing 
consumer or community interests on either banking services, credit 
needs, housing or financial consumer protections. Not more than three of 
the five directors may belong to the same political party.
    (2) Responsibilities. The Board of Directors is responsible for 
setting agency policy and issuing resolutions, rules, regulations, 
orders and policies as necessary.
    (b) Chairperson--(1) General. The President designates an appointed 
director as chairperson of the Board of Directors.
    (2) Responsibilities. The responsibilities of the chairperson 
include:
    (i) Presiding over the meetings of the Board of Directors;
    (ii) Effecting the overall management, functioning and organization 
of the Finance Board;
    (iii) Ensuring effective coordination and communication with the 
Congress and interest groups on legislative issues pertaining to the 
Finance Board, the Bank System, and the Financing Corporation; and
    (iv) Disseminating information about the Finance Board to other 
government agencies, the public and the news media.



Sec. 905.11  Office of Inspector General.

    (a) General. The Inspector General reports directly to the 
chairperson of the Board of Directors and is subject to, and operates 
under, the provisions of the Inspector General Act of 1978, as amended 
(5 U.S.C. app. 3).
    (b) Responsibilities. The responsibilities of the Office of 
Inspector General under the Inspector General Act include:
    (1) Conducting and supervising audits and investigations relating to 
the programs and operations of the Finance Board;
    (2) Providing leadership and coordination, and recommending policies 
for Finance Board activities designed to promote the economy, efficiency 
and effectiveness of programs and operations, and preventing and 
detecting fraud and abuse in programs and operations; and
    (3) Providing a means for keeping the Board of Directors, agency 
managers and the Congress fully and currently informed regarding on-
going investigations and, if needed, the necessity for and progress of 
corrective action.



Sec. 905.12  Office of Management.

    (a) General. The Office of Management is the principal advisor to 
the chairperson and the Board of Directors on management and 
organizational policies and is responsible for the Finance Board's 
administrative management programs.
    (b) Responsibilities. The responsibilities of the Office of 
Management include:
    (1) Developing and managing agency policies and procedures governing 
employment and personnel action requirements, compensation and agency 
payroll requirements, travel, awards, insurance, retirement benefits and 
other employee benefits;
    (2) Facilities and property management and supply requirements;
    (3) Procurement and contracting programs;
    (4) Agency financial management, budgeting and accounting;
    (5) Records management; and
    (6) Coordinating the design, programming, operation and maintenance 
of the Finance Board's technology and information systems.



Sec. 905.13  Office of Supervision.

    (a) General. The Office of Supervision is responsible for conducting 
on-site examinations of the twelve Federal

[[Page 11]]

Home Loan Banks and the Office of Finance and conducting off-site 
monitoring and analysis. The Office of Supervision also is responsible 
for providing expert policy advice and analyzing and reporting on 
economic, housing finance, community investment and competitive 
environments in which the Bank System and its members operate.
    (b) Responsibilities. The responsibilities of the Office of 
Supervision include:
    (1) Conducting examinations, at least annually, of the Banks, the 
Office of Finance and the Financing Corporation and resolving 
outstanding examination issues;
    (2) Monitoring Bank and Bank System market, credit and operational 
risks;
    (3) Analyzing the financial performance of the Banks;
    (4) Preparing the Monthly Survey of Rates and Terms of Conventional 
One-Family Nonfarm Mortgage Loans (MIRS) and determining the conforming 
loan limit for Federal National Mortgage Association (Fannie Mae) and 
Federal Home Loan Mortgage Corporation (Freddie Mac) purchases and 
guarantees;
    (5) Analyzing the Banks' performance and policy issues arising under 
the Affordable Housing Program and the Community Investment Program; and
    (6) Collecting and analyzing data on the housing and community and 
economic development activities of the Banks.



Sec. 905.14  Office of General Counsel.

    (a) General. The General Counsel is the chief legal officer of the 
Finance Board and is responsible for advising the Board of Directors, 
the chairperson and other Finance Board officials on interpretations of 
law, regulation and policy.
    (b) Responsibilities. The responsibilities of the Office of General 
Counsel include:
    (1) Preparing all legal documents on behalf of the Finance Board 
such as opinions, regulations and memoranda of law;
    (2) Representing the Finance Board in all administrative 
adjudicatory proceedings before the Board of Directors and in all other 
administrative matters involving the agency;
    (3) Representing the Finance Board in judicial proceedings involving 
the agency's supervisory or regulatory authority over the Federal Home 
Loan Banks;
    (4) Administering the Finance Board's Ethics, Freedom of Information 
Act, Privacy Act, Paperwork Reduction Act, and Government in the 
Sunshine Act programs; and
    (5) Secretary to the Board functions.



                         Subpart C_Miscellaneous



Sec. 905.25  Forms.

    The following forms are available at the Finance Board headquarters 
facility and shall be used for the purpose indicated:

                                  Form

10-91--Monthly Survey of Rates and Terms on Conventional 1 Family 
          Nonfarm Mortgage Loans.
9102--Certificate of Nomination, Election of Federal Home Loan Bank 
          Directors.
9103--Election Ballot, Election of Federal Home Loan Bank Directors.
A-1--Appointive Director Candidates--Personal Certification and 
          Disclosure Form.
E-1--Elective Director Nominees--Personal Certification and Disclosure 
          Form.
90-T04--Local Travel Claim.

[60 FR 49199, Sept. 22, 1995, as amended at 63 FR 65687, Nov. 30, 1998; 
65 FR 8257, Feb. 18, 2000. Redesignated and amended at 67 FR 12843, Mar. 
20, 2002]



Sec. 905.26  Official logo and seal.

    This section describes and displays the logo adopted by the Board of 
Directors as the official symbol representing the Finance Board. It is 
displayed on correspondence and selected documents. This logo also 
serves as the official seal used to certify and authenticate official 
documents of the Board of Directors.
    (a) Description. The logo is a disc with its center consisting of 
three polygons arranged in an irregular line partially overlapping--each 
polygon drawn in a manner resembling a silhouette of a pitched roof 
house and with distinctive eaves under its roof--encircled by a 
designation scroll having an outer and inner border of plain heavy lines 
and containing the words ``FEDERAL

[[Page 12]]

HOUSING FINANCE BOARD'' in capital letters with serifs, with two mullets 
on the extreme left and right of the scroll.
    (b) Display. The Finance Board's official seal and logo appears 
below:
[GRAPHIC] [TIFF OMITTED] TR20MR02.004


[67 FR 12843, Mar. 20, 2002]



Sec. 905.27  OMB control numbers assigned under the Paperwork Reduction
Act.

    (a) Purpose. This section collects and displays the control numbers 
assigned to information collection requirements contained in Finance 
Board regulations by the Office of Management and Budget (OMB) under the 
Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35) and OMB 
regulations (5 CFR 1320.5 and 1320.8). The Finance Board may not sponsor 
or conduct, and a person is not required to respond to, an information 
collection unless the agency displays a currently valid OMB control 
number.
    (b) Display.

------------------------------------------------------------------------
    12 CFR part or section where          OMB
      identified and  described       control No.     Expiration date
------------------------------------------------------------------------
906.5...............................    3069-0001  July 2007.
915.3...............................    3069-0002  Nov. 2007.
915.4...............................    3069-0002  Nov. 2007.
915.5...............................    3069-0002  Nov. 2007.
915.6...............................    3069-0002  Nov. 2007.
915.7...............................    3069-0002  Nov. 2007.
915.8...............................    3069-0002  Nov. 2007.
915.10..............................    3069-0002  Nov. 2007.
915.12..............................    3069-0002  Nov. 2007.
925.2...............................    3069-0004  May 2007.
925.3...............................    3069-0004  May 2007.
925.5...............................    3069-0004  May 2007.
925.6...............................    3069-0004  May 2007.
925.7...............................    3069-0004  May 2007.
925.8...............................    3069-0004  May 2007.
925.9...............................    3069-0004  May 2007.
925.11..............................    3069-0004  May 2007.
925.12..............................    3069-0004  May 2007.
925.13..............................    3069-0004  May 2007.
925.15..............................    3069-0004  May 2007.
925.16..............................    3069-0004  May 2007.
925.17..............................    3069-0004  May 2007.
925.18..............................    3069-0004  May 2007.
925.22..............................    3069-0004  May 2007.
925.24..............................    3069-0004  May 2007.
925.26..............................    3069-0004  May 2007.
925.31..............................    3069-0004  May 2007.
926.1...............................    3069-0005  Nov. 2005.
926.2...............................    3069-0005  Nov. 2005.
926.3...............................    3069-0005  Nov. 2005.
926.4...............................    3069-0005  Nov. 2005.
926.5...............................    3069-0005  Nov. 2005.
926.6...............................    3069-0005  Nov. 2005.
931.3...............................    3069-0059  Feb. 2007.
931.7...............................    3069-0004  May 2007.
933.2...............................    3069-0059  Feb. 2007.
944.2...............................    3069-0003  Feb. 2006.
944.3...............................    3069-0003  Feb. 2006.
944.4...............................    3069-0003  Feb. 2006.
944.5...............................    3069-0003  Feb. 2006.
950.17..............................    3069-0005  Nov. 2005.
951.1...............................    3069-0006  July 2007.
951.3...............................    3069-0006  July 2007.
951.4...............................    3069-0006  July 2007.
951.6...............................    3069-0006  July 2007.
951.7...............................    3069-0006  July 2007.
951.8...............................    3069-0006  July 2007.
951.10..............................    3069-0006  July 2007.
951.11..............................    3069-0006  July 2007.
951.13..............................    3069-0006  July 2007.
951.15..............................    3069-0006  July 2007.
955.4...............................    3069-0058  Mar. 2007.
------------------------------------------------------------------------


[70 FR 9508, Feb. 28, 2005]



PART 906_OPERATIONS--Table of Contents



Subpart A [Reserved]

              Subpart B_Monthly Interest Rate Survey (MIRS)

Sec.
906.5 Monthly interest rate survey.

Subpart C [Reserved]

    Authority: 12 U.S.C. 4516.

    Source: 70 FR 9509, Feb. 28, 2005, unless otherwise noted.

Subpart A [Reserved]



              Subpart B_Monthly Interest Rate Survey (MIRS)



Sec. 906.5  Monthly interest rate survey.

    The Finance Board conducts its Monthly Survey of Rates and Terms on 
Conventional One-Family Non-farm Mortgage Loans in the following manner:

[[Page 13]]

    (a) Initial survey. Each month, the Finance Board samples savings 
institutions, commercial banks, and mortgage loan companies, and asks 
them to report the terms and conditions on all conventional mortgages 
(i.e., those not federally insured or guaranteed) used to purchase 
single-family homes that each such lender closes during the last five 
working days of the month. In most cases, the information is reported 
electronically in a format similar to Finance Board Form FHFB 10-91. The 
initial weights are based on lender type and lender size. The data also 
is weighted so that the pattern of weighted responses matches the actual 
pattern of mortgage originations by lender type and by region. The 
Finance Board tabulates the data and publishes standard data tables late 
in the following month.
    (b) Adjustable-rate mortgage index. The weighted data, tabulated and 
published pursuant to paragraph (a) of this section, is used to compile 
the Finance Board's adjustable-rate mortgage index, entitled the 
``National Average Contract Mortgage Rate for the Purchase of Previously 
Occupied Homes by Combined Lenders.'' This index is the successor to the 
index maintained by the former Federal Home Loan Bank Board and is used 
for determining the movement of the interest rate on renegotiable-rate 
mortgages and on some other adjustable-rate mortgages.

Subpart C [Reserved]



PART 907_PROCEDURES--Table of Contents



                          Subpart A_Definitions

Sec.
907.1 Definitions.

    Subpart B_Waivers, Approvals, No-Action Letters, and Regulatory 
                             Interpretations

907.2 Waivers.
907.3 Approvals.
907.4 No-Action Letters.
907.5 Regulatory Interpretations.
907.6 Submission requirements.
907.7 Issuance of Waivers, Approvals, No-Action Letters, and Regulatory 
          Interpretations.

 Subpart C_Case-by-Case Determinations; Review of Disputed Supervisory 
                             Determinations

907.8 Case-by-Case Determinations.
907.9 [Reserved]
907.10 Petitions.
907.11 Requests to Intervene.
907.12 Finance Board procedures.
907.13 Consideration and Final Decisions.
907.14 Meetings of the Board of Directors to consider Petitions.
907.15 General provisions.
907.16 Rules of practice.

    Authority: 12 U.S.C. 1422b(a)(1).

    Source: 64 FR 30883, June 9, 1999, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000.

    Editorial Note: Nomenclature changes to part 907 appear at 67 FR 
12844, Mar. 20, 2002.



                          Subpart A_Definitions



Sec. 907.1  Definitions.

    As used in this part:
    Approval means a written statement issued to a Bank or the Office of 
Finance approving a transaction, activity, or item that requires Finance 
Board approval under the Act or a Finance Board rule, regulation, 
policy, or order.
    Case-by-Case Determination means a Final Decision concerning any 
matter that requires a determination, finding, or approval by the Board 
of Directors under the Act or Finance Board regulations, for which no 
controlling statutory, regulatory, or other Finance Board standard 
previously has been established, and that, in the judgment of the Board 
of Directors, is best resolved on a case-by-case basis by a ruling 
applicable only to the Petitioner and any Intervenor, and not by 
adoption of a rule of general applicability.
    Final Decision means a decision rendered by the Board of Directors 
on issues raised in a Petition or Request to Intervene that have been 
accepted for consideration.
    Intervenor means a Bank, Member, or other entity that has been 
granted leave to intervene in the consideration of a Petition by the 
Board of Directors.

[[Page 14]]

    Managing Director means the Managing Director of the Finance Board.
    No-Action Letter means a written statement issued to a Bank or the 
Office of Finance providing that Finance Board staff will not recommend 
supervisory or other action to the Board of Directors for failure to 
comply with a specific provision of the Act or a Finance Board rule, 
regulation, policy, or order, if a requester undertakes a proposed 
transaction or activity.
    Party means a Petitioner, an Intervenor, or the Finance Board.
    Petition means a Petition for Case-by-Case Determination or a 
Petition for Review of a Disputed Supervisory Determination.
    Petitioner means the Office of Finance or a Bank that has filed a 
Petition.
    Regulatory Interpretation means written guidance issued by Finance 
Board staff with respect to application of the Act or a Finance Board 
rule, regulation, policy, or order to a proposed transaction or 
activity.
    Requester means an entity or person that has submitted an 
application for a Waiver or Approval or a request for a No-Action Letter 
or Regulatory Interpretation.
    Supervisory determination means a Finance Board finding in a report 
of examination, order, or directive, or a Finance Board order or 
directive concerning safety and soundness or compliance matters that 
requires mandatory action by a Bank or the Office of Finance.
    Waiver means a written statement issued to a Bank, a Member, or the 
Office of Finance that waives a provision, restriction, or requirement 
of a Finance Board rule, regulation, policy, or order, or a required 
submission of information, not otherwise required by law, in connection 
with a particular transaction or activity.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000; 67 
FR 12844, Mar. 20, 2002]



    Subpart B_Waivers, Approvals, No-Action Letters, and Regulatory 
                             Interpretations



Sec. 907.2  Waivers.

    (a) Authority. The Board of Directors reserves the right, in its 
discretion and in connection with a particular transaction or activity, 
to waive any provision, restriction, or requirement of this chapter, or 
any required submission of information, not otherwise required by law, 
if such waiver is not inconsistent with the law and does not adversely 
affect any substantial existing rights, upon a determination that 
application of the provision, restriction, or requirement would 
adversely affect achievement of the purposes of the Act, or upon a 
showing of good cause.
    (b) Application. A Bank, a Member, or the Office of Finance may 
apply for a Waiver in accordance with Sec. 907.6.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.3  Approvals.

    (a) Application. A Bank or the Office of Finance may apply for an 
Approval of any transaction, activity, or item that requires Finance 
Board approval under the Act or a Finance Board rule, regulation, 
policy, or order in accordance with Sec. 907.6, unless alternative 
application procedures are prescribed by the Act or a Finance Board 
rule, regulation, policy, or order for the transaction, activity, or 
item at issue.
    (b) Reservation. The Finance Board reserves the right, in its 
discretion, to prescribe additional or alternative procedures for any 
application for Approval of a transaction, activity, or item.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.4  No-Action Letters.

    (a) Authority. Finance Board staff, in its discretion, may issue a 
No-Action Letter to a Bank or the Office of Finance stating that staff 
will not recommend supervisory or other action to the Board of Directors 
for failure to comply with a specific provision of the

[[Page 15]]

Act or a Finance Board rule, regulation, policy, or order, if a 
requester undertakes a proposed transaction or activity. The Board of 
Directors may modify or supersede a No-Action Letter.
    (b) Requests. A Bank or the Office of Finance may request a No-
Action Letter in accordance with Sec. 907.6.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.5  Regulatory Interpretations.

    (a) Authority. Finance Board staff, in its discretion, may issue a 
Regulatory Interpretation to a Bank, a Member, an official of a Bank or 
Member, the Office of Finance, or any other entity or person, providing 
guidance with respect to application of the Act or a Finance Board rule, 
regulation, policy, or order to a proposed transaction or activity. The 
Board of Directors may modify or supersede a Regulatory Interpretation.
    (b) Requests. A Bank, a Member, an official of a Bank or Member, the 
Office of Finance, or any other entity or person may request a 
Regulatory Interpretation in accordance with Sec. 907.6.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.6  Submission requirements.

    Applications for a Waiver or Approval and requests for a No-Action 
Letter or Regulatory Interpretation shall comply with the following 
requirements:
    (a) Filing. Each application or request shall be in writing. The 
original and three copies shall be filed with the Secretary to the 
Board, Federal Housing Finance Board, 1777 F Street NW., Washington, DC 
20006.
    (b) Authorization--(1) Waivers and Approvals. Applications for 
Waivers and Approvals shall be signed by an official with authority to 
sign such applications on behalf of the requester. Applications for 
Waivers and Approvals from a Bank or the Office of Finance shall be 
accompanied by a resolution of the board of directors of the Bank or the 
Office of Finance concurring in the substance and authorizing the filing 
of the application.
    (2) Requests for No-Action Letters. The president of the Bank making 
a Request for a No-Action Letter shall sign the Request. Requests for a 
No-Action Letter from the Office of Finance shall be signed by the 
chairperson of the board of directors of the Office of Finance.
    (3) Requests for Regulatory Interpretations. The requester or an 
authorized representative of the requester shall sign a request for a 
Regulatory Interpretation.
    (c) Information requirements. Each application or request shall 
contain:
    (1) The name of the requester, and the name, title, address, 
telephone number, and electronic mail address, if any, of the official 
filing the application or request on its behalf;
    (2) The name, address, telephone number, and electronic mail 
address, if any, of a contact person from whom Finance Board staff may 
seek additional information if necessary;
    (3) The section numbers of the particular provisions of the Act or 
Finance Board rules, regulations, policies, or orders to which the 
application or request relates;
    (4) Identification of the determination or relief requested, 
including any alternative relief requested if the primary relief is 
denied, and a clear statement of why such relief is needed;
    (5) A statement of the particular facts and circumstances giving 
rise to the application or request and identifying all relevant legal 
and factual issues;
    (6) References to all relevant authorities, including the Act, 
Finance Board rules, regulations, policies, and orders, judicial 
decisions, administrative decisions, relevant statutory interpretations, 
and policy statements;
    (7) References to any Waivers, No-Action Letters, Approvals, or 
Regulatory Interpretations issued to the requester in the past in 
response to circumstances similar to those surrounding the request or 
application;
    (8) For any application or request involving interpretation of the 
Act or Finance Board regulations, a reasoned opinion of counsel 
supporting the relief or interpretation sought and distinguishing any 
adverse authority;

[[Page 16]]

    (9) Any non-duplicative, relevant supporting documentation; and
    (10) A certification by a person with knowledge of the facts that 
the representations made in the application or request are accurate and 
complete. The following form of certification is sufficient for this 
purpose: ``I hereby certify that the statements contained in the 
submission are true and complete to the best of my knowledge. [Name and 
Title].''
    (d) Waiver of requirements. The Managing Director may waive any 
requirement of this section for good cause. The Managing Director shall 
provide prompt notice of any such waiver to the Board of Directors. The 
Board of Directors may overrule any waiver granted by the Managing 
Director under this paragraph.
    (e) Withdrawal. Once filed, an application or request may be 
withdrawn only upon written request. The Finance Board will not consider 
a request for withdrawal after transmission by the Secretary to the 
Board to the requester of a response in final form.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000; 67 
FR 12844, Mar. 20, 2002]



Sec. 907.7  Issuance of Waivers, Approvals, No-Action Letters, and
Regulatory Interpretations.

    (a) Board of Directors review. At least three business days prior to 
issuance to the requester, the Secretary to the Board shall transmit 
each Approval, No-Action Letter, or Regulatory Interpretation issued by 
the Chairperson or Finance Board staff to the Board of Directors for 
review.
    (b) Issuance and effectiveness. A Waiver, Approval, No-Action 
Letter, or Regulatory Interpretation is not effective until the 
Secretary to the Board has transmitted it in final form to the 
requester.
    (c) Abbreviated form. The Finance Board may respond to an 
application or request in an abbreviated form, consisting of a concise 
statement of the nature of the response, without restatement of the 
underlying facts.



 Subpart C_Case-by-Case Determinations; Review of Disputed Supervisory 
                             Determinations



Sec. 907.8  Case-by-Case Determinations.

    (a) Petition for Case-by-Case Determination. A Bank or the Office of 
Finance may seek a Case-by-Case Determination concerning any matter that 
may require a determination, finding or approval under the Act or 
Finance Board regulations by the Board of Directors, and for which no 
controlling statutory, regulatory or other Finance Board standard 
previously has been established. The Office of Finance or a Bank seeking 
a Case-by-Case Determination shall file a Petition for Case-by-Case 
Determination in accordance with Sec. 907.10.
    (b) Intervention. A Member, a Bank, or the Office of Finance may 
file a Request to Intervene in the consideration of the Petition in 
accordance with Sec. 907.11 if it believes its rights may be affected.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.9  [Reserved]



Sec. 907.10  Petitions.

    Each Petition brought pursuant to this subpart shall comply with the 
following requirements:
    (a) Filing. The Petition shall be in writing. The original and three 
copies shall be filed with the Secretary to the Board, Federal Housing 
Finance Board, 1777 F Street NW., Washington, DC 20006.
    (b) Information requirements. Each Petition shall contain:
    (1) The name of the Petitioner, and the name, title, address, 
telephone number, and electronic mail address, if any, of the official 
filing the Petition on its behalf;
    (2) The name, address, telephone number, and electronic mail 
address, if any, of a contact person from whom Finance Board staff may 
seek additional information if necessary;
    (3) The section numbers of the particular provisions of the Act or 
Finance Board rules, regulations, policies, or orders to which the 
Petition relates, and, if the Petition is for Review

[[Page 17]]

of a Disputed Supervisory Determination, identification of the disputed 
Supervisory Determination;
    (4) Identification of the determination or relief requested, 
including any alternative relief requested if the primary relief is 
denied, and a clear statement of why such relief is needed;
    (5) A statement of the particular facts and circumstances giving 
rise to the Petition and identifying all relevant legal and factual 
issues;
    (6) A summary of any steps taken to date by the Petitioner to 
address or resolve the dispute or issue; or, in cases involving safety 
and soundness or compliance issues, a summary of any actions taken by 
the Petitioner in the interim to implement corrective action;
    (7) The Petitioner's argument in support of its position, including 
citation to any supporting legal opinions, policy statements, or other 
relevant precedent and supporting documentation, if any;
    (8) References to all relevant authorities, including the Act, 
Finance Board rules, regulations, policies, and orders, judicial 
decisions, administrative decisions, relevant statutory interpretations, 
and policy statements;
    (9) A reasoned opinion of counsel supporting the relief or 
interpretation sought and distinguishing any adverse authority;
    (10) Any non-duplicative, relevant supporting documentation; and
    (11) A certification by a person with knowledge of the facts that 
the representations made in the Petition are accurate and complete. The 
following form of certification is sufficient for this purpose: ``I 
hereby certify that the statements contained in the Petition are true 
and complete to the best of my knowledge. [Name and Title].''
    (c) Authorization. Each Petition shall be accompanied by a 
resolution of the Petitioner's board of directors concurring in the 
substance and authorizing the filing of the Petition.
    (d) Request to Appear. The Petition may contain a request that staff 
or an agent of the Petitioner be permitted to make a personal appearance 
before the Board of Directors at any meeting convened to consider the 
Petition pursuant to these procedures. A statement of the reasons a 
written presentation would not suffice shall accompany a Request to 
Appear. The statement shall specifically:
    (1) Identify any questions of fact that are in dispute;
    (2) Summarize the evidence that would be presented at the meeting; 
and
    (3) Identify any proposed witnesses, and state the substance of 
their anticipated testimony.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.11  Requests to Intervene.

    (a) Filing--(1) Date. Any Request to Intervene in consideration of a 
Petition under this subpart shall be in writing and shall be filed with 
the Secretary to the Board within 45 days from the date the Petition is 
filed.
    (2) Information requirements. A Request to Intervene shall include 
the information required by Sec. 907.10(b), where applicable, and a 
concise statement of the position and interest of the Intervenor and the 
grounds for the proposed intervention.
    (3) Authorization. If the entity requesting intervention is a Bank 
or the Office of Finance, the Request to Intervene shall be accompanied 
by a resolution of the Petitioner's board of directors concurring in the 
substance and authorizing the filing of the Request. If the entity 
requesting intervention is not a Bank or the Office of Finance, the 
Request to Intervene shall be signed by an official of the entity with 
authority to authorize the filing of the Request, and shall include a 
statement describing such authority.
    (4) Request to Appear. A Request to Intervene may include a Request 
to Appear before the Board of Directors in any meeting conducted under 
these procedures to consider a Petition. A Request to Appear shall be 
accompanied by a statement containing the information required by Sec. 
907.10(d), and, in addition, setting forth the likely impact that 
intervention will have on the expeditious progress of the meeting. A 
Request to Appear shall be filed with the Secretary to the Board either 
with the Request to Intervene or at least 20 days prior to the meeting 
scheduled to consider the Petition.
    (5) Intervenor is bound. Any Request to Intervene shall include a 
statement

[[Page 18]]

that, if such leave to intervene is granted, the Intervenor shall be 
bound expressly by the Final Decision of the Board of Directors, as 
described in Sec. 907.13(b), subject only to judicial review or as 
otherwise provided by law.
    (b) Grounds for approval. The Managing Director may grant leave to 
intervene if the entity requesting intervention has complied with 
paragraph (a) of this section and, in the judgment of Managing Director:
    (1) The presence of the entity requesting intervention would not 
unduly prolong or otherwise prejudice the adjudication of the rights of 
the original parties; and
    (2) The entity requesting intervention may be adversely affected by 
a Final Decision on the Petition.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.12  Finance Board procedures.

    (a) Notice of Receipt of Petition or Request to Intervene. No later 
than three business days following receipt of a Petition or Request to 
Intervene, the Secretary to the Board shall transmit a written Notice of 
Receipt to the Petitioner or Intervenor. In the case of a Petition for 
Case-by-Case Determination, the Finance Board shall promptly publish a 
notice of receipt of Petition, including a brief summary of the issue(s) 
involved, in the Federal Register.
    (b) Transmittal of filings. The Secretary to the Board shall 
promptly transmit copies of any Petition, Request to Intervene, or other 
filing under this subpart to the Board of Directors and all other 
parties to the filing.
    (c) Opportunity to cure defects. The Managing Director shall afford 
the Petitioner or Intervenor a reasonable opportunity to cure any 
failure to comply with the requirements of Sec. 907.10.
    (d) Information request. The Managing Director may request 
additional information from the Petitioner or Intervenor. No later than 
20 calendar days after the date of a request under this paragraph, the 
Petitioner shall provide to the Secretary to the Board all information 
requested.
    (e) Supplemental information. Upon good cause shown, the Managing 
Director may grant permission to a Petitioner or Intervenor to submit 
supplemental written information pertaining to the Petition or Request 
to Intervene.
    (f) Consolidation and severance--(1) Consolidation. The Managing 
Director may consolidate any or all matters at issue in two or more 
meetings on Petitions where:
    (i) There exist common parties or common questions of fact or law;
    (ii) Consolidation would expedite and simplify consideration of the 
issues; and
    (iii) Consolidation would not adversely affect the rights of parties 
engaged in otherwise separate proceedings.
    (2) Severance. The Managing Director may order any meetings and 
issues severed with respect to any or all parties or issues.
    (g) Notice of Board Consideration. Within 30 calendar days of 
receipt of a Petition deemed by the Managing Director to be in 
compliance with the requirements of Sec. 907.10, or, if the Petition 
has been the subject of a request under paragraph (d) of this section, 
within 30 calendar days of receipt of a response from the Petitioner 
deemed by the Managing Director to complete the information necessary 
for the Board of Directors to consider the Petition, the Managing 
Director, after consultation with the Board of Directors, through the 
Secretary to the Board, shall provide all parties with a Notice of Board 
Consideration containing the following information:
    (1) Identification of the issues accepted for consideration;
    (2) Any decision to consolidate or sever pursuant to paragraph (f) 
of this section;
    (3) Whether the Petition will be considered by the Board of 
Directors on the written record pursuant to Sec. 907.13(a)(1), or at a 
meeting pursuant to Sec. 907.13(a)(2); and
    (4) If the Petition will be considered by the Board of Directors at 
a meeting:
    (i) The date, time and place of the meeting; and

[[Page 19]]

    (ii) A decision as to any Request to Appear filed pursuant to 
Sec. Sec. 907.10(d) or 907.11(a)(4).

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.13  Consideration and Final Decisions.

    (a) Consideration by Board of Directors. The Board of Directors may 
consider a Petition and render a decision:
    (1) Solely on the basis of the written record; or
    (2) At a regularly scheduled meeting or a meeting convened 
specifically for the purpose of considering the Petition. Consideration 
of a Petition at a meeting shall be governed by the procedures described 
in Sec. 907.14.
    (b) Final Decision. The Board of Directors shall render a Final 
Decision on the issue(s) presented in a Petition or Request to Intervene 
that has been accepted for consideration, based upon consideration of 
the entire record of the proceeding. The terms and conditions of the 
Final Decision shall bind the parties as to any issue(s) presented in 
the Petition or Request to Intervene and decided by the Board of 
Directors. The decision of the Board of Directors is a final decision 
for purposes of obtaining judicial review or as otherwise provided by 
law.
    (c) Time periods. Subject to extension by such additional time as 
may reasonably be required, the Board of Directors shall render a Final 
Decision within 120 calendar days of the date the Petition is received 
in a form deemed by the Managing Director to be in compliance with the 
requirements of Sec. 907.10 or, if the Petition has been the subject of 
a request under Sec. 907.12(d), within 120 calendar days of receipt of 
a response from the Petitioner deemed by the Managing Director to 
complete the information necessary for the Board of Directors to 
consider the Petition.
    (d) Transmittal of Final Decision. The Secretary to the Board shall 
transmit the Final Decision of the Board of Directors to all parties to 
the submission.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.14  Meetings of the Board of Directors to consider Petitions.

    (a) Full and fair opportunity to be heard. Any meeting of the Board 
of Directors to consider a Petition shall be conducted in a manner that 
provides the parties a full and fair opportunity to be heard on the 
issues accepted for consideration. Any such meeting shall be conducted 
so as to permit an expeditious presentation of such issues.
    (b) Participation in meeting. (1) The presence of a quorum of the 
Board if Directors is required to conduct a meeting under this section. 
Members of the Board of Directors are deemed present if they appear in 
person or by telephone.
    (2) An act of the Board of Directors requires the vote of a majority 
of the members of the Board of Directors voting at a meeting at which a 
quorum of the Board of Directors is present.
    (3) A Final Decision may be reached by a vote of the Board of 
Directors after the meeting at which the Petition has been considered. 
Only those members of the Board of Directors present at the meeting at 
which the Petition was considered may vote on issues presented in the 
Petition and accepted for consideration. A vote of the majority of the 
members of the Board of Directors eligible to vote and voting shall be 
an act of the Board of Directors.
    (c) Chairperson--(1) Presiding officer. The Chairperson, or a member 
of the Board of Directors designated by the Chairperson, shall preside 
over a meeting of the Board of Directors convened under this section.
    (2) Authority of the Chairperson. The Chairperson shall have all 
powers and discretion necessary to conduct the meeting in a fair and 
impartial manner, to avoid unnecessary delay, to regulate the course of 
the meeting and the conduct of the parties and their counsel, and to 
discharge the duties of a presiding officer.
    (3) Board of Directors may overrule the Chairperson. Any member of 
the Board of Directors may, by motion, challenge any action, finding, or 
determination made by the Chairperson in the course of the meeting, and 
the Board of Directors, by majority vote, may overrule any action, 
finding or determination of the Chairperson.

[[Page 20]]

    (d) Meeting may be closed. A party may request that the meeting, or 
portion thereof, be closed to public observation. A request to close a 
meeting shall be processed in accordance with the requirements of the 
Government in the Sunshine Act (5 U.S.C. 552b) and the Finance Board's 
implementing regulation (12 CFR part 912).
    (e) Location of meeting. Unless otherwise specified, all meetings of 
the Board of Directors will be held in the Board Room of the Finance 
Board at 1777 F Street, NW., Washington, DC, at the time specified in 
the notice of meeting issued pursuant to 12 CFR 912.6.
    (f) Presentation of issues--(1) Stipulations. Subject to the 
Chairperson's discretion, the parties may agree to stipulations of law 
or fact, including stipulations as to the admissibility of exhibits, and 
present such stipulations at the meeting. Stipulations shall be made a 
part of the record of the proceeding.
    (2) Order of presentation. The Chairperson shall determine the order 
of presentation of the issues, testimony of any witnesses, presentation 
of any other information or document, and all other procedural matters 
at the meeting.
    (g) Record. The meeting shall be recorded and transcribed. 
Transcripts of the proceedings shall be governed by 12 CFR 912.5(c). The 
Petition and all supporting documentation shall be made a part of the 
record, unless otherwise determined by the Chairperson. The Chairperson 
may order the record corrected, upon motion to correct, upon stipulation 
of the parties, or at the Chairperson's discretion.
    (h) Admissibility of documents and testimony. (1) The Chairperson 
has discretion to admit and make a part of the record documents and 
testimony that are relevant, material, and reliable, and may elect not 
to admit documents and testimony that are privileged, unduly 
repetitious, or of little probative value.
    (2) The Board of Directors shall give such weight to documents and 
testimony admitted and made part of the record as it may deem reasonable 
and appropriate.
    (3) The Chairperson may admit and make a part of the record, in lieu 
of oral testimony, statements of fact or opinion prepared by a witness. 
The admissibility of the information contained in the statement shall be 
subject to the same rules as if the testimony were provided orally.
    (i) Official notice. All matters officially noticed by the 
Chairperson shall appear on the record.
    (j) Exhibits and documents--(1) Copies. A legible duplicate copy of 
a document shall be admissible to the same extent as the original.
    (2) Exhibits. Witnesses may use existing or newly created charts, 
exhibits, calendars, calculations, outlines, or other graphic materials 
to summarize, illustrate, or simplify the presentation of testimony. 
Subject to the Chairperson's discretion, such materials may be used with 
or without being admitted into the record.
    (3) Identification. All exhibits offered into the record shall be 
numbered sequentially and marked with a designation identifying the 
sponsor. The original of each exhibit offered into the record or marked 
for identification shall be retained in the record of the meeting, 
unless the Chairperson permits substitution of a copy for the original.
    (4) Exchange of Exhibits. One copy of each exhibit offered into the 
record shall be furnished to each of the parties and to each member of 
the Board of Directors. If the Chairperson does not fix a time for the 
exchange of exhibits, the parties shall exchange copies of proposed 
exhibits at the earliest practicable time before the commencement of the 
meeting to consider the Petition. Parties are not required to exchange 
exhibits submitted as rebuttal information before the meeting commences 
if submission of the exhibits is not reasonably certain at that time.
    (5) Authenticity. The authenticity of all documents submitted or 
exchanged as proposed exhibits prior to the meeting shall be admitted 
unless written objection is filed before the commencement of the 
meeting, or unless good cause is shown for failing to file such a 
written objection.
    (k) Sanction for obstruction of the proceedings. The Board of 
Directors may

[[Page 21]]

impose sanctions it deems appropriate for violation of any applicable 
provision of this subpart or any applicable law, rule, regulation, or 
order, or any dilatory, frivolous, or obstructionist conduct by any 
witness or counsel during the course of a meeting.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.15  General provisions.

    (a) Waiver of requirements. The Managing Director may waive any 
filing requirement or deadline in this subpart for good cause shown. The 
Managing Director shall provide prompt notice of any such waiver to the 
Board of Directors.
    (b) Actions of the Managing Director subject to the authority of the 
Board of Directors. The Board of Directors may overrule any action by 
the Managing Director under this subpart.
    (c) Withdrawal. At any time prior to the issuance by the Managing 
Director of a Notice of Board Consideration pursuant to Sec. 907.12(g), 
an authorized representative of a Petitioner may withdraw the Petition, 
or an authorized representative of an Intervenor may withdraw the 
Request to Intervene, by filing a written request to withdraw with the 
Secretary to the Board. Only the Board of Directors may grant a request 
to withdraw after issuance by the Managing Director of a Notice of Board 
Consideration pursuant to Sec. 907.12(g). Unless otherwise agreed, 
withdrawal of a Petition or Request to Intervene shall not foreclose a 
Petitioner from resubmitting a Petition, or an Intervenor from 
submitting a Request to Intervene, on the same or similar issues.
    (d) Settlement agreement. (1) At any time during the course of 
proceedings pursuant to this subpart, the Finance Board shall give 
Petitioners and Intervenors the opportunity to submit offers of 
settlement when the nature of the proceedings and the public interest 
permit. With the approval of the Managing Director, an authorized 
representative of a Petitioner or Intervenor may enter into a proposed 
settlement agreement with the Finance Board disposing of some or all of 
the issues presented in a Petition or Request to Intervene.
    (2) No proposed settlement agreement shall be final until approved 
by the Board of Directors. The Board of Directors shall consider any 
proposed settlement agreement within 30 calendar days of receiving a 
notice of the proposed settlement agreement. If the Board of Directors 
disapproves or fails to approve a proposed settlement agreement within 
30 days, the proposed settlement agreement shall be null and void and 
the previously filed Petition or Request to Intervene shall be 
considered in accordance with this subpart.
    (3) A settlement agreement approved by the Board of Directors shall 
be deemed final and binding on all parties to the agreement. At the time 
a proposed settlement agreement becomes final, a Petition or Request to 
Intervene previously filed by a party to the agreement shall be deemed 
withdrawn as to all issues resolved in the agreement, and the parties to 
the agreement shall be estopped from raising objection to those issues 
or to the terms of the settlement agreement.
    (e) No rights created; Finance Board not prohibited. Nothing in this 
subpart shall be deemed to create any substantive or discovery right in 
any party. Nothing in this subpart shall limit in any manner the right 
of the Finance Board to conduct any examination or inspection of any 
Bank or the Office of Finance, or to take any action with respect to a 
Bank or the Office of Finance, or its directors, officers, employees or 
agents, otherwise authorized by law.
    (f) Exhaustion requirement. When seeking a Case-by-Case 
Determination of any matter or review by the Board of Directors of any 
Supervisory Determination, a Bank or the Office of Finance shall follow 
the procedures in this subpart as a prerequisite to seeking judicial 
review. Failure to do so shall be deemed to be a failure to exhaust all 
available administrative remedies.
    (g) Improper conduct prohibited. No party shall, by act or omission, 
unduly burden or frustrate the efforts of the Board of Directors to 
carry out its duties under the laws and regulations of

[[Page 22]]

the Finance Board. A Petitioner or Intervenor shall confine its 
communications with the Board of Directors, or any individual member 
thereof, concerning issues raised in a pending Petition, to written 
communications for inclusion in the record of the proceeding, filed with 
the Secretary to the Board.
    (h) Costs. Petitioners are encouraged to contain costs associated 
with the preparation and filing of Petitions and related personal 
appearances, if any, at any meeting held by the Board of Directors under 
this subpart. The Petitioner shall be solely responsible for all costs 
associated with any such Petitions and appearances.
    (i) Procedures are exclusive. All Case-by-Case Determinations by the 
Board of Directors and all Reviews of Disputed Supervisory 
Determinations shall be considered exclusively pursuant to the 
procedures described in this subpart.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.16  Rules of practice.

    In connection with any matter initiated or pending pursuant to this 
part, petitioners, requestors or intervenors, or their representatives, 
shall be subject to the provisions of subpart F of 12 CFR part 908. No 
other provision of part 908 shall apply under this part

[67 FR 9903, Mar. 5, 2002]



PART 911_AVAILABILITY OF UNPUBLISHED INFORMATION--Table of Contents



Sec.
911.1 Definitions.
911.2 Purpose and scope.
911.3 Prohibition on unauthorized use and disclosure of unpublished 
          information.
911.4 Requests for unpublished information by document or testimony.
911.5 Consideration of requests.
911.6 Persons and entities with access to unpublished information.
911.7 Availability of unpublished information by testimony.
911.8 Availability of unpublished information by document.
911.9 Fees.

    Authority: 5 U.S.C. 301; 12 U.S.C. 1422b(a)(1).

    Source: 64 FR 44106, Aug. 13, 1999, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000.



Sec. 911.1  Definitions.

    As used in this part:
    Legal proceeding means any administrative, civil, or criminal 
proceeding, including a grand jury or discovery proceeding, in which 
neither the Finance Board nor the United States is a party.
    Supervised entity means a Bank, the Office of Finance, and the 
Financing Corporation.
    Unpublished information means information and documents created or 
obtained by the Finance Board in connection with the performance of 
official duties, whether the information or documents are in the 
possession of the Finance Board, a current or former Finance Board 
employee or agent, a supervised entity, a Bank member, government 
agency, or some other person or entity; and information and documents 
created or obtained by, or in the memory of, a current or former Finance 
Board employee or agent, that was acquired in the person's official 
capacity or in the course of performing official duties. It does not 
include information or documents the Finance Board must disclose under 
the Freedom of Information Act (5 U.S.C. 552), Privacy Act (5 U.S.C. 
552a), or the Finance Board's implementing regulations (12 CFR parts 910 
and 913, respectively). It also does not include information or 
documents that were previously published or disclosed or are customarily 
furnished to the public in the course of the performance of official 
duties such as the annual report the Finance Board submits to Congress 
pursuant to section 2B(d) of the Act (12 U.S.C. 1422b(d)), press 
releases, Finance Board forms, and materials published in the Federal 
Register.

[64 FR 44106, Aug. 13, 1999, as amended at 65 FR 8258, Feb. 18, 2000; 67 
FR 12844, Mar. 20, 2002]



Sec. 911.2  Purpose and scope.

    (a) Purpose. The purposes of this part are to:
    (1) Maintain the confidentiality and control the dissemination of 
unpublished information;

[[Page 23]]

    (2) Conserve the time of employees for official duties and ensure 
that Finance Board resources are used in the most efficient manner;
    (3) Maintain the Finance Board's impartiality among private 
litigants; and
    (4) Establish an orderly mechanism for the Finance Board to process 
expeditiously and respond appropriately to requests for unpublished 
information.
    (b) Scope. (1) This part applies to a request for and use and 
disclosure of unpublished information, including a request for 
unpublished information by document or testimony arising out of a legal 
proceeding in which neither the Finance Board nor the United States is a 
party. It does not apply to a request for unpublished information in a 
legal proceeding in which the Finance Board or the United States is a 
party or a request for information or records the Finance Board must 
disclose under the Freedom of Information Act, Privacy Act, or the 
Finance Board's implementing regulations.
    (2) This part does not, and may not be relied upon to create any 
substantive or procedural right or benefit enforceable against the 
Finance Board.



Sec. 911.3  Prohibition on unauthorized use and disclosure of
unpublished information.

    (a) In general. Possession or control by any person, supervised 
entity, Bank member, government agency, or other entity of unpublished 
information does not constitute a waiver by the Finance Board of any 
privilege or its right to control, supervise, or impose limitations on, 
the subsequent use and disclosure of the information.
    (b) Current and former employees and agents. Except as authorized by 
this part or otherwise by the Finance Board, no current or former 
Finance Board employee or agent may disclose or permit the disclosure in 
any manner of any unpublished information to anyone other than a Finance 
Board employee or agent for use in the performance of official duties.
    (c) Other persons or entities possessing unpublished information. 
(1) Except as authorized in writing by the Finance Board, no person, 
supervised entity, Bank member, government agency, or other entity in 
possession or control of unpublished information may disclose or permit 
the use or disclosure of such information in any manner or for any 
purpose.
    (2) All unpublished information made available under this part 
remains the property of the Finance Board and may not be used or 
disclosed for any purpose other than that authorized under this part 
without the prior written permission of the Finance Board.
    (3) Reports of examination, supervisory correspondence, and other 
unpublished information lawfully in the possession of a supervised 
entity, Bank member, or government agency remains the property of the 
Finance Board and may not be used or disclosed for any purpose other 
than that authorized under this part without the prior written 
permission of the Finance Board.
    (4) Any person or entity that discloses or uses unpublished 
information except as expressly authorized under this part may be 
subject to the penalties provided in 18 U.S.C. 641 and other applicable 
laws. A current Finance Board, Bank, or Office of Finance employee also 
may be subject to administrative or disciplinary proceedings.
    (d) Exception for supervised entities and Bank members. When 
necessary or appropriate for business purposes, a supervised entity, 
Bank member, or any director, officer, employee, or agent thereof, may 
disclose unpublished information, including information contained in, or 
related to, supervisory correspondence or reports of examination, to a 
person or entity officially connected with the supervised entity or Bank 
member as officer, director, employee, attorney, agent, auditor, or 
independent auditor. A supervised entity, Bank member, or a director, 
officer, employee, or agent thereof, also may disclose unpublished 
information to a consultant under this paragraph if the consultant is 
under a written contract to provide services to the supervised entity or 
Bank member and the consultant has agreed in writing:
    (1) To abide by the prohibition on the disclosure of unpublished 
information contained in this section; and
    (2) That it will not to use the unpublished information for any 
purposes

[[Page 24]]

other than those stated in its contract to provide services to the 
supervised entity or Bank member.
    (e) Government agencies. The Finance Board may make reports of 
examination, supervisory correspondence, and other unpublished 
information available to another federal agency or a state agency for 
use where necessary in the performance of the agency's official duties. 
As used in this paragraph, the term agency does not include a grand 
jury.

[64 FR 44106, Aug. 13, 1999, as amended at 65 FR 8258, Feb. 18, 2000; 67 
FR 12844, Mar. 20, 2002]



Sec. 911.4  Requests for unpublished information by document or 
testimony.

    (a) Form of requests. A request for unpublished information must be 
submitted to the Finance Board in writing and include a detailed 
description of the basis for the request. At a minimum, the request must 
demonstrate that:
    (1) The requested information is highly relevant to the purpose for 
which it is sought;
    (2) The requested information is not available from any other 
source;
    (3) The need for the information clearly outweighs the need to 
maintain its confidentiality; and
    (4) The need for the information clearly outweighs the burden on the 
Finance Board to produce it.
    (b) Requests for documents. If the request is for unpublished 
information by document, the request must include the elements in 
paragraph (a) of this section and also must adequately describe the 
record or records sought by type and date.
    (c) Requests for testimony. (1) If the request is for unpublished 
information by testimony, the request must include the elements in 
paragraph (a) of this section and also must set forth the intended use 
of the testimony, a summary of the scope of the testimony requested, and 
a showing that no document or the testimony of other non-Finance Board 
persons, including retained experts, could be provided and used in lieu 
of the testimony.
    (2) Upon submitting a request to the Finance Board for unpublished 
information by testimony, the requester must notify all other parties to 
the matter at issue of the request.
    (3) After receipt of a request for unpublished information by 
testimony but before the requested testimony occurs, a party to the 
matter at issue who did not join in the request and who wishes to 
question the witness beyond the scope of the testimony sought by the 
request, must timely submit its own request for unpublished information 
pursuant to this part.
    (d) Requests in connection with legal proceedings. If the request 
for unpublished information arises out of a legal proceeding, the 
Finance Board generally will require that the legal proceeding already 
be filed before it will consider the request. In addition to the 
elements in paragraph (a) of this section, requests in connection with 
legal proceedings must include the caption and docket number of the 
case; the forum; the name, address, phone number, and electronic mail 
address, if available, of counsel to all other parties to the legal 
proceeding; the requester's interest in the case; a summary of the 
issues in litigation; and the reasons for the request, including the 
relevance of the unpublished information and how the requested 
information will contribute substantially to the resolution of one or 
more specifically identified issues in the legal proceeding.
    (e) Expedited requests. If a requester seeks a response in less than 
60 days, the request must explain why the request was not submitted 
earlier and why the Finance Board should expedite the request.
    (f) Where to submit requests. Send requests for unpublished 
information to the Office of General Counsel, Federal Housing Finance 
Board, 1777 F Street, NW., Washington, DC 20006.
    (g) Additional information--(1) From the requester. The Office of 
General Counsel may consult with the requester to refine and limit the 
scope of the request to make compliance less burdensome or to obtain 
information necessary to make an informed determination on the request. 
A requester's failure to cooperate in good faith with the Office of 
General Counsel may serve as the basis for a determination not to grant 
the request.

[[Page 25]]

    (2) From others. The Office of General Counsel may inquire into the 
facts and circumstances underlying a request for unpublished information 
and rely on sources of information other than the requester, including 
other parties to the matter at issue.



Sec. 911.5  Consideration of requests.

    (a) Discretion. Each decision concerning the availability of 
unpublished information is at the sole discretion of the Finance Board 
based on a weighing of all appropriate factors. The decision is a final 
agency action that exhausts administrative remedies for disclosure of 
the information.
    (b) Time to respond. The Finance Board generally will respond in 
writing to a request for unpublished information within 60 days of 
receipt absent exigent or unusual circumstances and dependent upon the 
scope and completeness of the request.
    (c) Factors the Finance Board may consider. The factors the Finance 
Board may consider in making a determination regarding the availability 
of unpublished information include:
    (1) Whether and how the requested information is relevant to the 
purpose for which it is sought;
    (2) Whether information reasonably suited to the requester's needs 
other than the requested information is available from another source;
    (3) Whether the requested information is privileged;
    (4) If the request is in connection with a legal proceeding, whether 
the proceeding has been filed;
    (5) The burden placed on the Finance Board to respond to the 
request;
    (6) Whether production of the information would be contrary to the 
public interest; and
    (7) Whether the need for the information clearly outweighs the need 
to maintain the confidentiality of the information.
    (d) Disclosure of unpublished information by others. When a person 
or entity other than the Finance Board has a claim of privilege 
regarding unpublished information and the information is in the 
possession or control of that person or entity, the Finance Board, at 
its sole discretion, may respond to a request for the information by 
authorizing the person or entity to disclose the information to the 
requester pursuant to an appropriate confidentiality order. Finance 
Board authorization to disclose information under this paragraph does 
not preclude the person or entity in possession of the unpublished 
information from asserting its own privilege, arguing that the 
information is not relevant, or asserting any other argument to protect 
the information from disclosure.
    (e) Notice to supervised entities and Bank members. The Finance 
Board generally will notify a supervised entity or Bank member that it 
is the subject of a request, unless the Finance Board, in its sole 
discretion, determines that to do so would advantage or prejudice any of 
the parties to the matter at issue.

[64 FR 44106, Aug. 13, 1999, as amended at 65 FR 8258, Feb. 18, 2000]



Sec. 911.6  Persons and entities with access to unpublished information.

    (a) Notice to Finance Board. Any person, including a current or 
former Finance Board employee or agent, or any entity, including a 
supervised entity, Bank member, or government agency that receives a 
request for, or is served with a subpoena, order, or other legal process 
to disclose unpublished information by document or testimony, must 
immediately notify the Office of General Counsel.
    (b) Response of person or entity served with request. Unless the 
Finance Board has authorized in writing disclosure of the requested 
information:
    (1) A current or former Finance Board employee or agent or a 
supervised entity that must respond to a subpoena, order, or other legal 
process, must decline to disclose the requested information, citing this 
part as authority.
    (2) A non-Finance Board person or entity may not disclose 
unpublished information unless:
    (i) The requester has sought the information from the Finance Board 
under this part; and
    (ii) After the Finance Board or the Department of Justice has had 
the opportunity to appear and oppose disclosure, a Federal court has 
ordered the person or entity to disclose the information.

[[Page 26]]

    (c) Finance Board response. If the Finance Board does not authorize 
in writing disclosure of the requested information, the Finance Board 
will provide a copy of this part to the person or entity at whose 
instance the process was issued and advise that person or entity or the 
court or other body that the Finance Board has prohibited disclosure of 
the information under this part. The Finance Board or the Department of 
Justice may intervene in the matter at issue, attempt to have the 
compulsory process withdrawn, or register other appropriate objections.

[64 FR 44106, Aug. 13, 1999, as amended at 65 FR 8258, Feb. 18, 2000]



Sec. 911.7  Availability of unpublished information by testimony.

    (a) Scope. (1) The scope of permissible testimony is limited to that 
set forth in the written authorization granted by the Finance Board. The 
Finance Board may act to ensure that the scope of testimony provided is 
consistent with the written authorization.
    (2) A party to the matter at issue that did not join in a request 
for unpublished information who wishes to question a witness beyond the 
authorized scope must request expanded authorization under this part. 
The Finance Board will attempt to render decisions on such requests in 
an expedited manner.
    (3) The Finance Board generally will not authorize a current 
employee or agent to provide expert or opinion testimony for a private 
party.
    (b) Manner in which testimony is given. (1) The Finance Board 
ordinarily will make the authorized testimony of a former or current 
employee or agent available only through written interrogatories or 
deposition. The Finance Board will not authorize testimony at a trial or 
hearing unless the requester shows that properly developed deposition 
testimony could not be used or would be inadequate at the trial or 
hearing.
    (2) If the Finance Board has authorized testimony in connection with 
a legal proceeding, the requester must cause a subpoena to be served on 
the employee in accordance with applicable rules of procedure, with a 
copy by registered or certified mail to the Office of General Counsel.
    (3) If the authorized testimony is through deposition, the 
deposition ordinarily will take place at the Finance Board's offices at 
a time that will avoid substantial interference with the performance of 
the employee's official duties.
    (4) The requester is responsible for all costs associated with an 
employee's appearance, including provision of a copy of a transcript of 
the deposition at the request of the Office of General Counsel. The 
person whose deposition was transcribed does not waive his or her right 
to review the transcript and note errors.
    (c) Restrictions on use and disclosure. The Finance Board may 
condition its authorization of deposition testimony on an agreement of 
the parties to appropriate limitations, such as an agreement to keep the 
transcript of the testimony under seal or to make the transcript 
available only to the parties, the court or other body, or the jury. 
Upon request made pursuant to this part or on its own initiative, the 
Finance Board may authorize use of a deposition transcript in another 
legal proceeding or non-adversarial matter.
    (d) Responsibility of litigants. If the testimony is disclosed in 
connection with a legal proceeding, the requester is responsible for:
    (1) Promptly notifying all other parties to the legal proceeding of 
the disclosure, and, after entry of a protective order, providing copies 
of the testimony to the other parties who are signatories and subject to 
the protective order; and
    (2) At the conclusion of the legal proceeding, retrieving the 
testimony from the court or other body's file as soon as it is no longer 
required and certifying to the Finance Board that every party covered by 
the protective order has destroyed the unpublished information.



Sec. 911.8  Availability of unpublished information by document.

    (a) Scope. The scope of permissible document disclosure is limited 
to that set forth in the written authorization granted by the Finance 
Board. The Finance Board may act to ensure that

[[Page 27]]

the scope of documents provided is consistent with the written 
authorization.
    (b) Restrictions on use and disclosure. The Finance Board may 
condition a decision to disclose unpublished information by document on 
entry of a protective order satisfactory to the Finance Board by the 
court or other body presiding in a legal proceeding or, in non-
adversarial matters, on a written agreement of confidentiality that 
limits access of third parties to the unpublished information. In a 
legal proceeding in which a protective order already has been entered, 
the Finance Board may condition a decision to disclose unpublished 
information upon inclusion of additional or amended provisions in the 
protective order. Upon request made pursuant to this part or on its own 
initiative, the Finance Board may authorize use of the documents in 
another legal proceeding or non-adversarial matter.
    (c) Responsibility of litigants. If the documents are disclosed in 
connection with a legal proceeding, the requester is responsible for:
    (1) Promptly notifying all other parties to the legal proceeding of 
the disclosure, and, after entry of a protective order, providing copies 
of the documents to the other parties that are signatories and subject 
to the protective order; and
    (2) At the conclusion of the legal proceeding, retrieving the 
documents from the court or other body's file as soon as they are no 
longer required and certifying to the Finance Board that every party 
covered by the protective order has destroyed the unpublished 
information.
    (d) Certification or authentication. If the Finance Board has 
authorized disclosure of unpublished information by document, it will 
provide certified or authenticated copies of the document upon request.



Sec. 911.9  Fees.

    (a) Fees for records search, copying, and certification. Unless 
waived or reduced, a requester must pay a fee to the Finance Board for 
the costs of searching, copying, authenticating, or certifying 
unpublished information in accordance with 12 CFR 910.9. The Office of 
Resource Management generally will bill a requester upon completion of 
the production, but, in certain instances, may require a requester to 
remit payment prior to providing the requested information. To pay fees 
assessed under this section, a requester must deliver to the Office of 
Resource Management, located at the Federal Housing Finance Board, 1777 
F Street, NW., Washington, DC 20006, a check or money order made payable 
to the ``Federal Housing Finance Board.''
    (b) Witness fees and mileage--(1) Current Finance Board or federal 
employees. If the Finance Board authorizes disclosure of unpublished 
information by testimony of a current Finance Board employee or agent or 
a former Finance Board employee or agent who is still in the employ of 
the United States, upon completion of the testimonial appearance the 
requester must remit promptly to the Office of Resource Management 
payment for witness fees and mileage computed in accordance with 28 
U.S.C. 1821.
    (2) Former employees or agents. If the Finance Board authorizes 
disclosure of unpublished information by testimony of a former Finance 
Board employee or agent who is not currently employed by the United 
States, upon completion of the testimonial appearance the requester must 
remit promptly to the witness any witness fees or mileage due in 
accordance with 28 U.S.C. 1821.

[64 FR 44106, Aug. 13, 1999, as amended at 65 FR 8258, Feb. 18, 2000]



PART 912_INFORMATION REGARDING MEETINGS OF THE BOARD OF DIRECTORS 
OF THE FEDERAL HOUSING FINANCE BOARD--Table of Contents



Sec.
912.1 Definitions.
912.2 Purpose and scope.
912.3 Open meetings.
912.4 Closed meetings.
912.5 Procedures for closing meetings.
912.6 Notice of meetings.

    Authority: 5 U.S.C. 552b.

    Source: 58 FR 19202, Apr. 13, 1993, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000.

[[Page 28]]


    Effective Date Note: At 76 FR 74649, Dec. 1, 2011, part 912 was 
removed, effective January 3, 2012.



Sec. 912.1  Definitions.

    As used in this part:
    Board Director or Director means a member of the Board of Directors.
    Chairperson includes the Acting Chairperson.
    Meeting means any deliberations of three or more Directors of the 
Board of Directors, that determines or results in the joint conduct or 
disposition of official Finance Board business, but does not include:
    (1) Discussions to determine whether meetings will be open or closed 
or whether information pertaining to closed meetings will be disclosed;
    (2) Discussions to determine whether to schedule a meeting with less 
than seven days notice, or to change the time, place or subject matter 
of a scheduled meeting; and
    (3) Disposition of Finance Board business by circulation of written 
materials on proposed actions to individual Directors for proposed 
actions, and notational voting by the individual Directors on such 
proposed actions.
    Public observation means the right of the general public to attend 
open meetings of the Board of Directors, but does not include the right 
to participate therein unless invited to do so by the Chairperson.
    Secretary to the Board includes the Acting Secretary if the position 
of Secretary is vacant.
    Sunshine Act means the Government in the Sunshine Act (5 U.S.C. 
552b).

[58 FR 19202, Apr. 13, 1993, as amended at 65 FR 8258, Feb. 18, 2000. 
Redesignated and amended at 67 FR 12844, Mar. 20, 2002]



Sec. 912.2  Purpose and scope.

    (a) This part is issued by the Finance Board pursuant to the 
Sunshine Act, which requires Federal agencies, headed by collegial 
bodies, to promulgate regulations to implement its provisions. The 
purpose of these regulations is to provide the public with access to 
information regarding the decisionmaking processes of the Board of 
Directors of the Finance Board, while protecting the privacy rights of 
individuals and the ability of the Board of Directors to carry out its 
responsibilities.
    (b) The Board of Directors shall not jointly conduct or dispose of 
official Finance Board business other than in accordance with this part.

[58 FR 19202, Apr. 13, 1993, as amended at 65 FR 8258, Feb. 18, 2000. 
Redesignated and amended at 67 FR 12844, Mar. 20, 2002]



Sec. 912.3  Open meetings.

    (a) Except as provided in Sec. 912.4, every portion of every 
meeting of the Board of Directors shall be open to public observation.
    (b) Unless otherwise specified in the public notice, open meetings 
of the Board of Directors shall be held in the Board Room of the Finance 
Board at 1777 F Street, NW., Washington, DC, at the time specified in 
the public notice.

[58 FR 19202, Apr. 13, 1993, as amended at 65 FR 8258, Feb. 18, 2000]



Sec. 912.4  Closed meetings.

    (a) The Board of Directors may close a meeting, or portion thereof, 
to public observation, or withhold information from the public 
pertaining to a meeting, when it determines that opening the meeting, or 
a portion thereof, or the public disclosure of information pertaining to 
such meeting, or portion thereof, is likely to:
    (1) Disclose matters that are:
    (i) Specifically authorized under criteria established by an 
Executive Order to be kept secret in the interests of national defense 
or foreign policy; and
    (ii) Are, in fact, properly classified pursuant to such Executive 
Order;
    (2) Relate solely to the internal personnel rules and practices of 
the Finance Board;
    (3) Disclose matters specifically exempt from disclosure by statute 
(other than the Freedom of Information Act (5 U.S.C. 552)), provided 
that such statute:
    (i) Requires that the matters be withheld from the public in such a 
manner as to leave no discretion on the issue; or
    (ii) Establishes particular criteria for withholding matters from 
the public or refers to particular types of matters to be withheld;

[[Page 29]]

    (4) Disclose trade secrets or commercial or financial information 
that is obtained from a person and is privileged or confidential;
    (5) Involve accusing any person of a crime, or formally censuring 
any person;
    (6) Disclose information of a personal nature where disclosure would 
constitute a clearly unwarranted invasion of personal privacy;
    (7) Disclose investigatory records compiled for law enforcement 
purposes, or information which if written would be contained in such 
records, but only to the extent that the production of such records or 
information would:
    (i) Interfere with enforcement proceedings;
    (ii) Deprive a person of a right to a fair trial or an impartial 
adjudication;
    (iii) Constitute an unwarranted invasion of personal privacy;
    (iv) Disclose the identity of a confidential source and, in the case 
of a record compiled by a criminal law enforcement authority in the 
course of a criminal investigation or by an agency conducting a lawful 
national security intelligence investigation, confidential information 
furnished only by the confidential source;
    (v) Disclose investigative techniques and procedures; or
    (vi) Endanger the life or physical safety of law enforcement 
personnel;
    (8) Disclose information contained in or related to examination, 
operating, or condition reports prepared by, on behalf of, or for the 
use of the Finance Board or another agency responsible for the 
regulation or supervision of Banks or other financial institutions;
    (9) Disclose information the premature disclosure of which would be 
likely to:
    (i) (A) Lead to significant financial speculation in currencies, 
securities, or commodities;
    (B) Significantly endanger the stability of any of the Banks or any 
other financial institution; or
    (ii) Significantly frustrate implementation of a proposed Finance 
Board action, except that this paragraph shall not apply in any instance 
where the Finance Board has already disclosed to the public the content 
or nature of its proposed action, or where the Finance Board is required 
by law to make such disclosure on its own initiative prior to taking 
final action on such proposal; or
    (10) Specifically concern the issuance of a subpoena by the Board of 
Directors, or the Finance Board's participation in a civil action or 
proceeding, an action in a foreign court or international tribunal, or 
an arbitration, or the initiation, conduct or disposition of a 
particular case of formal adjudication pursuant to the procedures in 5 
U.S.C. 554 or otherwise involving a determination on the record after 
opportunity for a hearing.
    (b) A meeting or portions of a meeting shall not be closed nor 
information withheld pursuant to paragraph (a) of this section if the 
Board of Directors finds that the public interest requires otherwise.

[58 FR 19202, Apr. 13, 1993. Redesignated at 65 FR 8256, Feb. 18, 2000, 
as amended at 67 FR 12844, Mar. 20, 2002]



Sec. 912.5  Procedures for closing meetings.

    (a) Regular procedures. (1) Except as provided in paragraph (b) of 
this section, a meeting of the Board of Directors, or portion thereof, 
will be closed to public observation, and information pertaining to such 
meeting, or portion thereof, will be withheld from the public, when a 
majority of the Board of Directors determines by recorded vote that such 
meeting, or portion thereof, or the withholding of information qualifies 
for exemption under Sec. 912.4, and the Board of Directors does not 
find that the public interest requires otherwise.
    (2) Except as provided in paragraph (a)(3) of this section, a 
separate vote of the Board Directors will be taken with respect to the 
closing or the withholding of information as to each meeting or portion 
thereof that is proposed to be closed to public observation, or with 
respect to information that is proposed to be withheld pursuant to 
paragraph (a) of this section.
    (3) A single vote may be taken with respect to a series of meetings, 
a portion or portions of which are proposed to be closed to public 
observation, or with respect to any information concerning such series 
of meetings proposed to be withheld, so long as each

[[Page 30]]

meeting in such series involves the same particular matters and is 
scheduled to be held no more than thirty days after the initial meeting 
in such series.
    (4) The vote of each Board Director taken pursuant to paragraph (a) 
of this section shall be recorded, and no proxies shall be allowed.
    (5) Whenever any person's interests may be directly affected by any 
portion of a meeting for any of the reasons referred to in Sec. 
912.4(a)(5), (6), or (7), such person may send a written request to the 
Secretary to the Board asking that such portion of the meeting be closed 
to public observation. The Secretary to the Board will transmit the 
request to each Board Director, and upon the request of a Director, a 
recorded vote will be taken of the Board of Directors whether to close 
the meeting to public observation.
    (6)(i) Within one day of any vote taken pursuant to paragraph (a) of 
this section, the Finance Board will make publicly available through the 
Secretary to the Board a written copy of such vote reflecting the vote 
of each Board Director.
    (ii) If a meeting or portion thereof is to be closed to public 
observation, the Finance Board within one day of the vote taken pursuant 
to paragraph (a) of this section will make publicly available through 
the Secretary to the Board a full, written explanation of its action 
closing the meeting, or portion thereof, together with a list of all 
persons expected to attend the meeting and their affiliation, except to 
the extent such information is determined by the Board of Directors to 
be exempt from disclosure under Sec. 912.4(a).
    (7) Any person may request in writing to the Secretary to the Board 
that an announced closed meeting, or portion thereof, be open to public 
observation. The Secretary to the Board will transmit the request to 
each Board Director, and upon the request of a Director, a recorded vote 
will be taken of the Board of Directors on whether to open the meeting 
to public observation.
    (b) Expedited procedures. (1) Since a majority of the meetings, of 
the Board of Directors may be closed pursuant to Sec. 912.4(a)(4), (8), 
(9)(i) or (10), 5 U.S.C. 552b(d)(4) allows the Finance Board to use 
expedited procedures in closing such meetings. The following are 
examples of meetings of the Board of Directors, or portions thereof, 
that may be closed to the public under these expedited procedures: sale 
of consolidated obligations, and review of examination, operating or 
condition reports of Banks.
    (2) A decision to close a meeting, or portion thereof, under 
paragraph (b) of this section shall be made at the beginning of the 
meeting, or portion thereof, by majority vote of the Directors.
    (3)(i) The Finance Board shall maintain a record of each of the 
votes taken by its Board of Directors to close a meeting, or portion 
thereof, or to withhold public access to information thereof, under 
paragraph (b) of this section.
    (ii) A copy of such record, reflecting the vote of each Board 
Director on the question of closing a meeting, or portion thereof, or 
withhholding public access to information thereof, under this paragraph 
(b) of this section, shall be made available to any member of the public 
upon request to the Secretary to the Board.
    (4) Public announcement of the time, place and subject matter of 
meetings, or portions thereof, closed under this paragraph (b) of this 
section shall be made at the earliest practical time.
    (c) Records of closed proceedings--(1) Transcripts or electronic 
recording. Except as provided in paragraph (c)(2) of this section, the 
Finance Board shall make and maintain a complete transcript or verbatim 
electronic recording of the proceedings at each meeting, or portion 
thereof, closed to public observation under paragraph (a) or (b) of this 
section.
    (2) Minutes. The Finance Board may make and maintain a set of 
complete minutes, in lieu of such transcript or electronic recording, 
with respect to meetings, or portions thereof, closed or information 
withheld under Sec. 912.4(a)(8), (9)(i) or (10). Such set of minutes 
shall fully and clearly describe all matters discussed and provide a 
full and accurate summary of any action taken, and the reasons therefor, 
including a description of each of the views expressed on any item and 
the record of any roll

[[Page 31]]

call vote (reflecting the vote of each Board Director on the question). 
All documents considered in connection with any action shall be 
identified in such set of minutes.
    (3) Availability of Records. (i) The transcript, electronic 
recording or set of minutes of an item discussed, or of testimony 
received, at a meeting, shall be made available promptly to the public 
through the Secretary to the Board except in cases where the Board of 
Directors determines that the item or testimony contains information 
which may be withheld under Sec. 912.4(a).
    (ii) Copies of such transcript, electronic recording or set of 
minutes, disclosing the identity of each speaker, shall be furnished to 
any person at the actual cost of duplication or transcription.
    (iii) The Finance Board shall maintain a complete copy of the 
transcript, verbatim electronic recording or complete set of minutes of 
each meeting, or portion thereof closed to the public, for at least two 
years after such meeting, or until one year after the conclusion of any 
proceeding of the Board of Directors with respect to which the meeting 
or portion thereof was held, whichever occurs later.
    (d) Legal certification for closing meeting. (1) For every meeting, 
or portion thereof, of the Board of Directors closed pursuant to 
paragraphs (a) or (b) of this section, the General Counsel (or in the 
General Counsel's absence or incapacity the senior legal officer 
available) shall publicly certify that the meeting or portion thereof 
may be closed to the public pursuant to the Sunshine Act and this part, 
and specifically state the relevant exemption in support thereof.
    (2) A copy of the certification, together with a statement from the 
Chairperson or, when appropriate, the Acting Chairperson or designee, 
setting forth the time and place of the meeting and the persons present, 
shall be retained in the permanent files of the Finance Board.

[58 FR 19202, Apr. 13, 1993, as amended at 65 FR 8258, Feb. 18, 2000; 65 
FR 12844, Mar. 20, 2002]



Sec. 912.6  Notice of meetings.

    (a) Scope of notice. (1) Except as provided in Sec. 912.4(a) that 
such information is determined to be exempt from disclosure, each open 
meeting of the Board of Directors, or each meeting closed under the 
regular procedures in Sec. 912.5(a), will be preceded by public notice 
as described in this section.
    (2) The notices for meetings of the Board of Directors closed under 
the expedited procedures pursuant to Sec. 912.5(b) will be made in 
accordance with Sec. 912.5(b)(4).
    (b) Content of notice. A notice of an open meeting or a meeting 
closed under the regular procedures in Sec. 912.5(a) will state the 
time, place, and subject matter of the meeting, whether it is to be open 
or closed to the public, and the name and telephone number of the 
Secretary to the Board for information about the meeting. Each such 
notice shall be posted in the lobby of the Finance Board offices, and 
may be made available in addition by other means or at other locations 
as deemed desirable. Immediately following the posting of each such 
notice, the Finance Board will publish the notice in the Federal 
Register.
    (c) Time--(1) Seven days notice. Except as provided in paragraph 
(c)(2) of this section, a public notice of open meetings or meetings 
closed under Sec. 912.5(a) will be made at least seven days in advance 
of each meeting.
    (2) Less than seven days notice. When a majority of the Board of 
Directors determine by recorded vote that Finance Board business 
requires a meeting to be called at any earlier date, the seven-day prior 
notice rule may be suspended and notice shall be made at the earliest 
practicable time.
    (d) Amendment of notice--(1) Time and place. A change in the time or 
place of a meeting following public notice may be made only if announced 
at the earliest practicable time.
    (2) Subject matter. A change in the subject matter of a meeting or a 
re-determination to open or close a meeting, or portions thereof, may be 
made, after public notice, only if:
    (i) At least a majority of the Board Directors determines by 
recorded vote

[[Page 32]]

that Finance Board business so requires and that no earlier notice of 
the change was possible; and
    (ii) The Finance Board publicly announces the change and the vote of 
each Board Director by posting a notice thereof in the lobby of the 
Finance Board offices at the earliest practicable time.
    (3) Timing of amendment. A public announcement of a change in either 
the time, place or subject matter of a meeting may be made after the 
commencement of the meeting affected.
    (4) Publication of amendment. Each change to a notice of a meeting 
will be published in the Federal Register, following the Finance Board's 
public announcement of the change.

[58 FR 19202, Apr. 13, 1993, as amended at 65 FR 8258, Feb. 18, 2000; 67 
FR 12845, Mar. 20, 2002]

[[Page 33]]



  SUBCHAPTER C_GOVERNANCE AND MANAGEMENT OF THE FEDERAL HOME LOAN BANKS





PART 914_DATA AVAILABILITY AND REPORTING--Table of Contents



Sec.
914.1 Regulatory Report defined.
914.2 Filing Regulatory Reports.
914.3 [Reserved]

    Authority: 12 U.S.C. 1440 and 4526.

    Source: 71 FR 35499, June 21, 2006, unless otherwise noted.



Sec. 914.1  Regulatory Report defined.

    (a) Definition. Regulatory Report means any report of raw or summary 
data needed to evaluate the safe and sound condition and operations of a 
Bank or to determine compliance with any:
    (1) Provision in the Act or other law, order, rule, or regulation;
    (2) Condition imposed in writing by the Finance Board in connection 
with the granting of any application or other request by a Bank; or
    (3) Written agreement entered into between the Finance Board and a 
Bank.
    (b) Examples. Regulatory Report includes:
    (1) Call reports and reports of instrument-level risk modeling data;
    (2) Reports related to a Bank's housing mission achievement, such as 
reports related to AMA, AHP, CIP, and other CICA programs; and
    (3) Reports submitted in response to requests to one or more Banks 
for information on a nonrecurring basis.



Sec. 914.2  Filing Regulatory Reports.

    Each Bank shall file Regulatory Reports with the Finance Board in 
accordance with the forms, instructions, and schedules issued by the 
Finance Board from time to time. If no regularly scheduled reporting 
dates are established, Regulatory Reports shall be filed as requested by 
the Finance Board.



Sec. 914.3  [Reserved]



PART 917_POWERS AND RESPONSIBILITIES OF BANK BOARDS OF DIRECTORS 
AND SENIOR MANAGEMENT--Table of Contents



Sec.
917.1 Definitions.
917.2 General authorities and duties of Bank boards of directors.
917.3 Risk management.
917.4 Bank Member Products Policy.
917.5 Strategic business plan.
917.6 Internal control system.
917.7 Audit committees.
917.8 Budget preparation.
917.9 Dividends.
917.10 Bank bylaws.

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a)(1), 1426, 1427, 1432(a), 
1436(a), 1440.

    Source: 65 FR 25274, May 1, 2000, unless otherwise noted.



Sec. 917.1  Definitions.

    As used in this part:
    Business risk means the risk of an adverse impact on a Bank's 
profitability resulting from external factors as may occur in both the 
short and long run.
    Community financial institution has the meaning set forth in Sec. 
925.1 of this chapter.
    Contingency liquidity means the sources of cash a Bank may use to 
meet its operational requirements when its access to the capital markets 
is impeded, and includes:
    (1) Marketable assets with a maturity of one year or less;
    (2) Self-liquidating assets with a maturity of seven days or less;
    (3) Assets that are generally accepted as collateral in the 
repurchase agreement market; and
    (4) Irrevocable lines of credit from financial institutions rated 
not lower than the second highest credit rating category by an NRSRO.
    Credit risk means the risk that the market value, or estimated fair 
value if market value is not available, of an obligation will decline as 
a result of deterioration in creditworthiness.

[[Page 34]]

    Immediate family member means a parent, sibling, spouse, child, 
dependent, or any relative sharing the same residence.
    Internal auditor means the individual responsible for the internal 
audit function at the Bank.
    Liquidity risk means the risk that a Bank will be unable to meet its 
obligations as they come due or meet the credit needs of its members and 
associates in a timely and cost-efficient manner.
    Market risk means the risk that the market value, or estimated fair 
value if market value is not available, of a Bank's portfolio will 
decline as a result of changes in interest rates, foreign exchange 
rates, equity and commodity prices.
    Operational liquidity means sources of cash from both a Bank's 
ongoing access to the capital markets and its holding of liquid assets 
to meet operational requirements in a Bank's normal course of business.
    Operations risk means the risk of an unexpected loss to a Bank 
resulting from human error, fraud, unenforceability of legal contracts, 
or deficiencies in internal controls or information systems.
    Reportable conditions means matters that represent significant 
deficiencies in the design or operation of the internal control system 
that could adversely affect a Bank's ability to record, process, 
summarize and report financial data consistent with the assertions of 
management.

[65 FR 25274, May 1, 2000, as amended at 67 FR 12846, Mar. 20, 2002]



Sec. 917.2  General authorities and duties of Bank boards of directors.

    (a) Management of a Bank. The management of each Bank shall be 
vested in its board of directors. While Bank boards of directors may 
delegate the execution of operational functions to Bank personnel, the 
ultimate responsibility of each Bank's board of directors for that 
Bank's management is non-delegable.
    (b) Duties of Bank directors. Each Bank director shall have the duty 
to:
    (1) Carry out his or her duties as director in good faith, in a 
manner such director believes to be in the best interests of the Bank, 
and with such care, including reasonable inquiry, as an ordinarily 
prudent person in a like position would use under similar circumstances;
    (2) Administer the affairs of the Bank fairly and impartially and 
without discrimination in favor of or against any member;
    (3) At the time of appointment or election, or within a reasonable 
time thereafter, have a working familiarity with basic finance and 
accounting practices, including the ability to read and understand the 
Bank's balance sheet and income statement and to ask substantive 
questions of management and the internal and external auditors; and
    (4) Direct the operations of the Bank in conformity with the 
requirements set forth in the Act and this chapter.
    (c) Authority regarding staff and outside consultants. (1) In 
carrying out its duties and responsibilities under the Act and this 
chapter, each Bank's board of directors and all committees thereof shall 
have authority to retain staff and outside counsel, independent 
accountants, or other outside consultants at the expense of the Bank.
    (2) Bank staff providing services to the board of directors or any 
committee of the board under paragraph (c)(1) of this section may be 
required by the board of directors or such committee to report directly 
to the board or such committee, as appropriate.



Sec. 917.3  Risk management.

    (a) Risk management policy--(1) Adoption. Beginning August 29, 2000, 
each Bank's board of directors shall have in effect at all times a risk 
management policy that addresses the Bank's exposure to credit risk, 
market risk, liquidity risk, business risk and operations risk and that 
conforms to the requirements of paragraph (b) of this section and to all 
applicable Finance Board regulations and policies.
    (2) Review and compliance. Each Bank's board of directors shall:
    (i) Review the Bank's risk management policy at least annually;
    (ii) Amend the risk management policy as appropriate;
    (iii) Re-adopt the Bank's risk management policy, including interim

[[Page 35]]

amendments, not less often than every three years; and
    (iv) Ensure that policies and procedures are in place that are 
reasonably designed to achieve continuing Bank compliance with the risk 
management policy.
    (b) Risk management policy requirements. In addition to meeting any 
other requirements set forth in this chapter, each Bank's risk 
management policy shall:
    (1) After the Finance Board has approved a Bank's capital plan, but 
before the plan takes effect, the Bank shall amend its risk management 
policy to describe the specific steps the Bank will take to comply with 
its capital plan and to include specific target ratios of total capital 
and permanent capital to total assets at which the Bank intends to 
operate. The target operating capital-to-assets ratios to be specified 
in the risk management policy shall be in excess of the minimum leverage 
and risk-based capital ratios and may be expressed as a range of ratios 
or as a single ratio;
    (2) Set forth the Bank's tolerance levels for the market and credit 
risk components; and
    (3) Set forth standards for the Bank's management of each risk 
component, including but not limited to:
    (i) Regarding credit risk arising from all secured and unsecured 
transactions, standards and criteria for, and timing of, periodic 
assessment of the creditworthiness of issuers, obligors, or other 
counterparties including identifying the criteria for selecting dealers, 
brokers and other securities firms with which the Bank may execute 
transactions;
    (ii) Regarding market risk, standards for the methods and models 
used to measure and monitor such risk;
    (iii) Regarding day-to-day operational liquidity needs and 
contingency liquidity needs:
    (A) An enumeration of specific types of investments to be held for 
such liquidity purposes; and
    (B) The methodology to be used for determining the Bank's 
operational and contingency liquidity needs;
    (iv) Regarding operations risk, standards for an effective internal 
control system, including periodic testing and reporting; and
    (v) Regarding business risk, strategies for mitigating such risk, 
including contingency plans where appropriate.
    (c) Risk assessment. The senior management of each Bank shall 
perform, at least annually, a risk assessment that is reasonably 
designed to identify and evaluate all material risks, including both 
quantitative and qualitative aspects, that could adversely affect the 
achievement of the Bank's performance objectives and compliance 
requirements. The risk assessment shall be in written form and shall be 
reviewed by the Bank's board of directors promptly upon its completion.

[65 FR 25274, May 1, 2000, as amended at 66 FR 8308, Jan. 30, 2001; 67 
FR 12846, Mar. 20, 2002]



Sec. 917.4  Bank Member Products Policy.

    (a) Adoption and review of member products policy--(1) Adoption. 
Beginning November 15, 2000, each Bank's board of directors shall have 
in effect at all times a policy that addresses the Bank's management of 
products offered by the Bank to members and housing associates, 
including but not limited to advances, standby letters of credit and 
acquired member assets, consistent with the requirements of the Act, 
paragraph (b) of this section, and all applicable Finance Board 
regulations and policies.
    (2) Review and compliance. Each Bank's board of directors shall:
    (i) Review the Bank's member products policy annually;
    (ii) Amend the member products policy as appropriate; and
    (iii) Re-adopt the member products policy, including interim 
amendments, not less often than every three years.
    (b) Member products policy requirements. In addition to meeting any 
other requirements set forth in this chapter, each Bank's member 
products policy shall:
    (1) Address credit underwriting criteria to be applied in evaluating 
applications for advances, standby letters of credit, and renewals;
    (2) Address appropriate levels of collateralization, valuation of 
collateral and discounts applied to collateral

[[Page 36]]

values for advances and standby letters of credit;
    (3) Address advances-related fees to be charged by each Bank, 
including any schedules or formulas pertaining to such fees;
    (4) Address standards and criteria for pricing member products, 
including differential pricing of advances pursuant to Sec. 950.5(b)(2) 
of this chapter, and criteria regarding the pricing of standby letters 
of credit, including any special pricing provisions for standby letters 
of credit that facilitate the financing of projects that are eligible 
for any of the Banks' CICA programs under part 952 of this chapter;
    (5) Provide that, for any draw made by a beneficiary under a standby 
letter of credit, the member will be charged a processing fee calculated 
in accordance with the requirements of Sec. 975.6(b) of this chapter;
    (6) Address the maintenance of appropriate systems, procedures and 
internal controls; and
    (7) Address the maintenance of appropriate operational and personnel 
capacity.

[65 FR 44426, July 18, 2000, as amended at 67 FR 12846, Mar. 20, 2002]



Sec. 917.5  Strategic business plan.

    (a) Adoption of strategic business plan. Beginning on July 30, 2000, 
each Bank's board of directors shall have in effect at all times a 
strategic business plan that describes how the business activities of 
the Bank will achieve the mission of the Bank consistent with part 940 
of this chapter. Specifically, each Bank's strategic business plan 
shall:
    (1) Enumerate operating goals and objectives for each major business 
activity and for all new business activities, which must include plans 
for maximizing activities that enhance the carrying out of the mission 
of the Bank, consistent with part 940 of this chapter;
    (2) Discuss how the Bank will:
    (i) Address credit needs and market opportunities identified through 
ongoing market research and consultations with members, associates and 
public and private organizations; and
    (ii) Notify members and associates of relevant programs and 
initiatives;
    (3) Establish quantitative performance goals for Bank products 
related to multi-family housing, small business, small farm and small 
agri-business lending;
    (4) Describe any proposed new business activities or enhancements of 
existing activities; and
    (5) Be supported by appropriate and timely research and analysis of 
relevant market developments and member and associate demand for Bank 
products and services.
    (b) Review and monitoring. Each Bank's board of directors shall:
    (1) Review the Bank's strategic business plan at least annually;
    (2) Amend the strategic business plan as appropriate;
    (3) Re-adopt the Bank's strategic business plan, including interim 
amendments, not less often than every three years; and
    (4) Establish management reporting requirements and monitor 
implementation of the strategic business plan and the operating goals 
and objectives contained therein.
    (c) Report to Finance Board. Each Bank shall submit to the Finance 
Board annually a report analyzing and describing the Bank's performance 
in achieving the goals described in paragraph (a)(3) of this section.

[65 FR 25274, May 1, 2000, as amended at 67 FR 12846, Mar. 20, 2002]



Sec. 917.6  Internal control system.

    (a) Establishment and maintenance. (1) Each Bank shall establish and 
maintain an effective internal control system that addresses:
    (i) The efficiency and effectiveness of Bank activities;
    (ii) The safeguarding of Bank assets;
    (iii) The reliability, completeness and timely reporting of 
financial and management information and transparency of such 
information to the Bank's board of directors and to the Finance Board; 
and
    (iv) Compliance with applicable laws, regulations, policies, 
supervisory determinations and directives of the Bank's board of 
directors and senior management.
    (2) Ongoing internal control activities necessary to maintain the 
internal

[[Page 37]]

control system required under paragraph (a)(1) of this section shall 
include, but are not limited to:
    (i) Top level reviews by the Bank's board of directors and senior 
management, including review of financial presentations and performance 
reports;
    (ii) Activity controls, including review of standard performance and 
exception reports by department-level management on an appropriate 
periodic basis;
    (iii) Physical and procedural controls to safeguard, and prevent the 
unauthorized use of, assets;
    (iv) Monitoring for compliance with the risk tolerance limits set 
forth in the Bank's risk management policy;
    (v) Any required approvals and authorizations for specific 
activities; and
    (vi) Any required verifications and reconciliations for specific 
activities.
    (b) Internal control responsibilities of Banks' boards of directors. 
Each Bank's board of directors shall ensure that the internal control 
system required under paragraph (a)(1) of this section is established 
and maintained, and shall oversee senior management's implementation of 
such a system on an ongoing basis, by:
    (1) Conducting periodic discussions with senior management regarding 
the effectiveness of the internal control system;
    (2) Ensuring that an internal audit of the internal control system 
is performed annually and that such annual audit is reasonably designed 
to be effective and comprehensive;
    (3) Requiring that internal control deficiencies be reported to the 
Bank's board of directors in a timely manner and that such deficiencies 
are addressed promptly;
    (4) Conducting a timely review of evaluations of the effectiveness 
of the internal control system made by internal auditors, external 
auditors and Finance Board examiners;
    (5) Directing senior management to address promptly and effectively 
recommendations and concerns expressed by internal auditors, external 
auditors and Finance Board examiners regarding weaknesses in the 
internal control system;
    (6) Reporting any internal control deficiencies found, and the 
corrective action taken, to the Finance Board in a timely manner;
    (7) Establishing, documenting and communicating an organizational 
structure that clearly shows lines of authority within the Bank, 
provides for effective communication throughout the Bank, and ensures 
that there are no gaps in the lines of authority;
    (8) Reviewing all delegations of authority to specific personnel or 
committees and requiring that such delegations state the extent of the 
authority and responsibilities delegated; and
    (9) Establishing reporting requirements, including specifying the 
nature and frequency of reports it receives.
    (c) Internal control responsibilities of Banks' senior management. 
Each Bank's senior management shall be responsible for carrying out the 
directives of the Bank's board of directors, including the 
establishment, implementation and maintenance of the internal control 
system required under paragraph (a)(1) of this section, by:
    (1) Establishing, implementing and effectively communicating to Bank 
personnel policies and procedures that are adequate to ensure that 
internal control activities necessary to maintain an effective internal 
control system, including the activities enumerated in paragraph (a)(2) 
of this section, are an integral part of the daily functions of all Bank 
personnel;
    (2) Ensuring that all Bank personnel fully understand and comply 
with all policies, procedures and legal requirements applicable to their 
positions and responsibilities;
    (3) Ensuring that there is appropriate segregation of duties among 
Bank personnel and that personnel are not assigned conflicting 
responsibilities;
    (4) Establishing effective paths of communication upward, downward 
and across the organization in order to ensure that Bank personnel 
receive necessary and appropriate information, including:
    (i) Information relating to the operational policies and procedures 
of the Bank;
    (ii) Information relating to the actual operational performance of 
the Bank;

[[Page 38]]

    (iii) Adequate and comprehensive internal financial, operational and 
compliance data; and
    (iv) External market information about events and conditions that 
are relevant to decision making;
    (5) Developing and implementing procedures that translate the major 
business strategies and policies established by the Bank's board of 
directors into operating standards;
    (6) Ensuring adherence to the lines of authority and responsibility 
established by the Bank's board of directors;
    (7) Overseeing the implementation and maintenance of management 
information and other systems;
    (8) Establishing and implementing an effective system to track 
internal control weaknesses and the actions taken to correct them; and
    (9) Monitoring and reporting to the Bank's board of directors the 
effectiveness of the internal control system on an ongoing basis.

[65 FR 25274, May 1, 2000, as amended at 67 FR 12846, Mar. 20, 2002]



Sec. 917.7  Audit committees.

    (a) Establishment. The board of directors of each Bank shall 
establish an audit committee, consistent with the requirements set forth 
in this section.
    (b) Composition. (1) The audit committee shall comprise five or more 
persons drawn from the Bank's board of directors, each of whom shall 
meet the criteria of independence set forth in paragraph (c) of this 
section.
    (2) The audit committee shall include a balance of representatives 
of:
    (i) Community financial institutions and other members; and
    (ii) Appointive and elective directors of the Bank.
    (3) The terms of audit committee members shall be appropriately 
staggered so as to provide for continuity of service.
    (4) At least one member of the audit committee shall have extensive 
accounting or related financial management experience.
    (c) Independence. Any member of the Bank's board of directors shall 
be considered to be sufficiently independent to serve as a member of the 
audit committee if that director does not have a disqualifying 
relationship with the Bank or its management that would interfere with 
the exercise of that director's independent judgment. Such disqualifying 
relationships include, but are not limited to:
    (1) Being employed by the Bank in the current year or any of the 
past five years;
    (2) Accepting any compensation from the Bank other than compensation 
for service as a board director;
    (3) Serving or having served in any of the past five years as a 
consultant, advisor, promoter, underwriter, or legal counsel of or to 
the Bank; or
    (4) Being an immediate family member of an individual who is, or has 
been in any of the past five years, employed by the Bank as an executive 
officer.
    (d) Charter. (1) The audit committee of each Bank shall adopt, and 
the Bank's board of directors shall approve, a formal written charter 
that specifies the scope of the audit committee's powers and 
responsibilities, as well as the audit committee's structure, processes 
and membership requirements.
    (2) The audit committee and the board of directors of each Bank 
shall:
    (i) Review, assess the adequacy of and, where appropriate, amend the 
Bank's audit committee charter on an annual basis;
    (ii) Amend the audit committee charter as appropriate; and
    (iii) Re-adopt and re-approve, respectively, the Bank's audit 
committee charter not less often than every three years.
    (3) Each Bank's audit committee charter shall:
    (i) Provide that the audit committee has the responsibility to 
select, evaluate and, where appropriate, replace the internal auditor 
and that the internal auditor may be removed only with the approval of 
the audit committee;
    (ii) Provide that the internal auditor shall report directly to the 
audit committee on substantive matters and that the internal auditor is 
ultimately accountable to the audit committee and board of directors; 
and
    (iii) Provide that both the internal auditor and the external 
auditor shall have unrestricted access to the audit committee without 
the need for any

[[Page 39]]

prior management knowledge or approval.
    (e) Duties. Each Bank's audit committee shall have the duty to:
    (1) Direct senior management to maintain the reliability and 
integrity of the accounting policies and financial reporting and 
disclosure practices of the Bank;
    (2) Review the basis for the Bank's financial statements and the 
external auditor's opinion rendered with respect to such financial 
statements (including the nature and extent of any significant changes 
in accounting principles or the application therein) and ensure that 
policies are in place that are reasonably designed to achieve disclosure 
and transparency regarding the Bank's true financial performance and 
governance practices;
    (3) Oversee the internal audit function by:
    (i) Reviewing the scope of audit services required, significant 
accounting policies, significant risks and exposures, audit activities 
and audit findings;
    (ii) Assessing the performance and determining the compensation of 
the internal auditor; and
    (iii) Reviewing and approving the internal auditor's work plan;
    (4) Oversee the external audit function by:
    (i) Approving the external auditor's annual engagement letter;
    (ii) Reviewing the performance of the external auditor; and
    (iii) Making recommendations to the Bank's board of directors 
regarding the appointment, renewal, or termination of the external 
auditor;
    (5) Provide an independent, direct channel of communication between 
the Bank's board of directors and the internal and external auditors;
    (6) Conduct or authorize investigations into any matters within the 
audit committee's scope of responsibilities;
    (7) Ensure that senior management has established and is maintaining 
an adequate internal control system within the Bank by:
    (i) Reviewing the Bank's internal control system and the resolution 
of identified material weaknesses and reportable conditions in the 
internal control system, including the prevention or detection of 
management override or compromise of the internal control system; and
    (ii) Reviewing the programs and policies of the Bank designed to 
ensure compliance with applicable laws, regulations and policies and 
monitoring the results of these compliance efforts;
    (8) Review the policies and procedures established by senior 
management to assess and monitor implementation of the Bank's strategic 
business plan and the operating goals and objectives contained therein; 
and
    (9) Report periodically its findings to the Bank's board of 
directors.
    (f) Meetings. The audit committee shall prepare written minutes of 
each audit committee meeting.

[65 FR 25274, May 1, 2000, as amended at 67 FR 12846, Mar. 20, 2002]



Sec. 917.8  Budget preparation.

    (a) Adoption of budgets. Each Bank's board of directors shall be 
responsible for the adoption of an annual operating expense budget and a 
capital expenditures budget for the Bank, and any subsequent amendments 
thereto, consistent with the requirements of the Act, this section, 
other regulations and policies of the Finance Board, and with the Bank's 
responsibility to protect both its members and the public interest by 
keeping its costs to an efficient and effective minimum.
    (b) No delegation of budget authority. A Bank's board of directors 
may not delegate the authority to approve the Bank's annual budgets, or 
any subsequent amendments thereto, to Bank officers or other Bank 
employees.
    (c) Interest rate scenario. A Bank's annual budgets shall be 
prepared based upon an interest rate scenario as determined by the Bank.
    (d) Board approval for deviations. A Bank may not exceed its total 
annual operating expense budget or its total annual capital expenditures 
budget without prior approval by the Bank's board of directors of an 
amendment to such budget.



Sec. 917.9  Dividends.

    (a) A Bank's board of directors may declare and pay a dividend only 
from previously retained earnings or current net earnings and only in 
accordance

[[Page 40]]

with any other applicable limitations on dividends set forth in the Act 
or this chapter. Dividends on such capital stock shall be computed 
without preference.
    (b) A Bank's board of directors may not declare or pay a dividend 
based on projected or anticipated earnings and may not declare or pay a 
dividend if the par value of the Bank's stock is impaired or is 
projected to become impaired after paying such dividend.
    (c) The requirement in paragraph (a) of this section that dividends 
be computed without preference shall cease to apply to any Bank that has 
established any dividend preferences for 1 or more classes or subclasses 
of its capital stock as part of its approved capital plan, as of the 
date on which the capital plan takes effect.

[71 FR 78051, Dec. 28, 2006]



Sec. 917.10  Bank bylaws.

    A Bank's board of directors shall have in effect at all times bylaws 
governing the manner in which the Bank administers its affairs and such 
bylaws shall be consistent with applicable laws and regulations as 
administered by the Finance Board.



   SUBCHAPTER D_FEDERAL HOME LOAN BANK MEMBERS AND HOUSING ASSOCIATES 
                               [RESERVED]



[[Page 41]]



    SUBCHAPTER E_FEDERAL HOME LOAN BANK RISK MANAGEMENT AND CAPITAL 
                                STANDARDS





PART 930_DEFINITIONS APPLYING TO RISK MANAGEMENT AND CAPITAL 
REGULATIONS--Table of Contents



    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1426, 1436(a), 1440, 
1443, and 1446.



Sec. 930.1  Definitions.

    As used in this subchapter:
    Affiliated counterparty means a counterparty of a Bank that 
controls, is controlled by or is under common control with another 
counterparty of the Bank. For the purposes of this definition only, 
direct or indirect ownership (including beneficial ownership) of more 
than 50 percent of the voting securities or voting interests of an 
entity constitutes control.
    Certain drawdown means a legally binding agreement that commits the 
Bank to make an advance or acquire a loan, at or by a specified future 
date.
    Charges against the capital of the Bank means an other than 
temporary decline in the Bank's total equity that causes the value of 
total equity to fall below the Bank's aggregate capital stock amount.
    Class A stock means capital stock issued by a Bank, including 
subclasses, that has the characteristics specified by Sec. 931.1(a) of 
this subchapter.
    Class B stock means capital stock issued by a Bank, including 
subclasses, that has the characteristics specified by Sec. 931.1(b) of 
this subchapter.
    Contingency liquidity means the sources of cash a Bank may use to 
meet its operational requirements when its access to the capital markets 
is impeded, and includes:
    (1) Marketable assets with a maturity of one year or less;
    (2) Self-liquidating assets with a maturity of seven days or less;
    (3) Assets that are generally accepted as collateral in the 
repurchase agreement market; and
    (4) Irrevocable lines of credit from financial institutions rated 
not lower than the second highest credit rating category by an NRSRO.
    Credit derivative contract means a derivative contract that 
transfers credit risk.
    Credit risk means the risk that the market value, or estimated fair 
value if market value is not available, of an obligation will decline as 
a result of deterioration in creditworthiness.
    Derivative contract means generally a financial contract the value 
of which is derived from the values of one or more underlying assets, 
reference rates, or indices of asset values, or credit-related events. 
Derivative contracts include interest rate, foreign exchange rate, 
equity, precious metals, commodity, and credit contracts, and any other 
instruments that pose similar risks.
    Exchange rate contracts include cross-currency interest-rate swaps, 
forward foreign exchange rate contracts, currency options purchased, and 
any similar instruments that give rise to similar risks.
    General allowance for losses means an allowance established by a 
Bank in accordance with GAAP for losses, but which does not include any 
amounts held against specific assets of the Bank.
    Government Sponsored Enterprise, or GSE, means a United States 
Government-sponsored agency or instrumentality originally established or 
chartered to serve public purposes specified by the United States 
Congress, but whose obligations are not obligations of the United States 
and are not guaranteed by the United States.
    Interest rate contracts include, single currency interest-rate 
swaps, basis swaps, forward rate agreements, interest-rate options, and 
any similar instrument that gives rise to similar risks, including when-
issued securities.
    Investment grade means:
    (1) A credit quality rating in one of the four highest credit rating 
categories by an NRSRO and not below the fourth highest rating category 
by any NRSRO; or
    (2) If there is no credit quality rating by an NRSRO, a 
determination by a

[[Page 42]]

Bank that the issuer, asset or instrument is the credit equivalent of 
investment grade using credit rating standards available from an NRSRO 
or other similar standards.
    Market risk means the risk that the market value, or estimated fair 
value if market value is not available, of a Bank's portfolio will 
decline as a result of changes in interest rates, foreign exchange 
rates, equity and commodity prices.
    Marketable means, with respect to an asset, that the asset can be 
sold with reasonable promptness at a price that corresponds reasonably 
to its fair value.
    Market value at risk is the loss in the market value of a Bank's 
portfolio measured from a base line case, where the loss is estimated in 
accordance with Sec. 932.5 of this chapter.
    Minimum investment means the minimum amount of Class A and/or Class 
B stock that a member is required to own in order to be a member of a 
Bank and in order to obtain advances and to engage in other business 
activities with the Bank in accordance with Sec. 931.3 of this chapter.
    Operations risk means the risk of an unexpected loss to a Bank 
resulting from human error, fraud, unenforceability of legal contracts, 
or deficiencies in internal controls or information systems.
    Permanent capital means the retained earnings of a Bank, determined 
in accordance with GAAP, plus the amount paid-in for the Bank's Class B 
stock.
    Redeem or Redemption means the acquisition by a Bank of its 
outstanding Class A or Class B stock at par value following the 
expiration of the six-month or five-year statutory redemption period, 
respectively, for the stock.
    Regulatory risk-based capital requirement means the amount of 
permanent capital that a Bank is required to maintain in accordance with 
Sec. 932.3 of this chapter.
    Regulatory total capital requirement means the amount of total 
capital that a Bank is required to maintain in accordance with Sec. 
932.2 of this chapter.
    Repurchase means the acquisition by a Bank of excess stock prior to 
the expiration of the six-month or five-year statutory redemption period 
for the stock.
    Repurchase agreement means an agreement between a seller and a buyer 
whereby the seller agrees to repurchase a security or similar securities 
at an agreed upon price, with or without a stated time for repurchase.
    Sales of federal funds subject to a continuing contract means an 
overnight federal funds loan that is automatically renewed each day 
unless terminated by either the lender or the borrower.
    Total assets means the total assets of a Bank, as determined in 
accordance with GAAP.
    Total capital of a Bank means the sum of permanent capital, the 
amounts paid-in for Class A stock, the amount of any general allowance 
for losses, and the amount of other instruments identified in a Bank's 
capital plan that the Finance Board has determined to be available to 
absorb losses incurred by such Bank.
    Walkaway clause means a provision in a bilateral netting contract 
that permits a nondefaulting counterparty to make a lower payment than 
it would make otherwise under the bilateral netting contract, or no 
payment at all, to a defaulter or the estate of a defaulter, even if the 
defaulter or the estate of the defaulter is a net creditor under the 
bilateral netting contract.

[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54107, Oct. 26, 2001; 66 
FR 66728, Dec. 27, 2001; 67 FR 12849, Mar. 20, 2002; 71 FR 78051, Dec. 
28, 2006]



PART 931_FEDERAL HOME LOAN BANK CAPITAL STOCK--Table of Contents



Sec.
931.1 Classes of capital stock.
931.2 Issuance of capital stock.
931.3 Minimum investment in capital stock.
931.4 Dividends.
931.5 Liquidation, merger, or consolidation.
931.6 Transfer of capital stock.
931.7 Redemption and repurchase of capital stock.
931.8 Other restrictions on the repurchase or redemption of Bank stock.
931.9 Transition provision.

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1426, 1440, 1443, 1446.

    Source: 66 FR 8310, Jan. 30, 2001, unless otherwise noted.

[[Page 43]]



Sec. 931.1  Classes of capital stock.

    The authorized capital stock of a Bank shall consist of the 
following instruments:
    (a) Class A stock, which shall:
    (1) Have a par value as determined by the board of directors of the 
Bank and stated in the Bank's capital plan;
    (2) Be issued, redeemed, and repurchased only at its stated par 
value; and
    (3) Be redeemable in cash only on six-months written notice to the 
Bank.
    (b) Class B stock, which shall:
    (1) Have a par value as determined by the board of directors of the 
Bank and stated in the Bank's capital plan;
    (2) Be issued, redeemed, and repurchased only at its stated par 
value;
    (3) Be redeemable in cash only on five-years written notice to the 
Bank; and
    (4) Confer an ownership interest in the retained earnings, surplus, 
undivided profits, and equity reserves of the Bank; and
    (c) Any one or more subclasses of Class A or Class B stock, each of 
which may have different rights, terms, conditions, or preferences as 
may be authorized in the Bank's capital plan, provided, however, that 
each subclass of stock shall have all of the characteristics of its 
respective class, as specified in paragraph (a) or (b) of this section.



Sec. 931.2  Issuance of capital stock.

    (a) In general. A Bank may issue either one or both classes of its 
capital stock (including subclasses), as authorized by Sec. 931.1, and 
shall not issue any other class of capital stock. A Bank shall issue its 
stock only to its members and only in book-entry form, and the Bank 
shall act as its own transfer agent. All capital stock shall be issued 
in accordance with the Bank's capital plan.
    (b) Initial issuance. In connection with the initial issuance of its 
Class A and/or Class B stock (or any subclass of either), a Bank may 
issue such stock in exchange for its existing stock, through a 
conversion of its existing stock, or through any other fair and 
equitable transaction or method of distribution. As part of its initial 
stock issuance transaction, a Bank may distribute any portion of its 
then-existing unrestricted retained earnings as shares of Class B stock.



Sec. 931.3  Minimum investment in capital stock.

    (a) A Bank shall require each member to maintain a minimum 
investment in the capital stock of the Bank, both as a condition to 
becoming and remaining a member of the Bank and as a condition to 
transacting business with the Bank or obtaining advances and other 
services from the Bank. The amount of the required minimum investment 
shall be determined in accordance with the Bank's capital plan and shall 
be sufficient to ensure that the Bank remains in compliance with its 
minimum capital requirements. A Bank shall require each member to 
maintain its minimum investment for as long as the institution remains a 
member of the Bank and for as long as the member engages in any activity 
with the Bank against which the Bank is required to maintain capital.
    (b) A Bank may establish the minimum investment required of each 
member as a percentage of the total assets of the member, as a 
percentage of the advances outstanding to the member, as a percentage of 
any other business activity conducted with the member, on any other 
basis that is approved by the Finance Board, or any combination thereof.
    (c) A Bank may require each member to satisfy the minimum investment 
requirement through the purchase of either Class A or Class B stock, or 
through the purchase of one or more combinations of Class A and Class B 
stock that have been authorized by the board of directors of the Bank in 
its capital plan. A Bank, in its discretion, may establish a lower 
minimum investment for members that invest in Class B stock than is 
required for members that invest in Class A stock, provided that such 
reduced investment provides sufficient capital for the Bank to remain in 
compliance with its minimum capital requirements.
    (d) Each member of a Bank shall at all times maintain an investment 
in the capital stock of the Bank in an amount that is sufficient to 
satisfy the minimum investment required for that

[[Page 44]]

member in accordance with the Bank's capital plan.

[66 FR 8310, Jan. 30, 2001, as amended at 70 FR 9510, Feb. 28, 2005]



Sec. 931.4  Dividends.

    (a) In general. A Bank may pay dividends on Class A or Class B 
stock, including any subclasses of such stock, only out of previously 
retained earnings or current net earnings, and shall declare and pay 
dividends only as provided by its capital plan. The capital plan may 
establish different dividend rates or preferences for each class or 
subclass of stock, which may include a dividend that tracks the economic 
performance of certain Bank assets, such as Acquired Member Assets. A 
member, including a member that has provided the Bank with a notice of 
intent to withdraw from membership or one whose membership is otherwise 
terminated, shall be entitled to receive any dividends that a Bank 
declares on its capital stock while the member owns the stock.
    (b) Limitation on payment of dividends. In no event shall a Bank 
declare or pay any dividend on its capital stock if after doing so the 
Bank would fail to meet any of its minimum capital requirements, nor 
shall a Bank that is not in compliance with any of its minimum capital 
requirements declare or pay any dividend on its capital stock.

[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54108, Oct. 26, 2001]



Sec. 931.5  Liquidation, merger, or consolidation.

    The respective rights of the Class A and Class B stockholders, in 
the event that the Bank is liquidated, or is merged or otherwise 
consolidated with another Bank, shall be determined in accordance with 
the capital plan of the Bank.



Sec. 931.6  Transfer of capital stock.

    A Bank in its capital plan may allow a member to transfer any excess 
capital stock of the Bank to another member of that Bank or to an 
institution that has been approved for membership in that Bank and that 
has satisfied all conditions for becoming a member, other than the 
purchase of the minimum amount of Bank stock that it is required to hold 
as a condition of membership. Any such stock transfers shall be at par 
value and shall be effective upon being recorded on the appropriate 
books and records of the Bank. The Bank may, in its capital plan, 
require a member to receive the approval of the Bank before a transfer 
of the Bank's stock, as allowed under this section, is completed.

[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54108, Oct. 26, 2001]



Sec. 931.7  Redemption and repurchase of capital stock.

    (a) Redemption. A member may have its capital stock in a Bank 
redeemed by providing written notice to the Bank in accordance with this 
section. For Class A stock, a member shall provide six-months written 
notice, and for Class B stock a member shall provide five-years written 
notice. The notice shall indicate the number of shares of Bank stock 
that are to be redeemed, and a member shall not have more than one 
notice of redemption outstanding at one time for the same shares of Bank 
stock. A member may cancel a notice of redemption by so informing the 
Bank in writing, and the Bank may impose a fee (to be specified in its 
capital plan) on any member that cancels a pending notice of redemption. 
At the expiration of the applicable notice period, the Bank shall pay 
the stated par value of that stock to the member in cash. A request by a 
member (whose membership has not been terminated) to redeem specific 
shares of stock shall automatically be cancelled if the Bank is 
prevented from redeeming the member's stock by paragraph (c) of this 
section within five business days from the end of the expiration of the 
applicable redemption notice period because the member would fail to 
maintain its minimum investment in the stock of the Bank after such 
redemption. The automatic cancellation of a member's redemption request 
shall have the same effect as if the member had cancelled its notice to 
redeem stock prior to the end of the redemption notice period, and a 
Bank may impose a fee (to be specified in its capital plan) for 
automatic cancellation of a redemption request. A Bank

[[Page 45]]

shall not be obligated to redeem its capital stock other than in 
accordance with this paragraph.
    (b) Repurchase. A Bank, in its discretion and without regard to the 
applicable redemption periods, may repurchase from a member any 
outstanding Class A or Class B capital stock that is in excess of the 
amount of that class of Bank stock that the member is required to hold 
as a minimum investment, in accordance with the capital plan of that 
Bank. A Bank undertaking such a stock repurchase at its own initiative 
shall provide the member with reasonable notice prior to repurchasing 
any excess stock, with the period of such notice to be specified in the 
Bank's capital plan, and shall pay the stated par value of that stock to 
the member in cash. For purposes of this section, any Bank stock owned 
by a member shall be considered to be excess stock if the member is not 
required to hold such stock either as a condition of remaining a member 
of the Bank or as a condition of obtaining advances or transacting other 
business with the Bank. A member's submission of a notice of intent to 
withdraw from membership, or its termination of membership in any other 
manner, shall not, in and of itself, cause any Bank stock to be deemed 
excess stock for purposes of this section.
    (c) Limitation. In no event may a Bank redeem or repurchase any 
stock if, following the redemption or repurchase, the Bank would fail to 
meet any minimum capital requirement, or if the member would fail to 
maintain its minimum investment in the stock of the Bank, as required by 
Sec. 931.3.

[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54108, Oct. 26, 2001; 70 
FR 9510, Feb. 28, 2005]



Sec. 931.8  Other restrictions on the repurchase or redemption of Bank
stock.

    (a) Capital impairment. A Bank may not redeem or repurchase any 
capital stock without the prior written approval of the Finance Board if 
the Finance Board or the board of directors of the Bank has determined 
that the Bank has incurred or is likely to incur losses that result in 
or are likely to result in charges against the capital of the Bank. This 
prohibition shall apply even if a Bank is in compliance with its minimum 
capital requirements, and shall remain in effect for however long the 
Bank continues to incur such charges or until the Finance Board 
determines that such charges are not expected to continue.
    (b) Bank discretion to suspend redemption. A Bank, upon the approval 
of its board of directors, or of a subcommittee thereof, may suspend 
redemption of stock if the Bank reasonably believes that continued 
redemption of stock would cause the Bank to fail to meet its minimum 
capital requirements as set forth in Sec. Sec. 932.2 or 932.3 of this 
chapter, would prevent the Bank from maintaining adequate capital 
against a potential risk that may not be adequately reflected in its 
minimum capital requirements, or would otherwise prevent the Bank from 
operating in a safe and sound manner. A Bank shall notify the Finance 
Board in writing within two business days of the date of the decision to 
suspend the redemption of stock, informing the Finance Board of the 
reasons for the suspension and of the Bank's strategies and time frames 
for addressing the conditions that led to the suspension. The Finance 
Board may require the Bank to re-institute the redemption of member 
stock. A Bank shall not repurchase any stock without the written 
permission of the Finance Board during any period in which the Bank has 
suspended redemption of stock under this paragraph.

[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54108, Oct. 26, 2001]



Sec. 931.9  Transition provision.

    (a) In general. Each Bank shall comply with the minimum leverage and 
risk-based capital requirements specified in Sec. 932.2 and Sec. 932.3 
of this chapter, respectively, and each member shall comply with the 
minimum investment established in the capital plan, as of the effective 
date of that Bank's capital plan. The effective date of a Bank's capital 
plan shall be the date on which the Bank first issues any Class A or 
Class B stock. Prior to the effective date, the issuance and retention 
of Bank stock shall be as provided in Sec. 925.20 and Sec. 925.22 of 
this chapter.

[[Page 46]]

    (b) Transition period--(1) Bank transition. A Bank that will not be 
in compliance with the minimum leverage and risk-based capital 
requirements specified in Sec. 932.2 and Sec. 932.3 of this chapter as 
of the effective date of its capital plan shall maintain compliance with 
the leverage limit requirements in Sec. 966.3(a) of this chapter and 
shall include in its capital plan a description of the steps that the 
Bank will take to achieve compliance with the minimum capital 
requirements specified in Sec. 932.2 and Sec. 932.3 of this chapter. 
The period of time for compliance with the minimum capital requirements 
shall be stated in the plan and shall not exceed three years from the 
effective date of the capital plan. When the Bank has achieved 
compliance with the leverage requirement of Sec. 932.2 of this chapter, 
the leverage limit requirements of Sec. 966.3(a) of this chapter shall 
cease to apply to that Bank.
    (2) Member transition. (i) Existing members. A Bank's capital plan 
shall require any institution that was a member on November 12, 1999, 
and whose investment in Bank stock as of the effective date of the 
capital plan will be less than the minimum investment required by the 
plan, to comply with the minimum investment by a date specified in the 
Bank's capital plan. The length of the transition period shall be 
specified in the capital plan and shall not exceed three years. The 
capital plan shall describe the actions that the existing members are 
required to take to achieve compliance with the minimum investment, and 
may require such members to purchase additional Bank stock periodically 
over the course of the transition period.
    (ii) New members. A Bank's capital plan shall require any 
institution that became a member after November 12, 1999, but prior to 
the effective date of the capital plan, to comply with the minimum 
investment specified in the Bank's capital plan as of the effective date 
of the plan. A Bank's capital plan shall require any institution that 
becomes a member after the effective date of the capital plan, to comply 
with the minimum investment upon becoming a member.
    (3) New business. A Bank's capital plan shall require any member 
that obtains an advance or other services from the Bank, or that 
initiates any other business activity with the Bank against which the 
Bank is required to hold capital, after the effective date of the 
capital plan to comply with the minimum investment specified in the 
Bank's capital plan for such advance, services, or activity at the time 
the transaction occurs.



PART 932_FEDERAL HOME LOAN BANK CAPITAL REQUIREMENTS--Table of Contents



Sec.
932.1 Risk management.
932.2 Total capital requirement.
932.3 Risk-based capital requirement.
932.4 Credit risk capital requirement.
932.5 Market risk capital requirement.
932.6 Operations risk capital requirement.
932.7 Reporting requirements.
932.8 Minimum liquidity requirements.
932.9 Limits on unsecured extensions of credit to one counterparty or 
          affiliated counterparties; reporting requirements for total 
          extensions of credit to one counterparty or affiliated 
          counterparties.

    Authority: 12 U.S.C. 1426, 1440, 1443, 1446, 4513, 4526.

    Source: 66 FR 8310, Jan. 30, 2001, unless otherwise noted.



Sec. 932.1  Risk management.

    Before its new capital plan may take effect, each Bank shall obtain 
the approval of the Finance Board for the internal market risk model or 
the internal cash flow model used to calculate the market risk component 
of its risk-based capital requirement, and for the risk assessment 
procedures and controls (whether established as part of its risk 
management policy or otherwise) to be used to manage its credit, market, 
and operations risks.



Sec. 932.2  Total capital requirement.

    Each Bank shall maintain at all times:
    (a) Total capital in an amount at least equal to 4.0 percent of the 
Bank's total assets; and
    (b) A leverage ratio of total capital to total assets of at least 
5.0 percent of the Bank's total assets. For purposes of determining the 
leverage ratio, total capital shall be computed by multiplying the 
Bank's permanent capital

[[Page 47]]

by 1.5 and adding to this product all other components of total capital.

[76 FR 11674, Mar. 3, 2011]



Sec. 932.3  Risk-based capital requirement.

    Each Bank shall maintain at all times permanent capital in an amount 
at least equal to the sum of its credit risk capital requirement, its 
market risk capital requirement, and its operations risk capital 
requirement, calculated in accordance with Sec. Sec. 932.4, 932.5 and 
932.6, respectively.

76 FR 11674, Mar. 3, 2011]



Sec. 932.4  Credit risk capital requirement.

    (a) General requirement. Each Bank's credit risk capital requirement 
shall be equal to the sum of the Bank's credit risk capital charges for 
all assets, off-balance sheet items and derivative contracts.
    (b) Credit risk capital charge for assets. Except as provided in 
paragraph (i) of this section, each Bank's credit risk capital charge 
for an asset shall be equal to the book value of the asset multiplied by 
the credit risk percentage requirement assigned to that asset pursuant 
to paragraph (e)(2) of this section.
    (c) Credit risk capital charge for off-balance sheet items. Each 
Bank's credit risk capital charge for an off-balance sheet item shall be 
equal to the credit equivalent amount of such item, as determined 
pursuant to paragraph (f) of this section multiplied by the credit risk 
percentage requirement assigned to that item pursuant to paragraph 
(e)(2) of this section, except that the credit risk percentage 
requirement applied to the credit equivalent amount for a stand-by 
letter of credit shall be that for an advance with the same remaining 
maturity as that stand-by letter of credit.
    (d) Credit risk capital charge for derivative contracts--(1) 
Derivative contracts with non-member counterparties. Except as provided 
in paragraph (j) of this section, each Bank's credit risk capital charge 
for a specific derivative contract entered into between a Bank and a 
non-member institution shall equal the sum of :
    (i) The current credit exposure for the derivative contract, 
calculated in accordance with paragraph (g) or (h) of this section, as 
applicable, multiplied by the credit risk percentage requirement 
assigned to that derivative contract pursuant to paragraph (e)(2) of 
this section, provided that:
    (A) The remaining maturity of the derivative contract shall be 
deemed to be less than one year for the purpose of applying Table 1.1 or 
1.3 of this part; and
    (B) Any collateral held against an exposure from the derivative 
contract shall be applied to reduce the portion of the credit risk 
capital charge corresponding to the current credit exposure in 
accordance with the requirements of paragraph (e)(2)(ii)(B) of this 
section; plus
    (ii) The potential future credit exposure for the derivative 
contract calculated in accordance with paragraph (g) or (h) of this 
section, as applicable, multiplied by the credit risk percentage 
requirement assigned to that derivative contract pursuant to paragraph 
(e)(2) of this section, where the actual remaining maturity of the 
derivative contract is used to apply Table 1.1 or Table 1.3 of this 
part.
    (2) Derivative contracts with a member. Except as provided in 
paragraph (j) of this section, the credit risk capital charge for any 
derivative contract entered into between a Bank and one of its member 
institutions shall be calculated in accordance with paragraph (d)(1) of 
this section. However, the credit risk percentage requirements used in 
the calculations shall be found in Table 1.1 of this part, which sets 
forth the credit risk percentage requirements for advances.
    (e) Determination of credit risk percentage requirements--(1) 
Finance Board determination of credit risk percentage requirements. The 
Finance Board shall determine, and update periodically, the credit risk 
percentage requirements set forth in Tables 1.1 through 1.4 of this part 
applicable to a Bank's assets, off-balance sheet items, and derivative 
contracts.
    (2) Bank determination of credit risk percentage requirements. (i) 
Each Bank shall determine the credit risk percentage requirement 
applicable to each

[[Page 48]]

asset, each off-balance sheet item and each derivative contract by 
identifying the category set forth in Table 1.1, Table 1.2, Table 1.3 or 
Table 1.4 of this part to which the asset, item or derivative belongs, 
given, if applicable, its demonstrated credit rating and remaining 
maturity (as determined in accordance with paragraphs (e)(2)(ii) and 
(e)(2)(iii) of this section). The applicable credit risk percentage 
requirement for an asset, off-balance sheet item or derivative contract 
shall be used to calculate the credit risk capital charge for such 
asset, item, or derivative contract in accordance with paragraphs (b), 
(c) or (d) of this section respectively. The relevant categories and 
credit risk percentage requirements are provided in the following Tables 
1.1 through 1.4 of this part:

                   Table 1.1--Requirement for Advances
------------------------------------------------------------------------
                                                              Percentage
                      Type of advances                        applicable
                                                             to advances
------------------------------------------------------------------------
Advances with:
  Remaining maturity <= 4 years............................         0.07
  Remaining maturity  4 years to 7 years........         0.20
  Remaining maturity  7 years to 10 years.......         0.30
  Remaining maturity  10 years..................         0.35
------------------------------------------------------------------------


      Table 1.2--Requirement for Rated Residential Mortgage Assets
------------------------------------------------------------------------
                                                              Percentage
                                                              applicable
                                                                  to
             Type of residential mortgage asset              residential
                                                               mortgage
                                                                assets
------------------------------------------------------------------------
Highest Investment Grade...................................         0.37
Second Highest Investment Grade............................         0.60
Third Highest Investment Grade.............................         0.86
Fourth Highest Investment Grade............................         1.20
If Downgraded to Below Investment Grade After Acquisition
 By Bank:
  Highest Below Investment Grade...........................         2.40
  Second Highest Below Investment Grade....................         4.80
  All Other Below Investment Grade.........................        34.00
Subordinated Classes of Mortgage Assets:
  Highest Investment Grade.................................         0.37
  Second Highest Investment Grade..........................         0.60
  Third Highest Investment Grade...........................         1.60
  Fourth Highest Investment Grade..........................         4.45
If Downgraded to Below Investment Grade After Acquisition
 By Bank:
  Highest Below Investment Grade...........................        13.00
  Second Highest Below Investment Grade....................        34.00
  All Other Below Investment Grade.........................       100.00
------------------------------------------------------------------------


    Table 1.3--Requirement for rated Assets or Rated Items Other Than Advances or Residential Mortgage Assets
                                          [Based on remaining maturity]
----------------------------------------------------------------------------------------------------------------
                                                                    Applicable percentage
                                           ---------------------------------------------------------------------
                                                                                     7
                                             <= 1 year   1  3    yrs to 10   10
                                                          yr to 3 yrs   yrs to 7yrs       yrs           yrs
----------------------------------------------------------------------------------------------------------------
U.S. Government Securities................         0.00          0.00          0.00          0.00          0.00
Highest Investment Grade..................         0.15          0.40          0.90          1.40          2.20
Second Highest Investment Grade...........         0.20          0.45          1.00          1.45          2.30
Third Highest Investment Grade............         0.70          1.10          1.60          2.05          2.95
Fourth Highest Investment Grade...........         2.50          3.70          4.45          5.50          7.05
If Downgraded Below Investment Grade After
 Acquisition by Bank:
    Highest Below Investment Grade........        10.00         13.00         13.00         13.00         13.00
    Second Highest Below Investment Grade.        26.00         34.00         34.00         34.00         34.00
    All Other.............................       100.00        100.00        100.00        100.00        100.00
----------------------------------------------------------------------------------------------------------------


                Table 1.4--Requirement for Unrated Assets
------------------------------------------------------------------------
                                                              Applicable
                   Type of unrated asset                      percentage
------------------------------------------------------------------------
Cash.......................................................         0.00
Premises, Plant, and Equipment.............................         8.00
Investments Under Sec. 940.3(e) & (f)....................         8.00
------------------------------------------------------------------------

    (ii) When determining the applicable credit risk percentage 
requirement from Tables 1.2 or 1.3 of this part, each Bank shall apply 
the following criteria:
    (A) For assets or items that are rated directly by an NRSRO, the 
credit rating shall be the NRSRO's credit rating for the asset or item 
as determined in accordance with paragraph (e)(2)(iii) of this section.
    (B) When using Table 1.3 of this part, for an asset, off-balance 
sheet item, or derivative contract that is not rated directly by an 
NRSRO, but for which an NRSRO rating has been assigned to any 
corresponding obligor

[[Page 49]]

counterparty, third party guarantor, or collateral backing the asset, 
item, or derivative, the credit rating that shall apply to the asset, 
item, or derivative, or portion of the asset, item, or derivative so 
guaranteed or collateralized, shall be the credit rating corresponding 
to such obligor counterparty, third party guarantor, or underlying 
collateral, as determined in accordance with paragraph (e)(2)(iii) of 
this section. If there are multiple obligor counterparties, third party 
guarantors, or collateral instruments backing an asset, item, or 
derivative not rated directly by an NRSRO, or any specific portion 
thereof, then the credit rating that shall apply to that asset, item, or 
derivative or specific portion thereof, shall be the highest credit 
rating among such obligor counterparties, third party guarantors, or 
collateral instruments, as determined in accordance with paragraph 
(e)(2)(iii) of this section. Assets, items or derivatives shall be 
deemed to be backed by collateral for purposes of this paragraph if the 
collateral is:
    (1) Actually held by the Bank or an independent, third-party 
custodian, or, if permitted under the Bank's collateral agreement with 
such party, by the Bank's member or an affiliate of that member where 
the term ``affiliate'' has the same meaning as in Sec. 950.1 of this 
chapter;
    (2) Legally available to absorb losses;
    (3) Of a readily determinable value at which it can be liquidated by 
the Bank;
    (4) Held in accordance with the provisions of the Bank's member 
products policy established pursuant to Sec. 917.4 of this chapter; and
    (5) Subject to an appropriate discount to protect against price 
decline during the holding period, as well as the costs likely to be 
incurred in the liquidation of the collateral.
    (C) When using Table 1.3 of this part, for an asset with a short-
term credit rating from a given NRSRO, the credit risk percentage 
requirement shall be based on the remaining maturity of the asset and 
the long-term credit rating provided for the issuer of the asset by the 
same NRSRO. Should the issuer of the short-term asset not have a long-
term credit rating, the long-term equivalent rating shall be determined 
as follows:
    (1) The highest short-term credit rating shall be equivalent to the 
third highest long-term rating;
    (2) The second highest short-term rating shall be equivalent to the 
fourth highest long-term rating;
    (3) The third highest short-term rating shall be equivalent to the 
fourth highest long-term rating; and
    (4) If the short-term rating is downgraded to below investment grade 
after acquisition by the Bank, the short-term rating shall be equivalent 
to the second highest below investment grade long-term rating.
    (D) For residential mortgage assets and other assets or items, or 
relevant portion of an asset or item, that do not meet the requirements 
of paragraphs (e)(2)(ii)(A), (e)(2)(ii)(B) or (e)(2)(ii)(C) of this 
section, and are not identified in Tables 1.1 or Table 1.4 of this part, 
each Bank shall determine its own credit rating for such assets or 
items, or relevant portion thereof, using credit rating standards 
available from an NRSRO or other similar standards. This credit rating, 
as determined by the Bank, shall be used to identify the applicable 
credit risk percentage requirement under Table 1.2 of this part for 
residential mortgage assets, or under Table 1.3 of this part for all 
other assets or items.
    (E) The credit risk percentage requirement for mortgage assets that 
are acquired member assets described in Sec. 955.2 of this chapter 
shall be assigned from Table 1.2 of this part based on the rating of 
those assets after taking into account any credit enhancement required 
by Sec. 955.3 of this chapter. Should a Bank further enhance a pool of 
loans through the purchase of insurance or by some other means, the 
credit risk percentage requirement shall be based on the rating of such 
pool after the supplemental credit enhancement, except that the Finance 
Board retains the right to adjust the credit capital charge to account 
for any deficiencies with the supplemental enhancement on a case-by-case 
basis.
    (iii) In determining the credit ratings under paragraph 
(e)(2)(ii)(A),

[[Page 50]]

(e)(2)(ii)(B) and (e)(2)(ii)(C) of this section, each Bank shall apply 
the following criteria:
    (A) The most recent credit rating from a given NRSRO shall be 
considered. If only one NRSRO has rated an asset or item, that NRSRO's 
rating shall be used. If an asset or item has received credit ratings 
from more than one NRSRO, the lowest credit rating from among those 
NRSROs shall be used.
    (B) Where a credit rating has a modifier (e.g., A-1+ for short-term 
ratings and A+ or A- for long-term ratings) the credit rating is deemed 
to be the credit rating without the modifier (e.g., A-1+ = A-1 and A+ or 
A-= A);
    (f) Calculation of credit equivalent amount for off-balance sheet 
items--(1) General requirement. The credit equivalent amount for an off-
balance sheet item shall be determined by a Finance Board approved model 
or shall be equal to the face amount of the instrument multiplied by the 
credit conversion factor assigned to such risk category of instruments, 
subject to the exceptions in paragraph (f)(2) of this section, provided 
in the following Table 2 of this part:

     Table 2--Credit Conversion Factors for Off-Balance Sheet Items
------------------------------------------------------------------------
                                                              Credit
                                                            conversion
                       Instrument                           factor  (In
                                                             percent)
------------------------------------------------------------------------
Asset sales with recourse where the credit risk remains              100
 with the Bank..........................................
Commitments to make advances subject to certain drawdown
Commitments to acquire loans subject to certain drawdown
Standby letters of credit...............................              50
Other commitments with original maturity of over one
 year...................................................
Other commitments with original maturity of one year or               20
 less...................................................
------------------------------------------------------------------------

    (2) Exceptions. The credit conversion factor shall be zero for Other 
Commitments With Original Maturity of Over One Year and Other 
Commitments With Original Maturity of One Year or Less, for which credit 
conversion factors of 50 percent or 20 percent would otherwise apply, 
that are unconditionally cancelable, or that effectively provide for 
automatic cancellation, due to the deterioration in a borrower's 
creditworthiness, at any time by the Bank without prior notice.
    (g) Calculation of current and potential future credit exposures for 
single derivative contracts--(1) Current credit exposure. The current 
credit exposure for a derivative contract that is not subject to a 
qualifying bilateral netting contract described in paragraph (h)(3) of 
this section shall be:
    (i) If the mark-to-market value of the contract is positive, the 
mark-to-market value of the contract; or
    (ii) If the mark-to-market value of the contract is zero or 
negative, zero.
    (2) Potential future credit exposure. (i) The potential future 
credit exposure for a single derivative contract, including a derivative 
contract with a negative mark-to-market value, shall be calculated using 
an internal model approved by the Finance Board or, in the alternative, 
by multiplying the effective notional amount of the derivative contract 
by one of the assigned credit conversion factors, modified as may be 
required by paragraph (g)(2)(ii) of this section, for the appropriate 
category as provided in the following Table 3 of this part:

          Table 3--Credit Conversion Factors for Potential Future Credit Exposure Derivative Contracts
                                                  [In percent]
----------------------------------------------------------------------------------------------------------------
                                                                Foreign                   Precious
              Residual maturity                  Interest    exchange and     Equity       metals       Other
                                                   rate          gold                   except gold  commodities
----------------------------------------------------------------------------------------------------------------
One year or less.............................           0             1              6            7           10
Over 1 year to five years....................            .5           5              8            7           12
Over five years..............................           1.5           7.5           10            8           15
----------------------------------------------------------------------------------------------------------------


[[Page 51]]

    (ii) In applying the credit conversion factors in Table 3 of this 
part the following modifications shall be made:
    (A) For derivative contracts with multiple exchanges of principal, 
the conversion factors are multiplied by the number of remaining 
payments in the derivative contract; and
    (B) For derivative contracts that automatically reset to zero value 
following a payment, the residual maturity equals the time until the 
next payment; however, interest rate contracts with remaining maturities 
of greater than one year shall be subject to a minimum conversion factor 
of 0.5 percent.
    (iii) If a Bank uses an internal model to determine the potential 
future credit exposure for a particular type of derivative contract, the 
Bank shall use the same model for all other similar types of contracts. 
However, the Bank may use an internal model for one type of derivative 
contract and Table 3 of this part for another type of derivative 
contract.
    (iv) Forwards, swaps, purchased options and similar derivative 
contracts not included in the Interest Rate, Foreign Exchange and Gold, 
Equity, or Precious Metals Except Gold categories shall be treated as 
other commodities contracts when determining potential future credit 
exposures using Table 3 of this part.
    (v) If a Bank uses Table 3 of this part to determine the potential 
future credit exposures for credit derivative contracts, the credit 
conversion factors provided in Table 3 for equity contracts shall also 
apply to the credit derivative contracts entered into with investment 
grade counterparties. If the counterparty is downgraded to below 
investment grade, the credit conversion factor provided in Table 3 of 
this part for other commodity contracts shall apply.
    (h) Calculation of current and potential future credit exposures for 
multiple derivative contracts subject to a qualifying bilateral netting 
contract--(1) Current credit exposure. The current credit exposure for 
multiple derivative contracts executed with a single counterparty and 
subject to a qualifying bilateral netting contract described in 
paragraph (h)(3) of this section, shall be calculated on a net basis and 
shall equal:
    (i) The net sum of all positive and negative mark-to-market values 
of the individual derivative contracts subject to a qualifying bilateral 
netting contract, if the net sum of the mark-to-market values is 
positive; or
    (ii) Zero, if the net sum of the mark-to-market values is zero or 
negative.
    (2) Potential future credit exposure. The potential future credit 
exposure for each individual derivative contract from among a group of 
derivative contracts that are executed with a single counterparty and 
subject to a qualifying bilateral netting contract described in 
paragraph (h)(3) of this section shall be calculated as follows:

Anet = 0.4 x Agross + (0.6 x NGR x 
    Agross),


where:
    (i) Anet is the potential future credit exposure for an 
individual derivative contract subject to the qualifying bilateral 
netting contract;
    (ii) Agross is the gross potential future credit 
exposure, i.e., the potential future credit exposure for the individual 
derivative contract, calculated in accordance with paragraph (g)(2) of 
this section but without regard to the fact that the contract is subject 
to the qualifying bilateral netting contract;
    (iii) NGR is the net to gross ratio, i.e., the ratio of the net 
current credit exposure of all the derivative contracts subject to the 
qualifying bilateral netting contract, calculated in accordance with 
paragraph (h)(1) of this section, to the gross current credit exposure; 
and
    (iv) The gross current credit exposure is the sum of the positive 
current credit exposures of all the individual derivative contracts 
subject to the qualifying bilateral netting contract, calculated in 
accordance with paragraph (g)(1) of this section but without regard to 
the fact that the contract is subject to the qualifying bilateral 
netting contract.
    (3) Qualifying bilateral netting contract. A bilateral netting 
contract shall be considered a qualifying bilateral netting contract if 
the following conditions are met:
    (i) The netting contract is in writing;
    (ii) The netting contract is not subject to a walkaway clause;

[[Page 52]]

    (iii) The netting contract provides that the Bank would have a 
single legal claim or obligation either to receive or to pay only the 
net amount of the sum of the positive and negative mark-to-market values 
on the individual derivative contracts covered by the netting contract 
in the event that a counterparty, or a counterparty to whom the netting 
contract has been assigned, fails to perform due to default, insolvency, 
bankruptcy, or other similar circumstance;
    (iv) The Bank obtains a written and reasoned legal opinion that 
represents, with a high degree of certainty, that in the event of a 
legal challenge, including one resulting from default, insolvency, 
bankruptcy, or similar circumstances, the relevant court and 
administrative authorities would find the Bank's exposure to be the net 
amount under:
    (A) The law of the jurisdiction by which the counterparty is 
chartered or the equivalent location in the case of non-corporate 
entities, and if a branch of the counterparty is involved, then also 
under the law of the jurisdiction in which the branch is located;
    (B) The law of the jurisdiction that governs the individual 
derivative contracts covered by the netting contract; and
    (C) The law of the jurisdiction that governs the netting contract;
    (v) The Bank establishes and maintains procedures to monitor 
possible changes in relevant law and to ensure that the netting contract 
continues to satisfy the requirements of this section; and
    (vi) The Bank maintains in its files documentation adequate to 
support the netting of a derivative contract.
    (i) Credit risk capital charge for assets hedged with credit 
derivatives--(1) Credit derivatives with a remaining maturity of one 
year or more. The credit risk capital charge for an asset that is hedged 
with a credit derivative that has a remaining maturity of one year or 
more may be reduced only in accordance with paragraph (i)(3) or (i)(4) 
of this section and only if the credit derivative provides substantial 
protection against credit losses.
    (2) Credit derivatives with a remaining maturity of less than one 
year. The credit risk capital charge for an asset that is hedged with a 
credit derivative that has a remaining maturity of less than one year 
may be reduced only in accordance with paragraph (i)(3) of this section 
and only if the remaining maturity on the credit derivative is identical 
to or exceeds the remaining maturity of the hedged asset and the credit 
derivative provides substantial protection against credit losses.
    (3) Capital charge reduced to zero. The credit risk capital charge 
for an asset shall be zero if a credit derivative is used to hedge the 
credit risk on that asset in accordance with paragraph (i)(1) or (i)(2) 
of this section, provided that:
    (i) The remaining maturity for the credit derivative used for the 
hedge is identical to or exceeds the remaining maturity for the hedged 
asset, and either:
    (A) The asset referenced in the credit derivative is identical to 
the hedged asset; or
    (B) The asset referenced in the credit derivative is different from 
the hedged asset, but only if the asset referenced in the credit 
derivative and the hedged asset have been issued by the same obligor, 
the asset referenced in the credit derivative ranks pari passu to or 
more junior than the hedged asset and has the same maturity as the 
hedged asset, and cross-default clauses apply; and
    (ii) The credit risk capital charge for the credit derivative 
contract calculated pursuant to paragraph (d) of this section is still 
applied.
    (4) Capital charge reduction in certain other cases. The credit risk 
capital charge for an asset hedged with a credit derivative in 
accordance with paragraph (i)(1) of this section shall equal the sum of 
the credit risk capital charges for the hedged and unhedged portion of 
the asset provided that:
    (i) The remaining maturity for the credit derivative is less than 
the remaining maturity for the hedged asset and either:
    (A) The asset referenced in the credit derivative is identical to 
the hedged asset; or
    (B) The asset referenced in the credit derivative is different from 
the hedged asset, but only if the asset referenced in the credit 
derivative and the hedged

[[Page 53]]

asset have been issued by the same obligor, the asset referenced in the 
credit derivative ranks pari passu to or more junior than the hedged 
asset and has the same maturity as the hedged asset, and cross-default 
clauses apply; and
    (ii) The credit risk capital charge for the unhedged portion of the 
asset equals:
    (A) The credit risk capital charge for the hedged asset, calculated 
as the book value of the hedged asset multiplied by the hedged asset's 
credit risk percentage requirement assigned pursuant to paragraph (e)(2) 
of this section where the appropriate credit rating is that for the 
hedged asset and the appropriate maturity is the remaining maturity of 
the hedged asset; minus
    (B) The credit risk capital charge for the hedged asset, calculated 
as the book value of the hedged asset multiplied by the hedged asset's 
credit risk percentage requirement assigned pursuant to paragraph (e)(2) 
of this section where the appropriate credit rating is that for the 
hedged asset but the appropriate maturity is deemed to be the remaining 
maturity of the credit derivative; and
    (iii) The credit risk capital charge for the hedged portion of the 
asset is equal to the credit risk capital charge for the credit 
derivative, calculated in accordance with paragraph (d) of this section.
    (j) Zero Credit risk capital charge for certain derivative 
contracts. The credit risk capital charge for the following derivative 
contracts shall be zero:
    (1) A foreign exchange rate contract with an original maturity of 14 
calendar days or less (gold contracts do not qualify for this 
exception); and
    (2) A derivative contract that is traded on an organized exchange 
requiring the daily payment of any variations in the market value of the 
contract.
    (k) Date of calculations. Unless otherwise directed by the Finance 
Board, each Bank shall perform all calculations required by this section 
using the assets, off-balance sheet items, and derivative contracts held 
by the Bank, and, if applicable, the values or credit ratings of such 
assets, items, or derivatives as of the close of business of the last 
business day of the month for which the credit risk capital charge is 
being calculated.

[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54108, Oct. 26, 2001]



Sec. 932.5  Market risk capital requirement.

    (a) General requirement. (1) Each Bank's market risk capital 
requirement shall equal the sum of:
    (i) The market value of the Bank's portfolio at risk from movements 
in interest rates, foreign exchange rates, commodity prices, and equity 
prices that could occur during periods of market stress, where the 
market value of the Bank's portfolio at risk is determined using an 
internal market risk model that fulfills the requirements of paragraph 
(b) of this section and that has been approved by the Finance Board; and
    (ii) The amount, if any, by which the Bank's current market value of 
total capital is less than 85 percent of the Bank's book value of total 
capital, where:
    (A) The current market value of the total capital is calculated by 
the Bank using the internal market risk model approved by the Finance 
Board under paragraph (d) of this section; and
    (B) The book value of total capital is the same as the amount of 
total capital reported by the Bank to the Finance Board under Sec. 
932.7 of this part.
    (2) A Bank may substitute an internal cash flow model to derive a 
market risk capital requirement in place of that calculated using an 
internal market risk model under paragraph (a)(1) of this section, 
provided that:
    (i) The Bank obtains Finance Board approval of the internal cash 
flow model and of the assumptions to be applied to the model; and
    (ii) The Bank demonstrates to the Finance Board that the internal 
cash flow model subjects the Bank's assets and liabilities, off-balance 
sheet items and derivative contracts, including related options, to a 
comparable degree of stress for such factors as will be required for an 
internal market risk model.
    (b) Measurement of market value at risk under a Bank's internal 
market risk model. (1) Except as provided under paragraph (a)(2) of this 
section, each

[[Page 54]]

Bank shall use an internal market risk model that estimates the market 
value of the Bank's assets and liabilities, off-balance sheet items, and 
derivative contracts, including any related options, and measures the 
market value of the Bank's portfolio at risk of its assets and 
liabilities, off-balance sheet items, and derivative contracts, 
including related options, from all sources of the Bank's market risks, 
except that the Bank's model need only incorporate those risks that are 
material.
    (2) The Bank's internal market risk model may use any generally 
accepted measurement technique, such as variance-covariance models, 
historical simulations, or Monte Carlo simulations, for estimating the 
market value of the Bank's portfolio at risk, provided that any 
measurement technique used must cover the Bank's material risks.
    (3) The measures of the market value of the Bank's portfolio at risk 
shall include the risks arising from the non-linear price 
characteristics of options and the sensitivity of the market value of 
options to changes in the volatility of the options' underlying rates or 
prices.
    (4) The Bank's internal market risk model shall use interest rate 
and market price scenarios for estimating the market value of the Bank's 
portfolio at risk, but at a minimum:
    (i) The Bank's internal market risk model shall provide an estimate 
of the market value of the Bank's portfolio at risk such that the 
probability of a loss greater than that estimated shall be no more than 
one percent;
    (ii) The Bank's internal market risk model shall incorporate 
scenarios that reflect changes in interest rates, interest rate 
volatility, and shape of the yield curve, and changes in market prices, 
equivalent to those that have been observed over 120-business day 
periods of market stress. For interest rates, the relevant historical 
observations should be drawn from the period that starts at the end of 
the previous month and goes back to the beginning of 1978;
    (iii) The total number of, and specific historical observations 
identified by the Bank as, stress scenarios shall be:
    (A) Satisfactory to the Finance Board;
    (B) Representative of the periods of the greatest potential market 
stress given the Bank's portfolio, and
    (C) Comprehensive given the modeling capabilities available to the 
Bank; and
    (iv) The measure of the market value of the Bank's portfolio at risk 
may incorporate empirical correlations among interest rates.
    (5) For any consolidated obligations denominated in a currency other 
than U.S. Dollars or linked to equity or commodity prices, each Bank 
shall, in addition to fulfilling the criteria of paragraph (b)(4) of 
this section, calculate an estimate of the market value of its portfolio 
at risk due to the material foreign exchange, equity price or commodity 
price risk, such that, at a minimum:
    (i) The probability of a loss greater than that estimated shall not 
exceed one percent;
    (ii) The scenarios reflect changes in foreign exchange, equity, or 
commodity market prices that have been observed over 120-business day 
periods of market stress, as determined using historical data that is 
from an appropriate period; and
    (iii) The total number of, and specific historical observations 
identified by the Bank as, stress scenarios shall be:
    (A) Satisfactory to the Finance Board;
    (B) Representative of the periods of greatest potential stress given 
the Bank's portfolio; and
    (C) Comprehensive given the modeling capabilities available to the 
Bank; and
    (iv) The measure of the market value of the Bank's portfolio at risk 
may incorporate empirical correlations within or among foreign exchange 
rates, equity prices, or commodity prices.
    (c) Independent validation of Bank internal market risk model or 
internal cash flow model. (1) Each Bank shall conduct an independent 
validation of its internal market risk model or internal cash flow model 
within the Bank that is carried out by personnel not reporting to the 
business line responsible for conducting business transactions for the

[[Page 55]]

Bank. Alternatively, the Bank may obtain independent validation by an 
outside party qualified to make such determinations. Validations shall 
be done on an annual basis, or more frequently as required by the 
Finance Board.
    (2) The results of such independent validations shall be reviewed by 
the Bank's board of directors and provided promptly to the Finance 
Board.
    (d) Finance Board approval of Bank internal market risk model or 
internal cash flow model. Each Bank shall obtain Finance Board approval 
of an internal market risk model or an internal cash flow model, 
including subsequent material adjustments to the model made by the Bank, 
prior to the use of any model. Each Bank shall make such adjustments to 
its model as may be directed by the Finance Board.
    (e) Date of calculations. Unless otherwise directed by the Finance 
Board, each Bank shall perform any calculations or estimates required 
under this section using the assets and liabilities, off-balance sheet 
items, and derivative contracts held by the Bank, and if applicable, the 
values of any such holdings, as of the close of business of the last 
business day of the month for which the market risk capital requirement 
is being calculated.



Sec. 932.6  Operations risk capital requirement.

    (a) General requirement. Except as authorized under paragraph (b) of 
this section, each Bank's operations risk capital requirement shall at 
all times equal 30 percent of the sum of the Bank's credit risk capital 
requirement and market risk capital requirement.
    (b) Alternative requirements. With the approval of the Finance 
Board, each Bank may have an operations risk capital requirement equal 
to less than 30 percent but no less than 10 percent of the sum of the 
Bank's credit risk capital requirement and market risk capital 
requirement if:
    (1) The Bank provides an alternative methodology for assessing and 
quantifying an operations risk capital requirement; or
    (2) The Bank obtains insurance to cover operations risk from an 
insurer rated at least the second highest investment grade credit rating 
by an NRSRO.



Sec. 932.7  Reporting requirements.

    Each Bank shall report to the Finance Board by the 15th business day 
of each month its risk-based capital requirement by component amounts, 
and its actual total capital amount and permanent capital amount, 
calculated as of the close of business of the last business day of the 
preceding month, or more frequently, as may be required by the Finance 
Board.



Sec. 932.8  Minimum liquidity requirements.

    In addition to meeting the deposit liquidity requirements contained 
in Sec. 965.3 of this chapter, each Bank shall hold contingency 
liquidity in an amount sufficient to enable the Bank to meet its 
liquidity needs, which shall, at a minimum, cover five business days of 
inability to access the consolidated obligation debt markets. An asset 
that has been pledged under a repurchase agreement cannot be used to 
satisfy minimum liquidity requirements.



Sec. 932.9  Limits on unsecured extensions of credit to one counterparty
or affiliated counterparties; reporting requirements for total 

extensions of credit to one counterparty or affiliated counterparties.

    (a) Unsecured extensions of credit to a single counterparty. A Bank 
shall not extend unsecured credit to any single counterparty (other than 
a GSE) in an amount that would exceed the limits of this paragraph. A 
Bank shall not extend unsecured credit to a GSE in an amount that would 
exceed the limits set forth in paragraph (c) of this section. If a 
third-party provides an irrevocable, unconditional guarantee of 
repayment of a credit (or any part thereof), the third-party guarantor 
shall be considered the counterparty for purposes of calculating and 
applying the unsecured credit limits of this section with respect the to 
guaranteed portion of the transaction.
    (1) Term limits. All unsecured extensions of credit by a Bank to a 
single counterparty that arise from the Bank's on- and off-balance sheet 
and derivative transactions (but excluding

[[Page 56]]

the amount of sales of federal funds with a maturity of one day or less 
and sales of federal funds subject to a continuing contract) shall not 
exceed the product of the maximum capital exposure limit applicable to 
such counterparty, as determined in accordance with paragraph (a)(4) of 
this section and Table 4 of this part, multiplied by the lesser of:
    (i) The Bank's total capital; or
    (ii) The counterparty's Tier 1 capital, or if Tier 1 capital is not 
available, total capital (as defined by the counterparty's principal 
regulator) or some similar comparable measure identified by the Bank.
    (2) Overall limits including sales of overnight federal funds. All 
unsecured extensions of credit by a Bank to a single counterparty that 
arise from the Bank's on- and off-balance sheet and derivative 
transactions, including the amounts of sales of federal funds with a 
maturity of one day or less and sales of federal funds subject to a 
continuing contract, shall not exceed twice the limit calculated 
pursuant to paragraph (a)(1) of this section.
    (3) Limits for certain obligations issued by state, local or tribal 
governmental agencies. The term limit set forth in paragraph (a)(1) of 
this section when applied to the marketable direct obligations of state, 
local or tribal government unit or agencies that are acquired member 
assets identified in Sec. 955.2(a)(3) of this chapter or are otherwise 
excluded from the prohibition against investments in whole mortgages or 
whole loan or interests in such mortgages or loans by Sec. 
956.3(a)(4)(iii) of this chapter shall be calculated based on the Bank's 
total capital and the credit rating assigned to the particular 
obligation as determined in accordance with paragraph (a)(5) of this 
section. If a Bank owns series or classes of obligations issued by a 
particular state, local or tribal government unit or agency or has 
extended other forms of unsecured credit to such entity falling into 
different rating categories, the total amount of unsecured credit 
extended by the Bank to that government unit or agency shall not exceed 
the term limit associated with the highest-rated obligation issued by 
the entity and actually purchased by the Bank.
    (4) Bank determination of applicable maximum capital exposure 
limits. (i) Except as set forth in paragraph (a)(4)(ii) or (a)(4)(iii) 
of this section, the applicable maximum capital exposure limits are 
assigned to each counterparty based upon the long-term credit rating of 
the counterparty, as determined in accordance with paragraph (a)(5) of 
this section, and are provided in the following Table 4 of this part:

  Table 4--Maximum Limits on Unsecured Extensions of Credit to a Single
      Counterparty by Counterparty Long-Term Credit Rating Category
------------------------------------------------------------------------
                                                              Maximum
                                                              capital
    Long-term credit rating of counterparty category      exposure limit
                                                            (in percent)
------------------------------------------------------------------------
Highest Investment Grade................................              15
Second Highest Investment Grade.........................              14
Third Highest Investment Grade..........................               9
Fourth Highest Investment Grade.........................               3
Below Investment Grade or Other.........................               1
------------------------------------------------------------------------

    (ii) If a counterparty does not have a long-term credit rating but 
has received a short-term credit rating from an NRSRO, the maximum 
capital exposure limit applicable to that counterparty shall be based 
upon the short-term credit rating, as determined in accordance with 
paragraph (a)(5) of this section, as follows:
    (A) The highest short-term investment grade credit rating shall 
correspond to the maximum capital exposure limit provided in Table 4 of 
this part for the third highest long-term investment grade rating;
    (B) The second highest short-term investment grade rating shall 
correspond to the maximum capital exposure limit provided in Table 4 of 
this part for the fourth highest long-term investment grade rating; and
    (C) The third highest short-term investment grade rating shall 
correspond to the maximum capital exposure limit provided in Table 4 of 
this part for the fourth highest long-term investment grade rating.
    (iii) If a specific debt obligation issued by a counterparty 
receives a credit rating from an NRSRO that is lower than the 
counterparty's long-term credit rating, the total amount of

[[Page 57]]

the lower-rated obligation held by the Bank may not exceed a sub-limit 
calculated in accordance with paragraph (a)(1) of this section, except 
that the Bank shall use the credit rating associated with the specific 
obligation to determine the applicable maximum capital exposure limit. 
For purposes of this paragraph, the credit rating of the debt obligation 
shall be determined in accordance with paragraph (a)(5) of this section.
    (5) Bank determination of applicable credit ratings. The following 
criteria shall be applied to determine a counterparty's credit rating:
    (i) The counterparty's most recent credit rating from a given NRSRO 
shall be considered;
    (ii) If only one NRSRO has rated the counterparty, that NRSRO's 
rating shall be used. If a counterparty has received credit ratings from 
more than one NRSRO, the lowest credit rating from among those NRSROs 
shall be used;
    (iii) Where a credit rating has a modifier, the credit rating is 
deemed to be the credit rating without the modifier;
    (iv) If a counterparty is placed on a credit watch for a potential 
downgrade by an NRSRO, the credit rating from that NRSRO at the next 
lower grade shall be used; and
    (v) If a counterparty is not rated by an NRSRO, the Bank shall 
determine the applicable credit rating by using credit rating standards 
available from an NRSRO or other similar standards.
    (b) Unsecured extensions of credit to affiliated counterparties--(1) 
In general. The total amount of unsecured extensions of credit by a Bank 
to a group of affiliated counterparties that arise from the Bank's on- 
and off-balance sheet and derivative transactions, including sales of 
federal funds with a maturity of one day or less and sales of federal 
funds subject to a continuing contract, shall not exceed thirty percent 
of the Bank's total capital.
    (2) Relation to individual limits. The aggregate limits calculated 
under this paragraph shall apply in addition to the limits on extensions 
of unsecured credit to a single counterparty imposed by paragraph (a) of 
this section.
    (c) Special limits for GSEs--(1) In general. Unsecured extensions of 
credit by a Bank to a GSE that arise from the Bank's on- and off-balance 
sheet and derivative transactions, including from the purchase of any 
subordinated debt subject to the sub-limit set forth in paragraph (c)(2) 
of this section, from any sales of federal funds with a maturity of one 
day or less and from sales of federal funds subject to a continuing 
contract, shall not exceed the lesser of:
    (i) The Bank's total capital; or
    (ii) The GSE's total capital (as defined by the GSE's principal 
regulator) or some similar comparable measure identified by the Bank.
    (2) Sub-limit for subordinated debt. The maximum amount of 
subordinated debt issued by a GSE and held by a Bank shall not exceed 
the term limit calculated under paragraph (a)(1) of this section, except 
that a Bank shall use the credit rating of the GSE's subordinated debt 
to determine the applicable maximum capital exposure limit. The credit 
rating of the subordinated debt shall be determined in accordance with 
paragraph (a)(5) of this section.
    (3) Limits applying to a GSE after a downgrade. If any NRSRO assigns 
a credit rating to any senior debt obligation issued (or to be issued) 
by a GSE that is below the highest investment grade or downgrades, or 
places on a credit watch for a potential downgrade of the credit rating 
on any senior unsecured obligation issued by a GSE to below the highest 
investment grade, the special limits on unsecured extensions of credit 
under paragraph (c)(1) of this section shall cease to apply, and 
instead, the Bank shall calculate the maximum amount of its unsecured 
extensions of credit to that GSE in accordance with paragraphs (a)(1) 
and (a)(2) of this section.
    (4) Extensions of unsecured credit to other Banks. The limits of 
this section do not apply to unsecured credit extended by one Bank to 
another Bank.
    (d) Extensions of unsecured credit after downgrade or placement on 
credit watch. If an NRSRO downgrades the credit rating applicable to any 
counterparty or places any counterparty on a credit watch for a 
potential downgrade, a Bank need not unwind or liquidate any existing 
transaction or position with

[[Page 58]]

that counterparty that complied with the limits of this section at the 
time it was entered. In such a case, however, a Bank may extend any 
additional unsecured credit to such a counterparty only in compliance 
with the limitations that are calculated using the lower maximum 
exposure limits. For the purposes of this section, the renewal of an 
existing unsecured extension of credit, including any decision not to 
terminate any sales of federal funds subject to a continuing contract, 
shall be considered an additional extension of unsecured credit that can 
be undertaken only in accordance with the lower limit.
    (e) Reporting requirements--(1) Total unsecured extensions of 
credit. Each Bank shall report monthly to the Finance Board the amount 
of the Bank's total unsecured extensions of credit arising from on- and 
off-balance sheet and derivative transactions to any single counterparty 
or group of affiliated counterparties that exceeds 5 percent of:
    (i) The Bank's total capital; or
    (ii) The counterparty's, or affiliated counterparties' combined, 
Tier 1 capital, or if Tier 1 capital is not available, total capital (as 
defined by each counterparty's principal regulator) or some similar 
comparable measure identified by the Bank.
    (2) Total secured and unsecured extensions of credit. Each Bank 
shall report monthly to the Finance Board the amount of the Bank's total 
secured and unsecured extensions of credit arising from on- and off-
balance sheet and derivative transactions to any single counterparty or 
group of affiliated counterparties that exceeds 5 percent of the Bank's 
total assets.
    (3) Extensions of credit in excess of limits. A Bank shall report 
promptly to the Finance Board any extensions of unsecured credit that 
exceeds any limit set forth in paragraphs (a), (b) or (c) of this 
section. In making this report, a Bank shall provide the name of the 
counterparty or group of affiliated counterparties to which the excess 
unsecured credit has been extended, the dollar amount of the applicable 
limit which has been exceeded, the dollar amount by which the Bank's 
extension of unsecured credit exceeds such limit, the dates for which 
the Bank was not in compliance with the limit, and, if applicable, a 
brief explanation of any extenuating circumstances which caused the 
limit to be exceeded.
    (f) Measurement of unsecured extensions of credit--(1) In general. 
For purposes of this section, unsecured extensions of credit will be 
measured as follows:
    (i) For on-balance sheet transactions, an amount equal to the sum of 
the book value of the item plus net payments due the Bank;
    (ii) For off-balance sheet transactions, an amount equal to the 
credit equivalent amount of such item, calculated in accordance with 
Sec. 932.4(f) of this part; and
    (iii) For derivative transactions, an amount equal to the sum of the 
current and potential future credit exposures for the derivative 
contract, where those values are calculated in accordance with 
Sec. Sec. 932.4(g) or 932.4(h) of this part, as applicable, less the 
amount of any collateral that is held in accordance with the 
requirements of Sec. 932.4(e)(2)(ii)(B) of this part against the credit 
exposure from the derivative contract.
    (2) Status of debt obligations purchased by the Bank. Any debt 
obligation or debt security (other than mortgage-backed securities or 
acquired member assets that are identified in Sec. Sec. 955.2(a)(1) and 
(2) of this chapter) purchased by a Bank shall be considered an 
unsecured extension of credit for the purposes of this section, except:
    (i) Any amount owed the Bank against which the Bank holds collateral 
in accordance with Sec. 932.4(e)(2)(ii)(B) of this part; or
    (ii) Any amount which the Finance Board has determined on a case-by-
case basis shall not be considered an unsecured extension of credit.
    (g) Obligations of the United States. Obligations of, or guaranteed 
by, the United States are not subject to the requirements of this 
section.

[66728, Dec. 27, 2002]



PART 933_BANK CAPITAL STRUCTURE PLANS--Table of Contents



Sec.
933.1 Submission of plan.

[[Page 59]]

933.2 Contents of plan.
933.3 Independent review of capital plan.
933.4 Transition provisions.
933.5 Disclosure to members concerning capital plan and capital stock 
          conversion.

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1426, 1440, 1443, 1446.

    Source: 66 FR 8310, Jan. 30, 2001, unless otherwise noted.



Sec. 933.1  Submission of plan.

    (a) In general. By no later than October 29, 2001, the board of 
directors of each Bank shall submit to the Finance Board a plan to 
establish and implement a new capital structure for that Bank, which 
plan shall comply with part 931 of this chapter and under which, when 
implemented, the Bank shall have sufficient total and permanent capital 
to comply with the regulatory capital requirements established by part 
932 of this chapter. The Finance Board, upon a demonstration of good 
cause submitted by the board of directors of a Bank, may approve a 
reasonable extension of the 270-day period for submission of the capital 
plan. A Bank shall not implement its capital plan, or any amendment to 
the plan, without Finance Board approval.
    (b) Failure to submit a capital plan. If a Bank fails to submit a 
capital plan to the Finance Board by October 29, 2001, including any 
approved extension, the Finance Board may establish a capital plan for 
that Bank, take any enforcement action against the Bank, its directors, 
or its executive officers authorized by section 2B(a) of the Act (12 
U.S.C. 1422b(a)), or merge the Bank pursuant to section 26 of the Act 
(12 U.S.C. 1446) into any other Bank that has submitted a capital plan.
    (c) Consideration of the plan. After receipt of a Bank's capital 
plan, the Finance Board may return the plan to the Bank if it does not 
comply with section 6 of the Act (12 U.S.C. 1426) or any regulatory 
requirement or is otherwise incomplete or materially deficient. If the 
Finance Board accepts a capital plan for review, it may require the Bank 
to submit additional information regarding its plan or to amend the 
plan, prior to determining whether to approve the plan. The Finance 
Board may approve a capital plan as submitted or as amended, or may 
condition its approval on the Bank's compliance with certain stated 
conditions, and may require that the capital plans of all Banks take 
effect on the same date.



Sec. 933.2  Contents of plan.

    The capital plan for each Bank shall include, at a minimum, 
provisions addressing the following matters:
    (a) Minimum investment. (1) The capital plan shall require each 
member to purchase and maintain a minimum investment in the capital 
stock of the Bank, in accordance with Sec. 931.3, of this chapter and 
shall prescribe the manner in which the minimum investment is to be 
calculated. The plan shall require each member to maintain its minimum 
investment in the Bank's stock for as long as it remains a member and, 
with regard to Bank stock purchased to support an advance or other 
business activity, for as long as the advance or business activity 
remains outstanding.
    (2) The capital plan shall specify the amount and class (or classes) 
of Bank stock that an institution is required to own in order to become 
and remain a member of the Bank, and shall specify the amount and class 
(or classes) of Bank stock that a member is required to own in order to 
obtain advances from, or to engage in other business transactions with, 
the Bank. If a Bank requires its members to satisfy its minimum 
investment through the purchase of one or more combinations of Class A 
and Class B stock, the authorized combinations of stock shall be 
specified in the capital plan, which shall afford the members the option 
of satisfying the minimum investment through the purchase of any such 
combination of stock.
    (3) The capital plan may establish a minimum investment that is 
calculated as a percentage of the total assets of the member, as a 
percentage of the advances outstanding to the member, as a percentage of 
the other business activities conducted with the member, on any other 
basis approved by the Finance Board, or on any combination of the above.
    (4) The minimum investment established by the capital plan shall be 
set at a level that, when applied to all

[[Page 60]]

members, provides sufficient capital for the Bank to comply with its 
minimum capital requirements, as specified in part 932 of this chapter. 
The capital plan shall require the board of directors of the Bank to 
monitor and, as necessary, to adjust, the minimum investment to ensure 
that the stock required to be purchased and maintained by the members is 
sufficient to allow the Bank to comply with its minimum capital 
requirements. The plan shall require each member to comply promptly with 
any adjusted minimum investment established by the board of directors of 
the Bank, but may allow a member a reasonable time to do so and may 
allow a member to reduce its outstanding business with the Bank as an 
alternative to purchasing additional stock.
    (b) Classes of capital stock. The capital plan shall specify the 
class or classes of stock (including subclasses, if any) that the Bank 
will issue, and shall establish the par value, rights, terms, and 
preferences associated with each class (or subclass) of stock. A Bank 
may establish preferences relating to, but not limited to, the dividend, 
voting, or liquidation rights for each class or subclass of Bank stock. 
Any voting preferences established by the Bank pursuant to Sec. 915.5 
of this chapter shall expressly state the voting rights of each class of 
stock with regard to the election of Bank directors. The capital plan 
shall provide that the owners of the Class B stock own the retained 
earnings, surplus, undivided profits, and equity reserves of the Bank, 
but shall have no right to receive any portion of those items, except 
through declaration of a dividend or capital distribution approved by 
the board of directors or through the liquidation of the Bank.
    (c) Dividends. The capital plan shall establish the manner in which 
the Bank will pay dividends, if any, on each class or subclass of stock, 
and shall provide that the Bank may not declare or pay any dividends if 
it is not in compliance with any capital requirement or if after paying 
the dividend it would not be in compliance with any capital requirement.
    (d) Initial issuance. The capital plan shall specify the date on 
which the Bank will implement the new capital structure, and shall 
establish the manner in which the Bank will issue Class A and/or Class B 
stock to its existing members, as well as to eligible institutions that 
subsequently become members. The capital plan shall address how the Bank 
will retire the stock that is outstanding as of the effective date, 
including stock held by a member that does not affirmatively elect to 
convert or exchange its existing stock to either Class A or Class B 
stock, or some combination thereof.
    (e) Members wishing not to convert existing stock. The capital plan 
shall establish an opt-out date on or before which a member that does 
not wish to convert its existing stock into Class A and/or Class B stock 
must file a written notice to withdraw from membership with the Finance 
Board. This opt-out date shall not be more than six months before the 
effective date of the capital plan. (For purposes of applying this 
provision, the membership of an institution that files its notice to 
withdraw with the Finance Board on or before the opt-out date 
established in a capital plan shall terminate six months from the date 
that the notice of withdrawal was filed with the Finance Board or on the 
effective date of the Bank's capital plan, whichever date is earlier.) 
The capital plan shall further provide that any member that is in the 
process of withdrawing on the effective date of the capital plan but did 
not file its written notice to withdraw from membership with the Finance 
Board on or before this opt-out date, shall have its existing stock 
converted into Class A and/or Class B stock as required by the capital 
plan, and that the effective date of withdrawal for such member shall be 
established in accordance with Sec. Sec. 925.26(b) and (c) of this 
chapter, provided, however, that the applicable stock redemption periods 
calculated under Sec. 925.26(c) of this chapter shall commence on date 
the member first submitted its written notice to withdraw to the Finance 
Board.
    (f) Stock transactions. The capital plan shall establish the 
criteria for the issuance, redemption, repurchase, transfer, and 
retirement of stock issued by the Bank. The capital plan also:

[[Page 61]]

    (1) Shall provide that the Bank may not issue stock other than in 
accordance with Sec. 931.2 of this chapter;
    (2) Shall provide that the stock of the Bank may be issued only to 
and held only by the members of that Bank;
    (3) Shall specify whether the stock of the Bank may be transferred 
among members, and, if such transfer is allowed, shall specify the 
procedures that a member should follow to effect such transfer, and that 
the transfer shall be undertaken only in accordance with Sec. 931.6 of 
this chapter;
    (4) Shall specify that the stock of the Bank may be traded only 
between the Bank and its members;
    (5) May provide for a minimum investment for members that purchase 
Class B stock that is lower than the minimum investment for members that 
purchase Class A stock, provided that the level of investment is 
sufficient for the Bank to comply with its regulatory capital 
requirements;
    (6) Shall specify the fee, if any, to be imposed on a member that 
cancels a request to redeem Bank stock; and
    (7) Shall specify the period of notice that the Bank will provide to 
a member before the Bank, on its own initiative, determines to 
repurchase any excess Bank stock from a member.
    (g) Termination of membership. The capital plan shall address the 
manner in which the Bank will provide for the disposition of its capital 
stock that is held by institutions that terminate their membership, and 
the manner in which the Bank will liquidate claims against its members, 
including claims resulting from prepayment of advances prior to their 
stated maturity.
    (h) Implementation. The capital plan shall demonstrate that the Bank 
has made a good faith determination that the Bank will be able to 
implement the plan as submitted and that the Bank will be in compliance 
with its regulatory total capital requirement and its regulatory risk-
based capital requirement after the plan is implemented.

[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54108, Oct. 26, 2001; 70 
FR 9510, Feb. 28, 2005]



Sec. 933.3  Independent review of capital plan.

    Prior to submitting its capital plan, each Bank shall conduct a 
review of the plan by an independent certified public accountant to 
ensure, to the extent possible, that the implementation of the plan 
would not result in any write-down of the redeemable stock owned by its 
members, and shall conduct a separate review by at least one NRSRO to 
determine, to the extent possible, whether the implementation of the 
plan would have a material effect on the credit rating of the Bank. The 
Bank shall submit a copy of each report to the Finance Board as part of 
its proposed capital plan.



Sec. 933.4  Transition provisions.

    (a) The capital plan of a Bank may include a transition provision 
that would allow a period of time, not to exceed three years, during 
which the Bank shall increase its total and permanent capital to levels 
that are sufficient to comply with its minimum leverage capital 
requirement and its minimum risk-based capital requirement. The capital 
plan of a Bank may also include a transition provision that would allow 
a period of time, not to exceed three years, during which institutions 
that were members of the Bank on November 12, 1999, shall increase the 
amount of Bank stock to a level that is sufficient to comply with the 
minimum investment established by the capital plan. The length of the 
transition periods need not be identical.
    (b) Any transition provision shall comply with the requirements of 
Sec. 931.9.



Sec. 933.5  Disclosure to members concerning capital plan and capital 
stock conversion.

    (a) No capital plan shall become effective until disclosure required 
by paragraphs (b) and (c) of this section has been provided to members. 
All disclosure required under this section shall be transmitted, sent or 
given to members not less than 45 days and not more than 60 days prior 
to the opt-out date established in the Bank's capital plan in accordance 
with Sec. 933.2(e).
    (b) The following information shall be provided to members about the 
Class A and/or Class B stock that a

[[Page 62]]

Bank intends to issue on the effective date of its capital plan:
    (1) With regard to each class or subclass of authorized stock, a 
description of:
    (i) Dividend rights;
    (ii) The terms of conversion;
    (iii) Redemption and repurchase rights;
    (iv) Voting rights and preferences,
    (v) Liquidation rights; and
    (vi) Any liability to further calls or to assessments by the Banks;
    (2) A description of any material differences between the securities 
to be converted into Class A and/or Class B stock and the Class A and/or 
Class B stock with regard to the rights addressed in paragraph (b)(1) of 
this section.
    (3) A statement of the reasons for the conversion to Class A and/or 
Class B stock and of the general effect thereof upon the rights of 
existing members; and
    (4) A description of any other material features concerning the 
Bank's initial issuance of Class A and/or Class B stock.
    (c) In addition to the disclosure about Class A and/or Class B 
stock, the following information shall be provided to members:
    (1) The Bank shall disclose financial information as follows:
    (i) Audited balance sheets as of the end of the two most recent 
fiscal years, audited statements of income and cash flows for each of 
the three fiscal years preceding the date of the most recent audited 
balance sheet being presented, and unaudited interim balance sheets and 
statements of income and cash flows as of and for appropriate interim 
dates that in form and content meet the requirements of Sec. 989.4 of 
this chapter;
    (ii) A pro forma capitalization table that reflects the Bank's 
projected new capital structure relative to its actual capitalization as 
of the date of the latest balance sheet required to be provided to 
members by paragraph (c)(1)(i) of this section. The Bank shall also 
provide a description of any material assumptions underlying the pro 
forma capitalization table and the basis for these assumptions, and 
shall provide estimates of its risk-based capital requirement, 
calculated in accordance with Sec. 932.3 of this chapter, and of its 
total capital-to-asset ratio (both of which shall be based on the same 
financial data used for the capitalization table), along with a 
discussion of material assumptions underlying these estimates and the 
basis for these assumptions; and
    (iii) Any of the financial information required to be disclosed by 
paragraph (c)(1) of this section may be incorporated by reference, 
provided the information being incorporated is contained in an annual or 
quarterly Bank report prepared in accordance with Sec. 989.4 of this 
chapter or an annual or quarterly Bank System report, and the disclosure 
identifies the information being incorporated by reference;
    (2) A narrative discussion of anticipated developments that could 
materially affect the liquidity, capital, earnings or continuing 
operations of the Bank, including those affecting dividends, product 
volumes, investment volumes, new business lines and risk profile.
    (3) A description of any amendments anticipated to be made to the 
Bank's by-laws, policies or other governance documents as a result of 
the implementation of the capital plan;
    (4) To the extent that such information has not been provided under 
paragraph (b) of this section, the Bank shall disclose information 
related to the capital plan as follows:
    (i) A description of the minimum stock investment requirements set 
forth in the capital plan;
    (ii) A statement outlining the requirements for amending the capital 
plan;
    (iii) A description of any restrictions or limitations under a 
Bank's capital plan on a member's rights to buy, or redeem its class A 
or class B stock, to have such stock repurchased, or otherwise to make 
use of such stock to fulfill the member's minimum stock investment 
requirement;
    (iv) A statement setting forth the opt-out date, on or before which 
a member's written notice to withdraw must be filed with the Finance 
Board (as established in accordance with Sec. 933.2(e) of this part) 
for the member not to have its existing Bank stock

[[Page 63]]

converted to Class A or Class B stock on the effective date of the 
Bank's capital plan and describing the effect on a member's effective 
date of withdrawal of failing to file its notice to withdraw on or 
before the opt-out date; and
    (v) A description of a member's rights under the capital plan to 
have its stock redeemed or repurchased upon voluntary or involuntary 
termination of its membership;
    (5) The Bank should state the name, address and telephone number 
where members may direct written or oral requests for a copy of the 
capital plan and any other instrument or document that defines the 
rights of the member/stockholders. This information shall be provided to 
the members without charge; and
    (6) The Bank shall provide a statement as to the anticipated 
accounting treatment for the transaction and the federal income tax 
implications of the transaction that members should consider in 
consultation with their own accounting and tax advisors.
    (d) Nothing in this section shall create or be deemed to create any 
rights in any third party.

[66 FR 54109, Oct. 26, 2001]



         SUBCHAPTER F_FEDERAL HOME LOAN BANK MISSION [RESERVED]



[[Page 64]]



 SUBCHAPTER G_FEDERAL HOME LOAN BANK ASSETS AND OFF-BALANCE SHEET ITEMS





PART 952_COMMUNITY INVESTMENT CASH ADVANCE PROGRAMS--Table of Contents



Sec.
952.1 Definitions.
952.2 Scope.
952.3 Purpose.
952.4 Targeted Community Lending Plan.
952.5 Community Investment Cash Advance Programs.
952.6 Reporting.
952.7 Documentation.

    Authority: 12 U.S.C. 1422b(a)(1), 1430.

    Source: 63 FR 65546, Nov. 27, 1998, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000.



Sec. 952.1  Definitions.

    As used in this part:
    Champion Community means a community which developed a strategic 
plan and applied for designation by either the Secretary of HUD or the 
Secretary of the USDA as an Empowerment Zone or Enterprise Community, 
but was designated a Champion Community.
    CICA program or Community Investment Cash Advance program means:
    (1) A Bank's AHP;
    (2) A Bank's CIP;
    (3) A Bank's RDF program or UDF program using any combination of the 
targeted beneficiaries and targeted income levels specified in Sec. 
952.1 of this part; and
    (4) Any other advance or grant program offered by a Bank using 
targeted beneficiaries and targeted income levels other than those 
specified in Sec. 952.1 of this part, established by the Bank with the 
prior approval of the Finance Board.
    Economic development projects means:
    (1) Commercial, industrial, manufacturing, social service, and 
public facility projects and activities; and
    (2) Public or private infrastructure projects, such as roads, 
utilities, and sewers.
    Family means one or more persons living in the same dwelling unit.
    Housing projects means projects or activities that involve the 
purchase, construction, rehabilitation or refinancing (subject to Sec. 
952.5(c) of this part) of, or predevelopment financing for:
    (1) Individual owner-occupied housing units, each of which is 
purchased or owned by a family with an income at or below the targeted 
income level;
    (2) Projects involving multiple units of owner-occupied housing in 
which at least 51% of the units are owned or are intended to be 
purchased by families with incomes at or below the targeted income 
level;
    (3) Rental housing where at least 51% of the units in the project 
are occupied by, or the rents are affordable to, families with incomes 
at or below the targeted income level; or
    (4) Manufactured housing parks where:
    (i) At least 51% of the units in the project are occupied by, or the 
rents are affordable to, families with incomes at or below the targeted 
income level; or
    (ii) The project is located in a neighborhood with a median income 
at or below the targeted income level.
    Median income for the area--(1) Owner-occupied housing projects and 
economic development projects. For purposes of owner-occupied housing 
projects and economic development projects, median income for the area 
means one or more of the following, as determined by the Bank:
    (i) The median income for the area, as published annually by HUD;
    (ii) The median income for the area obtained from the Federal 
Financial Institutions Examination Council;
    (iii) The applicable median family income, as determined under 26 
U.S.C. 143(f) (Mortgage Revenue Bonds) and published by a State agency 
or instrumentality;
    (iv) The median income for the area, as published by the USDA; or
    (v) The median income for the area obtained from another public 
entity or a private source and approved by the Board of Directors, at 
the request of a Bank, for use under the Bank's CICA programs.

[[Page 65]]

    (2) Rental housing projects. For purposes of rental housing 
projects, median income for the area means one or more of the following, 
as determined by the Bank:
    (i) The median income for the area, as published annually by HUD; or
    (ii) The median income for the area obtained from the Federal 
Financial Institutions Examination Council;
    (iii) The median income for the area obtained from another public 
entity or a private source and approved by the Board of Directors, at 
the request of a Bank, for use under the Bank's CICA programs.
    MSA means a Metropolitan Statistical Area as designated by the 
Office of Management and Budget.
    Neighborhood means:
    (1) A census tract or block numbering area;
    (2) A unit of local government with a population of 25,000 or less;
    (3) A rural county; or
    (4) A geographic location designated in comprehensive plans, 
ordinances, or other local documents as a neighborhood, village, or 
similar geographic designation that is within the boundary of but does 
not encompass the entire area of a unit of general local government.
    Provide financing means:
    (1) Originating loans;
    (2) Purchasing a participation interest, or providing financing to 
participate, in a loan consortium for CICA-eligible housing or economic 
development projects;
    (3) Making loans to entities that, in turn, make loans for CICA-
eligible housing or economic development projects;
    (4) Purchasing mortgage revenue bonds or mortgage-backed securities, 
where all of the loans financed by such bonds and all of the loans 
backing such securities, respectively, meet the eligibility requirements 
of the CICA program under which the member or housing associate borrower 
receives funding;
    (5) Creating or maintaining a secondary market for loans, where all 
such loans are mortgage loans meeting the eligibility requirements of 
the CICA program under which the member or housing associate borrower 
receives funding;
    (6) Originating CICA-eligible loans within 3 months prior to 
receiving the CICA funding; and
    (7) Purchasing low-income housing tax credits.
    RDF or Rural Development Funding program means an advance or grant 
program offered by a Bank for targeted community lending in rural areas.
    Rural area means:
    (1) A unit of general local government with a population of 25,000 
or less;
    (2) An unincorporated area outside an MSA; or
    (3) An unincorporated area within an MSA that qualifies for housing 
or economic development assistance from the USDA.
    Small business means a ``small business concern,'' as that term is 
defined by section 3(a) of the Small Business Act (15 U.S.C. 632(a)) and 
implemented by the Small Business Administration under 13 CFR part 121, 
or any successor provisions.
    Targeted beneficiaries means beneficiaries determined by the 
geographical area in which a project is located (Geographically Defined 
Beneficiaries), by the individuals who benefit from a project as 
employees or service recipients (Individual Beneficiaries), or by the 
nature of the project itself (Activity Beneficiaries), as follows:
    (1) Geographically Defined Beneficiaries:
    (i) The project is located in a neighborhood with a median income at 
or below the targeted income level;
    (ii) The project is located in a rural Champion Community, or a 
rural Empowerment Zone or rural Enterprise Community, as designated by 
the Secretary of the USDA;
    (iii) The project is located in an urban Champion Community, or an 
urban Empowerment Zone or urban Enterprise Community, as designated by 
the Secretary of HUD;
    (iv) The project is located in an Indian area, as defined by the 
Native American Housing Assistance and Self-Determination Act of 1996 
(25 U.S.C. 4101 et seq.), Alaskan Native Village, or Native Hawaiian 
Home Land;

[[Page 66]]

    (v) The project is located in an area and involves a property 
eligible for a Brownfield Tax Credit;
    (vi) The project is located in an area affected by a military base 
closing and is a ``community in the vicinity of the installation'' as 
defined by the Department of Defense at 32 CFR part 176;
    (vii) The project is located in a designated community under the 
Community Adjustment and Investment Program as defined under 22 U.S.C. 
290m-2;
    (viii) The project is located in a Federally declared disaster area; 
or
    (ix) The project is located in a state declared disaster area, or 
other area that qualifies for assistance under another Federal or State 
targeted economic development program, approved by the Finance Board.
    (2) Individual Beneficiaries:
    (i) The annual salaries for at least 51% of the permanent full- and 
part-time jobs, computed on a full-time equivalent basis, created or 
retained by the project, other than construction jobs, are at or below 
the targeted income level; or
    (ii) At least 51% of the families who otherwise benefit from (other 
than through employment), or are provided services by, the project have 
incomes at or below the targeted income level.
    (3) Activity Beneficiaries: Projects that qualify as small 
businesses.
    (4) Other Targeted Beneficiaries. A Bank may designate, with the 
prior approval of the Finance Board, other targeted beneficiaries for 
its targeted community lending.
    (5) Only targeted beneficiaries identified in paragraphs (1)(i) 
through (1)(iv), and (2)(i) and (2)(ii) of this definition are eligible 
for CIP advances.
    Targeted community lending means providing financing for economic 
development projects for targeted beneficiaries.
    Targeted income level means:
    (1) For rural areas, incomes at or below 115 percent of the median 
income for the area, as adjusted for family size in accordance with the 
methodology of the applicable area median income standard or, at the 
option of the Bank, for a family of four;
    (2) For urban areas, incomes at or below 100 percent of the median 
income for the area, as adjusted for family size in accordance with the 
methodology of the applicable area median income standard or, at the 
option of the Bank, for a family of four;
    (3) For advances provided under CIP:
    (i) For economic development projects, incomes at or below 80 
percent of the median income for the area; or
    (ii) For housing projects, incomes at or below 115 percent of the 
median income for the area, both as adjusted for family size in 
accordance with the methodology of the applicable area median income 
standard or, at the option of the Bank, for a family of four; or
    (4) For advances or grants provided under any other CICA program 
offered by a Bank, a targeted income level established by the Bank with 
the prior approval of the Finance Board.
    UDF program or Urban Development Funding program means an advance or 
grant program offered by a Bank for targeted community lending in urban 
areas.
    Urban area means:
    (1) A unit of general local government with a population of more 
than 25,000; or
    (2) An unincorporated area within an MSA that does not qualify for 
housing or economic development assistance from the USDA.
    USDA means the United States Department of Agriculture.

[63 FR 65546, Nov. 27, 1998, as amended at 65 FR 8264, Feb. 18, 2000; 65 
FR 44431, July 18, 2000; 66 FR 50295, Oct. 3, 2001. Redesignated and 
amended at 67 FR 12852, Mar. 20, 2002]



Sec. 952.2  Scope.

    Section 10(j)(10) of the Act (12 U.S.C. 1430(j)(10) authorizes the 
Banks to offer Community Investment Cash Advance (CICA) programs. This 
part establishes requirements for all CICA programs offered by a Bank, 
except for a Bank's Affordable Housing Program (AHP), which is governed 
specifically by part 951 of this chapter.

[63 FR 65546, Nov. 27, 1998, as amended at 65 FR 8264, Feb. 18, 2000. 
Redesignated and amended at 67 FR 12852, Mar. 20, 2002]



Sec. 952.3  Purpose.

    The purpose of this part is to identify targeted community lending 
projects that the Banks may support through

[[Page 67]]

the establishment of CICA programs under section 10(j)(10) of the Act 
(12 U.S.C. 1430(j)(10)). Pursuant to this part, a Bank may offer Rural 
Development Funding (RDF) or Urban Development Funding (UDF) programs, 
or both, for targeted community lending using the targeted beneficiaries 
or targeted income levels specified in Sec. 952.1, without prior 
Finance Board approval. A Bank also may offer other CICA programs for 
targeted community lending using targeted beneficiaries and targeted 
income levels other than those specified in Sec. 952.1, established by 
the Bank with the prior approval of the Finance Board. In addition, a 
Bank shall offer CICA programs under section 10(i) of the Act (12 U.S.C. 
1430(i)) (Community Investment Program (CIP)) and section 10(j) of the 
Act (12 U.S.C. 1430(j)) (Affordable Housing Program (AHP)). A Bank may 
provide advances or grants under its CICA programs except for CIP 
programs, under which a Bank may only provide advances.

[67 FR 12852, Mar. 20, 2002]



Sec. 952.4  Targeted Community Lending Plan

    Each Bank shall develop and adopt an annual Targeted Community 
Lending Plan pursuant to Sec. 944.6 of this chapter.

[63 FR 65546, Nov. 27, 1998, as amended at 65 FR 8264, Feb. 18, 2000; 65 
FR 44431, July 18, 2000]



Sec. 952.5  Community Investment Cash Advance Programs.

    (a) In general. (1) Each Bank shall offer an AHP in accordance with 
part 951 of this chapter.
    (2) Each Bank shall offer a CIP to provide financing for housing 
projects and for eligible targeted community lending at the appropriate 
targeted income levels.
    (3) Each Bank may offer RDF programs or UDF programs, or both, for 
targeted community lending using the targeted beneficiaries or targeted 
income levels specified in Sec. 952.1 of this part, without prior 
Finance Board approval.
    (4) Each Bank may offer CICA programs for targeted community lending 
using targeted beneficiaries and targeted income levels other than those 
specified in Sec. 952.1 of this part, established by the Bank with the 
prior approval of the Finance Board.
    (b) Mixed-use projects. (1) For projects funded under CICA programs 
other than CIP, involving a combination of housing projects and economic 
development projects, only the economic development components of the 
project must meet the appropriate targeted income level for the 
respective CICA program.
    (2) For projects funded under CIP, both the housing and economic 
development components of the project must meet the appropriate targeted 
income levels.
    (c) Refinancing. CICA funding other than AHP may be used to 
refinance economic development projects and housing projects, provided 
that any equity proceeds of the refinancing of rental housing and 
manufactured housing parks are used to rehabilitate the projects or to 
preserve affordability for current residents.
    (d) Pricing and Availability of advances--(1) Advances to members. 
For CICA programs other than AHP and CIP, a Bank shall price advances to 
members as provided in Sec. 950.5 of this chapter, and may price such 
advances at rates below the price of advances of similar amounts, 
maturities and terms made pursuant to section 10(a) of the Act. (12 
U.S.C. 1430(a)).
    (2) Pricing of CIP advances. The price of advances made under CIP 
shall not exceed the Bank's cost of issuing consolidated obligations of 
comparable maturity, taking into account reasonable administrative 
costs.
    (3) Pricing of AHP advances. A Bank shall price advances made under 
AHP in accordance with parts 950 and 951 of this chapter.
    (4) Advances to housing associate borrowers. (i) A Bank may offer 
advances under CICA programs to housing associate borrowers at the 
Bank's option, except for AHP and CIP, which are available only to 
members.
    (ii) A Bank shall price advances to housing associate borrowers as 
provided in Sec. 950.17 of this chapter, and may price such advances at 
rates below the price of advances of similar amounts, maturities and 
terms made

[[Page 68]]

pursuant to section 10b of the Act. (12 U.S.C. 1430b).
    (5) Pricing pass-through. A Bank may require that borrowers 
receiving advances made under CICA programs pass through the benefit of 
any price reduction from regular advance pricing to their borrowers.
    (6) Discount Fund. (i) A Bank may establish a Discount Fund which 
the Bank may use to reduce the price of CIP or other advances made under 
CICA programs below the advance prices provided for by this part.
    (ii) Price reductions made through the Discount Fund shall be made 
in accordance with a fair distribution scheme.

[63 FR 65546, Nov. 27, 1998, as amended at 65 FR 8264, Feb. 18, 2000; 65 
FR 44431, July 18, 2000; 66 FR 50296, Oct. 3, 2001; 67 FR 12852, Mar. 
20, 2002]



Sec. 952.6  Reporting.

    (a) By July 1, 1999, each Bank shall provide to the Finance Board an 
initial assessment of the credit needs and market opportunities in a 
Bank's district for targeted community lending.
    (b) Effective in 2000, each Bank annually shall provide to the 
Finance Board, on or before January 31, a Targeted Community Lending 
Plan.
    (c) Each Bank shall provide such other reports concerning its CICA 
programs as the Finance Board may request from time to time.

[63 FR 65546, Nov. 27, 1998. Redesignated at 65 FR 8256, Feb. 18, 2000, 
as amended at 65 FR 44431, July 18, 2000]



Sec. 952.7  Documentation.

    (a) A Bank shall require the borrower to certify to the Bank that 
each project funded under a CICA program (other than AHP) meets the 
respective targeting requirements of the CICA program. Such 
certification shall include a description of how the project meets the 
requirements, and where appropriate, a statistical summary or list of 
incomes of the borrowers, rents for the project, or salaries of jobs 
created or retained.
    (b) For those CICA-funded projects that also receive funds from 
another targeted Federal economic development program that has income 
targeting requirements that are the same as, or more restrictive than, 
the targeting requirements of the applicable CICA program, the Bank 
shall permit the borrower to certify that compliance with the criteria 
of such Federal economic development program will meet the requirements 
of the respective CICA program.
    (c) Such certifications shall satisfy the Bank's obligations to 
document compliance with the CICA funding provisions of this part.

[63 FR 65546, Nov. 27, 1998. Redesignated at 65 FR 8256, Feb. 18, 2000, 
as amended at 66 FR 50296, Oct. 3, 2001]



PART 955_ACQUIRED MEMBER ASSETS--Table of Contents



Sec.
955.1 Definitions.
955.2 Authorization to hold acquired member assets.
955.3 Required credit-risk sharing structure.
955.4 Reporting requirements for acquired member assets.
955.5 Administrative and investment transactions between Banks.
955.6 Risk-based capital requirement for acquired member assets.

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1430, 1430b, 1431.

    Source: 65 FR 43981, July 17, 2000, unless otherwise noted.



Sec. 955.1  Definitions.

    As used in this part:
    Affiliate means any business entity that controls, is controlled by, 
or is under common control with, a member.
    Expected losses means the base loss scenario in the methodology of 
an NRSRO applicable to that type of AMA asset.
    Residential real property has the meaning set forth in Sec. 950.1 
of this chapter.

[67 FR 12852, Mar. 20, 2002]



Sec. 955.2  Authorization to hold acquired member assets.

    Subject to the requirements of part 980 of this chapter, each Bank 
may hold assets acquired from or through Bank System members or housing 
associates by means of either a purchase or a funding transaction (AMA), 
subject to each of the following requirements:

[[Page 69]]

    (a) Loan type requirement. The assets are either:
    (1) Whole loans that are eligible to secure advances under 
Sec. Sec. 950.7(a)(1)(i), (a)(2)(ii), (a)(4), or (b)(1) of this 
chapter, excluding:
    (i) Single-family mortgages where the loan amount exceeds the limits 
established pursuant to 12 U.S.C. 1717(b)(2); and
    (ii) Loans made to an entity, or secured by property, not located in 
a state;
    (2) Whole loans secured by manufactured housing, regardless of 
whether such housing qualifies as residential real property; or
    (3) State and local housing finance agency bonds;
    (b) Member or housing associate nexus requirement. The assets are:
    (1) Either:
    (i) Originated or issued by, through, or on behalf of a Bank System 
member or housing associate, or an affiliate thereof; or
    (ii) Held for a valid business purpose by a Bank System member or 
housing associate, or an affiliate thereof, prior to acquisition by a 
Bank; and
    (2) Acquired either:
    (i) From a member or housing associate of the acquiring Bank;
    (ii) From a member or housing associate of another Bank, pursuant to 
an arrangement with that Bank, which, in the case of state and local 
finance agency bonds only, may be reached in accordance with the 
following process:
    (A) The housing finance agency shall first offer the Bank in whose 
district the agency is located (local Bank) a right of first refusal to 
purchase, or negotiate the terms of, its proposed bond offering;
    (B) If the local Bank indicates, within a three day period, that it 
will negotiate in good faith to purchase the bonds, the agency may not 
offer to sell or negotiate the terms of a purchase with another Bank; 
and
    (C) If the local Bank declines the offer, or has failed to respond 
within the three day period, the acquiring Bank will be considered to 
have an arrangement with the local Bank for purposes of this section and 
may offer to buy or negotiate the terms of a bond sale with the agency;
    (iii) From another Bank; and
    (c) Credit risk-sharing requirement. The transactions through which 
the Bank acquires the assets either:
    (1) Meet the credit risk-sharing requirements of Sec. 955.3 of this 
part; or
    (2) Were authorized by the Finance Board under section II.B.12 of 
the FMP and are within any total dollar cap established by the Finance 
Board at the time of such authorization.



Sec. 955.3  Required credit risk-sharing structure.

    (a) Determination of necessary credit enhancement. At the earlier of 
270 days from the date of the Bank's acquisition of the first loan in a 
pool, or the date at which the amount of a pool's assets reaches $100 
million, a Bank shall determine the total credit enhancement necessary 
to enhance the asset or pool of assets to a credit quality that is 
equivalent to that of an instrument having at least the fourth highest 
credit rating from an NRSRO, or such higher credit rating as the Bank 
may require. The Bank shall make this determination for each AMA product 
using a methodology that is confirmed in writing by an NRSRO to be 
comparable to a methodology that the NRSRO would use in determining 
credit enhancement levels when conducting a rating review of the asset 
or pool of assets in a securitization transaction.
    (b) Credit risk-sharing structure. A Bank acquiring AMA shall 
implement, and have in place at all times, a credit risk-sharing 
structure for each AMA product under which a member or housing associate 
of the Bank or, with the approval of both Banks, a member or housing 
associate of another Bank, provides a sufficient credit enhancement from 
the first dollar of credit loss for each asset or pool of assets such 
that the acquiring Bank's exposure to credit risk for the life of the 
asset or pool of assets is no greater than that of an asset rated in the 
fourth highest credit rating category, as determined pursuant to 
paragraph (a) of this section, or such higher rating as the acquiring 
Bank may require. This credit enhancement structure shall meet the 
following requirements:
    (1) A portion of the credit enhancement may be provided by:

[[Page 70]]

    (i) Contracting with an insurance affiliate of that member or 
housing associate to provide an enhancement or undertaking against 
losses to the Bank, but only where such insurance is positioned in the 
credit enhancement structure so as to cover only losses remaining after 
the member or housing associate has borne losses as required under 
paragraph (b)(2) of this section;
    (ii) Purchasing loan-level insurance, which may include United 
States government insurance or guarantee, but only where:
    (A) The member or housing associate is legally obligated at all 
times to maintain such insurance with an insurer rated not lower than 
the second highest credit rating category; and
    (B) Such insurance is positioned in the credit enhancement structure 
so as to cover only losses remaining after the member or housing 
associate has borne losses as required under paragraph (b)(2) of this 
section;
    (iii) Purchasing pool-level insurance, but only where such 
insurance:
    (A) Insures that portion of the required credit enhancement 
attributable to the geographic concentration and size of the pool; and
    (B) Is positioned last in the credit enhancement structure so as to 
cover only those losses remaining after all other elements of the credit 
enhancement structure have been exhausted; or
    (iv) Contracting with another member or housing associate in the 
Bank's district or in another Bank's district, pursuant to an 
arrangement with that Bank, to provide an enhancement or undertaking 
against losses to the Bank in return for some compensation;
    (2) The member or housing associate that is providing the credit 
enhancement required under paragraph (b)(1) of this section shall in all 
cases bear the direct economic consequences of actual credit losses on 
the asset or pool of assets:
    (i) From the first dollar of loss up to the amount of expected 
losses; or
    (ii) Immediately following expected losses, but in an amount equal 
to or exceeding the amount of expected losses;
    (3) The portion of the credit enhancement that is an obligation of a 
Bank System member or housing associate shall be fully secured; and
    (4) The Bank shall obtain written verification from an NRSRO that 
concludes to the satisfaction of the Finance Board, based on the 
underlying economic terms of the credit enhancement structure as 
represented by the Bank for each AMA product, that either:
    (i) The level of credit enhancement provided by the member or 
housing associate is generally sufficient to enhance the asset or pool 
of assets to a credit quality that is equivalent to that of an 
instrument having the fourth highest credit rating from an NRSRO, or 
such higher rating as the Bank may require; or
    (ii) The methodology used by the Bank for estimating the level of 
credit enhancement provided by the member or housing associate is in 
accordance with the practices established by the NRSRO.
    (c) Timing of NRSRO opinions. For AMA programs already in operation 
at the time of the effective date of this rule, a Bank shall have 90 
days from the effective date of this rule to obtain the NRSRO 
verifications required under paragraphs (a) and (b)(4) of this section.

[65 FR 43981, July 17, 2000, as amended at 67 FR 12852, Mar. 20, 2002]



Sec. 955.4  Reporting requirement for acquired member assets.

    Each Bank shall report information related to AMA in accordance with 
the instructions provided in the Data Reporting Manual issued by the 
Finance Board, as amended from time to time.

[71 FR 35500, June 21, 2006]



Sec. 955.5  Administrative and investment transactions between Banks.

    (a) Delegation of administrative duties. A Bank may delegate the 
administration of an AMA program to another Bank whose administrative 
office has been examined and approved by the Finance Board to process 
AMA transactions. The existence of such a delegation, or the possibility 
that such a delegation may be made, must be disclosed to any potential 
participating member or housing associate as part of any AMA-related 
agreements are

[[Page 71]]

signed with that member or housing associate.
    (b) Terminability of Agreements. Any agreement made between two or 
more Banks in connection with any AMA program shall be made terminable 
by either party after a reasonable notice period.
    (c) Delegation of Pricing Authority. A Bank that has delegated its 
AMA pricing function to another Bank shall retain a right to refuse to 
acquire AMA at prices it does not consider appropriate.



Sec. 955.6  Risk-based capital requirement for acquired member assets.

    (a) General. Each Bank shall hold retained earnings plus general 
allowance for losses as support for the credit risk of all AMA estimated 
by the Bank to represent a credit risk that is greater than that of 
comparable instruments that have received the second highest credit 
rating from an NRSRO in an amount equal to or greater than the 
outstanding balance of the assets or pools of assets times a factor 
associated with the putative credit rating of the assets or pools of 
assets as determined by the Finance Board on a case-by-case basis. For 
single-family mortgage assets, the factors are as set forth in Table 1 
of this part.

                                 Table 1
------------------------------------------------------------------------
                                                           Percentage
                                                        applicable to on-
   Putative rating of single-family mortgage assets       balance sheet
                                                        equivalent value
                                                             of AMA
------------------------------------------------------------------------
Third Highest Investment Grade........................              0.90
Fourth Highest Investment Grade.......................              1.50
If Downgraded to Below Investment Grade After
 Acquisition By Bank:
    Highest Below Investment Grade....................              2.25
    Second Highest Below Investment Grade.............              2.60
    All Other Below Investment Grade..................            100.00
------------------------------------------------------------------------

    (b) Recalculation of credit enhancement. For risk-based capital 
purposes, each Bank shall recalculate the estimated credit rating of a 
pool of AMA if there is evidence that a decline in the credit quality of 
that pool may have occurred.



       SUBCHAPTER H_FEDERAL HOME LOAN BANK LIABILITIES [RESERVED]



[[Page 72]]



    SUBCHAPTER I_MISCELLANEOUS FEDERAL HOME LOAN BANK OPERATIONS AND 
                               AUTHORITIES





PART 975_COLLECTION, SETTLEMENT, AND PROCESSING OF PAYMENT 
INSTRUMENTS--Table of Contents



Sec.
975.1 Definitions.
975.2 Authority and scope.
975.3 General provisions.
975.4 Incidental powers.
975.5 Operations.
975.6 Pricing of services.
975.7 Rights, powers, responsibilities, duties, and liabilities.

    Authority: 12 U.S.C. 1430, 1431.

    Source: 45 FR 64164, Sept. 29, 1980, unless otherwise noted. 
Redesignated at 54 FR 36759, Sept. 5, 1989, and further redesignated at 
65 FR 8256, Feb. 18, 2000.



Sec. 975.1  Definitions.

    (a) Unless otherwise defined in this part, the terms used in this 
part shall conform, in the following order, to: Regulations of the 
Finance Board, the Uniform Commercial Code, regulations of the Federal 
Reserve System, and general banking usage.
    (b) As used in this part:
    Account processing includes charging, crediting, and settling of 
member or eligible institution accounts, excluding individual customer 
accounts.
    Assets includes furniture and equipment, leasehold improvements, and 
capitalized start-up costs.
    Data communication means transmitting and receiving of data to or 
from Banks, Federal Reserve offices, clearinghouse associations, 
depository institutions or their service bureaus, and other direct 
sending entities, arrangement for delivery of information; and telephone 
inquiry service.
    Data processing includes capture, storage, and assembling of, and 
computation of, data from payment instruments received from Federal 
Reserve offices, Banks, clearinghouse associations, depository 
institutions, and other direct lending entities.
    Eligible institution means any institution that is eligible to make 
application to become a member of a Bank under section 4 of the Act (12 
U.S.C. 1424), including any building and loan association, savings and 
loan association, cooperative bank, homestead association, insurance 
company, savings bank, or any insured depository institution (as defined 
in section 2(12) of the Act (12 U.S.C. 1422(12))), regardless of whether 
the institution applies for or would be approved for membership.
    Issuance of forms means the designation and distribution of 
standardized forms for use in collection, processing, and settlement 
services.
    Presentment means a demand for acceptance or payment made upon the 
maker, acceptor, drawee or other payor by or on behalf of the holder, 
and may involve the use of electronic transmission of an instrument or 
item or transmission of data from the instrument or item by electronic 
or mechanical means.
    Statement packaging includes receiving statement information from 
members or eligible institutions or their service bureaus on respective 
customer cycle dates; printing statements; matching customer account 
statements; packaging the statements with appropriate items and 
informational materials, as authorized by individual members and 
eligible institutions, for distribution to their customers; sending the 
packages to the members or eligible institutions or mailing the packages 
directly to their customers.
    Storage services includes filing, storage, and truncation of items.
    Transportation of items includes transporting items from Federal 
Reserve offices, other Banks' clearinghouse associations, depository 
institutions, and other direct sending entities to a Bank; forwarding 
items to financial institutions after sorting and forwarding cash items 
or return items to Federal Reserve offices and other sending entities.

[67 FR 12854, Mar. 20, 2002]



Sec. 975.2  Authority and scope.

    (a) Pursuant to section 11(e)(2) of the Act (12 U.S.C. 1431(e)(2)) , 
the Finance Board has promulgated this part governing the collection, 
processing, and settlement, and services incidental

[[Page 73]]

thereto, of drafts, checks, and other negotiable and nonnegotiable items 
and instruments by Banks. Settlement, collection, and processing include 
the following activities as defined in this part: Account processing, 
data processing, data communication, issuance of forms, transportation 
of items, and storage services.
    (b) Any activity authorized by section 11(e)(2) of the Act (12 
U.S.C. 1431(e)(2)) shall be governed by the provisions of this part.

[45 FR 64164, Sept. 5, 1989, as amended at 65 FR 8266, Feb. 18, 2000. 
Redesignated and amended at 67 FR 12854, Mar. 20, 2002]



Sec. 975.3  General provisions.

    The Banks are authorized to:
    (a) Engage in, be agents or intermediaries for, or otherwise 
participate or assist in, the processing, collection, and settlement of 
checks, drafts, or any other negotiable or nonnegotiable items and 
instruments of payment drawn on eligible institutions or Bank members; 
and
    (b) Be drawees of checks, drafts, and other negotiable and 
nonnegotiable items and instruments issued by eligible institutions or 
Bank members.

[67 FR 12854, Mar. 20, 2002]



Sec. 975.4  Incidental powers.

    In connection with the collection, processing, and settlement of 
items and instruments drawn on or issued by eligible institutions or 
Bank members, a Bank may also perform the following services:
    (a) Statement packaging; and
    (b) Any other activity that the Finance Board shall, from time to 
time, after notice and comment, find necessary for the exercise of the 
authority of this part.

[45 FR 64164, Sept. 29, 1980, as amended at 55 FR 2231, Jan. 23, 1990; 
65 FR 8266, Feb. 18, 2000; 67 FR 12854, Mar. 20, 2002]



Sec. 975.5  Operations.

    A Bank may utilize the services of a Federal Reserve Bank and may 
become a member or use the services of a clearinghouse, public or 
private financial institution, or agency in the exercise of any powers 
or functions under this part.

[45 FR 64164, Sept. 5, 1989, as amended at 65 FR 8266, Feb. 18, 2000]



Sec. 975.6  Pricing of services.

    (a) General. Banks shall charge for services authorized in this part 
in a manner consistent with the principles of section 11(A)(c) of the 
Federal Reserve Act (12 U.S.C. 248a(c)), as interpreted by this part.
    (b) Payment instrument account services. (1) In determining the fees 
for services provided under this part, a Bank must take into account all 
direct and indirect costs of providing the services.
    (2) Prices must reflect the imputed rate of return that would have 
been earned and the taxes that would have been paid if the Bank were a 
private corporation, by using a cost of capital adjustment factor 
applied to those assets used in providing services authorized under this 
part.
    (c) Review and publication. The Finance Board shall from time to 
time and at least annually review the cost of capital adjustment factor 
and review prices for services authorized in this part for compliance 
with the principles set forth in paragraphs (a) and (b) of this section. 
All prices for Bank services authorized in this part will be published 
annually in the Federal Register, except those for fees charged to an 
applicant for draws made by a beneficiary under a standby letter of 
credit.

(12 U.S.C. 1431(e); Reorg. Plan No. 3 of 1947, 12 FR 4981, 3 CFR, 1943-
48 Comp., p. 1071)

[45 FR 64164, Sept. 29, 1980, as amended at 46 FR 38900, July 30, 1981. 
Redesignated at 54 FR 36759, Sept. 5, 1989, and amended at 58 FR 59936, 
Nov. 12, 1993; 60 FR 57682, Nov. 17, 1995; 63 FR 65700, Nov. 30, 1998; 
65 FR 8266, Feb. 18, 2000]



Sec. 975.7  Rights, powers, responsibilities, duties, and liabilities.

    To the extent it is not inconsistent with other provisions of this 
part, the Uniform Commercial Code governs the rights, powers, 
responsibilities, duties, and liabilities of Banks in the exercise of 
their authority under this part. For purposes of this paragraph, the 
term ``bank,'' as used in the Uniform Commercial Code and clearinghouse 
rules,

[[Page 74]]

includes Banks and their members and eligible institutions.

[45 FR 64164, Sept. 5, 1989, as amended at 65 FR 8266, Feb. 18, 2000]



PART 977_MISCELLANEOUS BANK AUTHORITIES--Table of Contents



Sec.
977.1 Definitions. [Reserved]
977.2 Transfer of funds between Banks.
977.3 Trustee powers.

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a)(1), 1431(a), 1431(e), 
1432(a).

    Source: 65 FR 8266, Feb. 18, 2000, unless otherwise noted.



Sec. 977.1  Definitions. [Reserved]



Sec. 977.2  Transfer of funds between Banks.

    Inter-Bank borrowing shall be through unsecured deposits bearing 
interest at rates negotiated between Banks.



Sec. 977.3  Trustee powers.

    A Bank may act, and make reasonable charges for doing so, as trustee 
of any trust affecting the business of any member or any institution or 
group applying for membership or for insurance of accounts, or any group 
applying for a charter for a Federal Savings Association, if:
    (a) Such trust is created or arises for the benefit of the 
institution or its depositors, investors, or borrowers, or for the 
promotion of sound and economical home financing; and
    (b) In the case of applicants, the Bank ceases to act as trustee if 
the application is withdrawn or rejected.



PART 978_BANK REQUESTS FOR INFORMATION--Table of Contents



Sec.
978.1 Definitions.
978.2 Scope.
978.3 Request for confidential information.
978.4 Form of request.
978.5 Storage of confidential information.
978.6 Access to confidential information.
978.7 Third party requests for confidential information.
978.8 Computer data.

    Authority: 12 U.S.C. 1422b(a), 1442.

    Source: 65 FR 8266, Feb. 18, 2000, unless otherwise noted.



Sec. 978.1  Definitions.

    As used in this part:
    Confidential information means any record, data, or report, 
including but not limited to examination reports, or any part thereof, 
that is non-public, privileged or otherwise not intended for public 
disclosure which is in the possession or control of a financial 
regulatory agency and which contains information regarding members of a 
Bank or financial institutions with which a Bank has had or contemplates 
having transactions under the Act.
    Financial regulatory agency means any of the following:
    (1) The Department of the Treasury, including either the OCC or the 
OTS;
    (2) The FRB;
    (3) The NCUA; or
    (4) The FDIC.
    Third party means any person or entity except a director, officer, 
employee or agent of either:
    (1) A Bank in possession of any particular confidential information; 
or
    (2) The financial regulatory agency that supplied the particular 
confidential information to such Bank.

[65 FR 8266, Feb. 18, 2000, as amended at 67 FR 12854, Mar. 20, 2002]



Sec. 978.2  Scope.

    This part governs the procedure by which a Bank will request and 
receive confidential information pursuant to section 22 of the Act (12 
U.S.C. 1442).

[65 FR 8266, Feb. 18, 2000, as amended at 67 FR 12854, Mar. 20, 2002]



Sec. 978.3  Request for confidential information.

    A Bank shall make all requests for confidential information to a 
financial regulatory agency, or to a regional office of such agency if 
mutually agreeable, in accordance with the procedures contained in this 
part as well as any procedures of general applicability for requesting 
information promulgated by such financial regulatory agency. This part 
and its procedures may be supplemented by a confidentiality agreement 
between a Bank and a financial regulatory agency.

[[Page 75]]



Sec. 978.4  Form of request.

    A request by a Bank to a financial regulatory agency for 
confidential information shall be made in writing or by such other means 
as may be agreed upon between the Bank and the financial regulatory 
agency. The request shall reference section 22 of the Act (12 U.S.C. 
1442), as amended, and this regulation, and shall describe the 
confidential information requested and identify its intended use 
pursuant to the Act. The request shall be signed or otherwise made by 
any duly authorized Bank officer or employee.

[65 FR 8266, Feb. 18, 2000, as amended at 67 FR 12854, Mar. 20, 2002]



Sec. 978.5  Storage of confidential information.

    Each Bank shall:
    (a) Store all identified confidential information in secure storage 
areas or filing cabinets or other secured facilities generally used by 
such Bank and limit access thereto in the same manner as it maintains 
the confidentiality of its own members' privileged or non-public 
information;
    (b) Have in place a written set of procedures and policies designed 
to ensure the confidentiality of confidential information in its 
possession; and
    (c) Establish an internal review of its procedures for storing 
confidential information and maintaining its confidentiality, as a part 
of its internal audit process.



Sec. 978.6  Access to confidential information.

    Each Bank shall ensure that access to the confidential information 
stored at its facility is limited to those with a need to know such 
information and that employees with access maintain the confidentiality 
of the confidential information in accordance with the Bank's own 
procedures for maintaining the confidentiality of its members' 
privileged or non-public information.



Sec. 978.7  Third party requests for confidential information.

    (a) General. In the event a Bank receives a request for confidential 
information in its possession from any third party, the Bank shall 
forward such request to the financial regulatory agency from which the 
confidential information was obtained.
    (b) Subpoena. In the event a Bank receives a subpoena for 
confidential information issued by a Federal, state or local government 
department, agency, court or bureau, the Bank shall give timely written 
notice of such subpoena to the financial regulatory agency from which 
the confidential information was obtained, unless such notice is 
prohibited by applicable law. Except as limited in this part, the Bank 
may disclose confidential information pursuant to the subpoena, after 
giving timely written notice, when:
    (1) The financial regulatory agency gives written approval to the 
disclosure; or
    (2) A binding order to produce the confidential information has 
become final with all rights of appeal either exhausted or lapsed.
    (c) Nondisclosure to third parties. Except as provided in paragraph 
(b) of this section, a Bank shall not disclose confidential information 
to any third party. A Bank shall refer all third party requests for such 
confidential information to the financial regulatory agency that 
released the confidential information to the Bank.
    (d) Disclosure to Finance Board. (1) Neither this part nor any 
confidentiality agreement executed between a Bank and a financial 
regulatory agency shall prevent a Bank from disclosing confidential 
information in its possession to the Finance Board whenever disclosure 
is necessary to accomplish the Finance Board's supervision of Bank 
membership applications or Bank director eligibility issues, or 
disclosing any confidential information in its possession if such 
disclosure is made pursuant to an audit conducted pursuant to Sec. 
978.5 or section 20 of the Act (12 U.S.C. 1440).
    (2) The Finance Board shall keep all confidential information 
received under paragraph (d) of this section in strict confidence.

[65 FR 8266, Feb. 18, 2000, as amended at 67 FR 12854, Mar. 20, 2002]

[[Page 76]]



Sec. 978.8  Computer data.

    Nothing in this part shall preclude a Bank from arranging with any 
financial regulatory agency to transmit or allow access to confidential 
information with the consent of such agency by means of an electronic 
computer system. Any such arrangement shall ensure the security of the 
computerized data stored in a Bank's computer and restrict access to 
such data in order to preserve confidentiality in a manner agreed upon 
by the Bank and the financial regulatory agency.



      SUBCHAPTER J_NEW FEDERAL HOME LOAN BANK ACTIVITIES [RESERVED]





                SUBCHAPTER K_OFFICE OF FINANCE [RESERVED]



[[Page 77]]



                  SUBCHAPTER L_NON-BANK SYSTEM ENTITIES





PART 995_FINANCING CORPORATION OPERATIONS--Table of Contents



Sec.
995.1 Definitions.
995.2 General authority.
995.3 Authority to establish investment policies and procedures.
995.4 Book-entry procedure for Financing Corporation obligations.
995.5 Bank and Office of Finance employees.
995.6 Budget and expenses.
995.7 Administrative expenses.
995.8 Non-administrative expenses; assessments.
995.9 Reports to the Finance Board.
995.10 Review of books and records.

    Authority: 12 U.S.C. 1441(b)(8), (c), (j).

    Source: 62 FR 50248, Sept. 25, 1997, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000.



Sec. 995.1  Definitions.

    As used in this part:
    Administrative expenses:
    (1) Include general office and operating expenses such as telephone 
and photocopy charges, printing, legal, and professional fees, postage, 
courier services, and office supplies; and
    (2) Do not include any form of employee compensation, custodian 
fees, issuance costs, or any interest on (and any redemption premium 
with respect to) any Financing Corporation obligations.
    BIF-assessable deposit means a deposit that is subject to assessment 
for purposes of the Bank Insurance Fund under the Federal Deposit 
Insurance Act (12 U.S.C. 1811 et seq.), including a deposit that is 
treated as a deposit insured by the Bank Insurance Fund under section 
5(d)(3) of the Federal Deposit Insurance Act (12 U.S.C. 1815(d)(3)).
    Custodian fees means any fee incurred by the Financing Corporation 
in connection with the transfer of any security to, or maintenance of 
any security in, the segregated account established under section 
21(g)(2) of the Act (12 U.S.C. 1441(g)(2)), and any other expense 
incurred by the Financing Corporation in connection with the 
establishment or maintenance of such account.
    Directorate means the board established under section 21(b) of the 
Act (12 U.S.C. 1441(b)) to manage the Financing Corporation.
    Exit fees means the amounts paid under sections 5(d)(2)(E) and (F) 
of the Federal Deposit Insurance Act (12 U.S.C. 1815(d)(2)(E) and (F)), 
and regulations promulgated thereunder (12 CFR part 312).
    Insured depository institution has the same meaning as in section 3 
of the Federal Deposit Insurance Act (12 U.S.C. 1813).
    Issuance costs means issuance fees and commissions incurred by the 
Financing Corporation in connection with the issuance or servicing of 
Financing Corporation obligations, including legal and accounting 
expenses, trustee, fiscal, and paying agent charges, securities 
processing charges, joint collection agent charges, advertising 
expenses, and costs incurred in connection with preparing and printing 
offering materials to the extent the Financing Corporation incurs such 
costs in connection with issuing any obligations.
    Non-administrative expenses means custodian fees, issuance costs, 
and interest on Financing Corporation obligations.
    Obligations means debentures, bonds, and similar debt securities 
issued by the Financing Corporation under sections 21(c)(3) and (e) of 
the Act (12 U.S.C. 1421(c)(3) and (e)).
    Receivership proceeds means the liquidating dividends and payments 
made on claims received by the Federal Savings and Loan Insurance 
Corporation Resolution Fund established under section 11A of the Federal 
Deposit Insurance Act (12 U.S.C. 1821a) from receiverships, that are not 
required by the Resolution Funding Corporation to provide funds for the 
Funding Corporation Principal Fund established under section 21B of the 
Act (12 U.S.C. 1441b).
    SAIF-assessable deposit means a deposit that is subject to 
assessment for

[[Page 78]]

purposes of the Savings Association Insurance Fund under the Federal 
Deposit Insurance Act, including a deposit that is treated as a deposit 
insured by the Savings Association Insurance Fund under section 5(d)(3) 
of the Federal Deposit Insurance Act (12 U.S.C. 1815(d)(3)).

[67 FR 12855, Mar. 20, 2002]



Sec. 995.2  General authority.

    Subject to the limitations and interpretations in this part and such 
orders and directions as the Finance Board may prescribe, the Financing 
Corporation shall have authority to exercise all powers and authorities 
granted to it by the Act and by its charter and bylaws regardless of 
whether the powers and authorities are specifically implemented in 
regulation.



Sec. 995.3  Authority to establish investment policies and procedures.

    The Directorate shall have authority to establish investment 
policies and procedures with respect to Financing Corporation funds 
provided that the investment policies and procedures are consistent with 
the requirements of section 21(g) of the Act (12 U.S.C. 1441(g)). The 
Directorate shall promptly notify the Finance Board in writing of any 
changes to the investment policies and procedures.

[62 FR 50248, Sept. 25, 1997. Redesignated at 65 FR 8256, Feb. 18, 2000, 
as amended at 67 FR 12855, Mar. 20, 2002]



Sec. 995.4  Book-entry procedure for Financing Corporation obligations.

    (a) Authority. Any Federal Reserve Bank shall have authority to 
apply book-entry procedure to Financing Corporation obligations.
    (b) Procedure. The book-entry procedure for Financing Corporation 
obligations shall be governed by the book-entry procedure established 
for Bank consolidated obligations, codified at part 987 of this chapter. 
Wherever the terms ``Bank(s),'' ``consolidated obligation(s)'' or 
``Book-entry consolidated obligation(s)'' appear in part 987, the terms 
shall be construed also to mean ``Financing Corporation,'' ``Financing 
Corporation obligation(s),'' or ``Book-entry Financing Corporation 
obligation(s),'' respectively, if appropriate to accomplish the purposes 
of this section.

[62 FR 50248, Sept. 25, 1997, as amended at 65 FR 8268, Feb. 18, 2000; 
67 FR 12855, Mar. 20, 2002]



Sec. 995.5  Bank and Office of Finance employees.

    Without further approval of the Finance Board, the Financing 
Corporation shall have authority to utilize the officers, employees, or 
agents of any Bank or the Office of Finance in such manner as may be 
necessary to carry out its functions.



Sec. 995.6  Budget and expenses.

    (a) Directorate approval. The Financing Corporation shall submit 
annually to the Directorate for approval, a budget of proposed 
expenditures for the next calendar year that includes administrative and 
non-administrative expenses.
    (b) Finance Board approval. The Directorate shall submit annually to 
the Finance Board for approval, the budget of the Financing 
Corporation's proposed expenditures it approved pursuant to paragraph 
(a) of this section.
    (c) Spending limitation. The Financing Corporation shall not exceed 
the amount provided for in the annual budget approved by the Finance 
Board pursuant to paragraph (b) of this section, or as it may be amended 
by the Directorate within limits set by the Finance Board.
    (d) Amended budgets. Whenever the Financing Corporation projects or 
anticipates that it will incur expenditures, other than interest on 
Financing Corporation obligations, that exceed the amount provided for 
in the annual budget approved by the Finance Board or the Directorate 
pursuant to paragraph (b) or (c) of this section, the Financing 
Corporation shall submit an amended annual budget to the Directorate for 
approval, and the Directorate shall submit such amended budget to the 
Finance Board for approval.



Sec. 995.7  Administrative expenses.

    (a) Payment by Banks. The Banks shall pay all administrative 
expenses

[[Page 79]]

of the Financing Corporation approved pursuant to Sec. 995.6.
    (b) Amount. The Financing Corporation shall determine the amount of 
administrative expenses each Bank shall pay in the manner provided by 
section 21(b)(7)(B) of the Act (12 U.S.C. 1441(b)(7)(B)). The Financing 
Corporation shall bill each Bank for such amount periodically.
    (c) Adjustments. The Financing Corporation shall adjust the amount 
of administrative expenses the Banks are required to pay in any calendar 
year pursuant to paragraphs (a) and (b) of this section, by deducting 
any funds that remain from the amount paid by the Banks for 
administrative expenses in the prior calendar year.

[62 FR 50248, Sept. 25, 1997, as amended at 65 FR 8268, Feb. 18, 2000; 
67 FR 12856, Mar. 20, 2002]



Sec. 995.8  Non-administrative expenses; assessments.

    (a) Interest expenses. The Financing Corporation shall determine 
anticipated interest expenses on its obligations at least semiannually.
    (b) Assessments on insured depository institutions--(1) Authority. 
To provide sufficient funds to pay the non-administrative expenses of 
the Financing Corporation approved under Sec. 995.6, the Financing 
Corporation shall, with the approval of the board of directors of the 
FDIC, assess against each insured depository institution an assessment 
in the same manner as assessments are made by the FDIC under section 7 
of the Federal Deposit Insurance Act.
    (2) Assessment rate--(i) Determination. The Financing Corporation at 
least semiannually shall establish an assessment rate formula, which may 
include rounding methodology, to determine the rate or rates of the 
assessment it will assess against insured depository institutions 
pursuant to section 21(f)(2) of the Act (12 U.S.C. 1441(f)(2)) and 
paragraph (b)(1) of this section.
    (ii) Limitation. Until the earlier of December 31, 1999, or the date 
as of which the last savings association ceases to exist, the rate of 
the assessment imposed on an insured depository institution with respect 
to any BIF-assessable deposit shall be a rate equal to \1/5\ of the rate 
of the assessment imposed on an insured depository institution with 
respect to any SAIF-assessable deposit.
    (iii) Notice. The Financing Corporation shall notify the FDIC and 
the collection agent, if any, of the formula established under paragraph 
(b)(2)(i) of this section.
    (3) Collecting assessments--(i) Collection agent. The Financing 
Corporation shall have authority to collect assessments made under 
section 21(f)(2) of the Act (12 U.S.C. 1441(f)(2)) and paragraph (b)(1) 
of this section through a collection agent of its choosing.
    (ii) Accounts. Each Bank shall permit any insured depository 
institution whose principal place of business is in its district to 
establish and maintain at least one demand deposit account to facilitate 
collection of the assessments made under section 21(f)(2) of the Act (12 
U.S.C. 1441(f)(2)) and paragraph (b)(1) of this section.
    (c) Receivership proceeds--(1) Authority. To the extent the amounts 
collected under paragraph (b) of this section are insufficient to pay 
the non-administrative expenses of the Financing Corporation approved 
under Sec. 995.6, the Financing Corporation shall have authority to 
require the FDIC to transfer receivership proceeds to the Financing 
Corporation in accordance with section 21(f)(3) of the Act (12 U.S.C. 
1441(f)(3)).
    (2) Procedure. The Directorate shall request in writing that the 
FDIC transfer the receivership proceeds to the Financing Corporation. 
Such request shall specify the estimated amount of funds required to pay 
the non-administrative expenses of the Financing Corporation approved 
under Sec. 995.6.
    (d) Exit fees--(1) Authority. To the extent the amounts provided 
under paragraphs (b) and (c) of this section are insufficient to pay the 
interest due on Financing Corporation obligations, the Financing 
Corporation shall have authority to request that the Secretary of the 
Treasury order the transfer of exit fees to the Financing Corporation in 
accordance with section 5(d)(2)(E) of the Federal Deposit Insurance Act 
(12 U.S.C. 1815(d)(2)(E)) or as otherwise may be provided for by 
statute.
    (2) Procedure. The Directorate shall request in writing that the 
Secretary of the Treasury order that exit fees be

[[Page 80]]

transferred to the Financing Corporation. Such request shall specify the 
estimated amount of funds required to pay the interest due on Financing 
Corporation obligations.

[62 FR 50248, Sept. 25, 1997, as amended at 65 FR 8268, 8269, Feb. 18, 
2000; 67 FR 12856, Mar. 20, 2002]



Sec. 995.9  Reports to the Finance Board.

    The Financing Corporation shall file such reports as the Finance 
Board shall direct.



Sec. 995.10  Review of books and records.

    The Finance Board shall examine the Financing Corporation at least 
annually to determine whether the Financing Corporation is performing 
its functions in accordance with the requirements of section 21 of the 
Act (12 U.S.C. 1441) and this part.

[62 FR 50248, sept. 25, 1997. Redesignated at 65 FR 8256, Feb. 18, 2000, 
as amended at 67 FR 12856, Mar. 20, 2002]



PART 996_AUTHORITY FOR BANK ASSISTANCE OF THE RESOLUTION FUNDING 
CORPORATION--Table of Contents



Sec.
996.1 [Reserved]
996.2 Bank employees.
996.3 Demand deposit accounts.

    Authority: 12 U.S.C. 1422a, 1422b.



Sec. 996.1  [Reserved]



Sec. 996.2  Bank employees.

    Upon the request of the Directorate of the Resolution Funding 
Corporation, established pursuant to section 21B(b) of the Act (12 
U.S.C. 1441b(b)), officers, employees, or agents of the Banks are 
authorized to act for and on behalf of the Resolution Funding 
Corporation in such manner as may be necessary to carry out the 
functions of the Resolution Funding Corporation as provided in section 
21B(c)(6)(B) of the Act (12 U.S.C. 1441b(c)(6)(B)).

[54 FR 39729, Sept. 28, 1989, as amended at 65 FR 8269, Feb. 18, 2000. 
Redesignated and amended at 67 FR 12856, Mar. 20, 2002]



Sec. 996.3  Demand deposit accounts.

    Each Bank shall allow any Savings Association Insurance Fund member 
whose principal place of business is in its district to establish and 
maintain at least one demand deposit account for the purpose of 
facilitating the Resolution Funding Corporation's assessments pursuant 
to section 21B(e)(7) of the Act (12 U.S.C. 1441b(e)(7)).

[54 FR 39729, Sept. 28, 1989, as amended at 65 FR 8269, Feb. 18, 2000. 
Redesignated and amended at 67 FR 12856, Mar. 20, 2002]



PART 997_RESOLUTION FUNDING CORPORATION OBLIGATIONS OF THE
BANKS--Table of Contents



Sec.
997.1 Definitions.
997.2 Reduction of the payment term.
997.3 Extension of the payment term.
997.4 Calculation of the quarterly present-value determination.
997.5 Termination of the obligation.

    Authority: 12 U.S.C. 1422b(a) and 1441b(f).

    Source: 65 FR 17438, Apr. 3, 2000, unless otherwise noted.

    Effective Date Note: At 76 FR 74649, Dec. 1, 2011, part 997 was 
removed, effective January 3, 2012.



Sec. 997.1  Definitions.

    As used in this part:
    Actual quarterly payment means the quarterly amount paid by the 
Banks to fulfill the Banks' obligation to pay toward interest owed on 
bonds issued by the REFCORP. The amount will equal the aggregate of 20 
percent of the quarterly net earnings of each Bank, or such other amount 
assessed in accordance with the Act and the regulations adopted 
thereunder.
    Benchmark quarterly payment means $75 million, or such amount that 
may result from adjustments required by calculations made in accordance 
with Sec. Sec. 997.2 and 997.3.
    Current benchmark quarterly payment means the benchmark quarterly 
payment that corresponds to the date of the actual quarterly payment.
    Deficit quarterly payment means the amount by which the actual 
quarterly payment falls short of the current benchmark quarterly 
payment.
    Estimated interest rate means the interest rate provided to the 
Finance Board by the Department of the Treasury on a zero-coupon 
Treasury bond, the maturity of which is the same as

[[Page 81]]

the date of the benchmark quarterly payment that is being defeased, or 
if no bond matures on that date, then is the date closest to the date of 
the payment being defeased.
    Excess quarterly payment means the amount by which the actual 
quarterly payment exceeds the current benchmark quarterly payment.
    Quarterly present-value determination means the quarterly 
calculation that will determine the extent to which an excess quarterly 
payment or deficit quarterly payment alters the term of the Banks' 
obligation to the REFCORP. This determination will fulfill the 
requirements of 21B(f)(2)(C)(ii) of the Act (12 U.S.C 
1441b(f)(2)(C)(ii), as amended by Pub. L. 106-102, sec. 607, 113 
Stat.1456-57.

[65 FR 17438, Apr. 3, 2000, as amended at 67 FR 12856, Mar. 20, 2002]



Sec. 997.2  Reduction of the payment term.

    (a) Generally. The Finance Board shall shorten the term of the 
obligation of the Banks to make payments toward the interest owed on 
bonds issued by the REFCORP for each quarter in which there is an excess 
quarterly payment.
    (b) Excess quarterly payment. Where there is an excess quarterly 
payment, the quarterly present-value determination shall be as follows:
    (1) The future value of the excess quarterly payment shall be 
calculated using the estimated interest rate corresponding to the last 
non-defeased benchmark quarterly payment.
    (2) The future value calculated in paragraph (b)(1) of this section 
shall be subtracted from the amount of the last non-defeased quarterly 
benchmark payment.
    (3) If the difference resulting from the calculation in paragraph 
(b)(2) of this section is greater than zero, then the last non-defeased 
quarterly benchmark payment is reduced by the future value of the excess 
quarterly payment.
    (4) If the difference resulting from the calculation in paragraph 
(b)(2) of this section is less than zero, then the last non-defeased 
quarterly benchmark payment shall be defeased and the payment term shall 
be shortened.
    (5) The amount of the excess quarterly payment that has not already 
been applied to defeasing the payment under paragraph (b)(4) of this 
section shall be applied toward defeasing the last non-defeased 
quarterly benchmark payment using the applicable estimated interest 
rate.



Sec. 997.3  Extension of the payment term.

    (a) Generally. The Finance Board will extend the term of the 
obligation of the Banks to make payments toward interest owed on bonds 
issued by the REFCORP for each calendar quarter in which there is a 
deficit quarterly payment.
    (b) Deficit quarterly payment. Where there is a deficit quarterly 
payment, the quarterly present-value determination shall be as follows:
    (1) The future value of the deficit quarterly payment shall be 
calculated using the estimated interest rate corresponding to the last 
non-defeased benchmark quarterly payment, or to the first quarter 
thereafter if the last non-defeased benchmark quarterly payment already 
equals $75 million.
    (2) The future value calculated in paragraph (b)(1) of this section 
shall be added to the amount of the last non-defeased quarterly 
benchmark payment if that sum is $75 million or less.
    (3) If the sum calculated in paragraph (b)(2) of this section 
exceeds $75 million, the last non-defeased quarterly benchmark payment 
will become $75 million, and the quarterly benchmark payment term will 
be extended.
    (4) The extended payment will equal the future value of the amount 
of the deficit quarterly payment that has not already been applied to 
raising the quarterly benchmark payment to $75 million under paragraph 
(b)(3) of this section, using the estimated interest rate corresponding 
to the date of the extended benchmark quarterly payment.
    (c) Term beyond maturity. The benchmark quarterly payment term may 
be extended beyond April 15, 2030, if such extension is necessary to 
ensure that the value of the aggregate amounts paid by the Banks exactly 
equals the present value of an annuity of $300 million per year that 
commences on the date on which the first obligation of the REFCORP was 
issued and ends on April 15, 2030.

[[Page 82]]



Sec. 997.4  Calculation of the quarterly present-value determination.

    (a) Applicable interest rates. The Finance Board shall obtain from 
the Department of the Treasury the applicable estimated interest rates 
and provide those rates to the REFCORP so that the REFCORP can perform 
the calculations required under Sec. Sec. 997.2 and 997.3.
    (b) Calculation by the Finance Board. If Sec. 997.3 requires that 
the term for the Banks' actual quarterly payments extend beyond April 
15, 2030 or if, for any reason, the REFCORP is unable to perform the 
calculations or to provide the Finance Board with the results of the 
calculations, the Finance Board shall make all calculations required 
under this part.
    (c) Records. The Finance Board will maintain the official record of 
the results of all quarterly present-value determinations made under 
this part.



Sec. 997.5  Termination of the obligation.

    (a) Generally. The Banks' obligation to the REFCORP, or to the 
Department of the Treasury if the term of that obligation extends beyond 
April 15, 2030, will terminate when the aggregate actual quarterly 
payments made by the Banks exactly equal the present value of an annuity 
of $300 million per year that commences on the date on which the first 
obligation of the REFCORP was issued and ends on April 15, 2030.
    (b) Date of the final payment. The aggregate actual quarterly 
payments made by the Banks exactly equal the present value of the 
annuity described in paragraph (a) of this section when the value of any 
remaining benchmark quarterly payment(s), after the benchmark quarterly 
payments have been adjusted as required by Sec. Sec. 997.2 and 997.3, 
exactly equals the actual quarterly payment.

[65 FR 17438, Apr. 3, 2000, as amended at 65 FR 40492, June 30, 2000]

[[Page 83]]



             SUBCHAPTER M_FEDERAL HOME LOAN BANK DISCLOSURES





PART 998_REGISTRATION OF FEDERAL HOME LOAN BANK EQUITY 
SECURITIES--Table of Contents



Sec.
998.1 Purpose.
998.2 Registration and periodic disclosures.
998.3 Reservation of authority.

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a)(1).

    Source: 69 FR 38811, June 29, 2004, unless otherwise noted.



Sec. 998.1  Purpose.

    The purposes of this part are to enhance the quality of the 
financial disclosures provided by each Bank, to promote a greater degree 
of consistency and uniformity of such disclosures from Bank to Bank, to 
provide a greater degree of transparency regarding the financial 
condition of each Bank, and to conform the disclosure practices of the 
Banks to those of other financial institutions who raise funds in the 
global debt markets.



Sec. 998.2  Registration and periodic disclosures.

    (a) Registration. (1) Each Bank shall file a registration statement 
by no later than June 30, 2005 to register a class of its equity 
securities pursuant to the provisions of section 12(g)(1) of the 1934 
Act. Each Bank shall ensure that its registration statement becomes 
effective as provided in section 12 no later than August 29, 2005.
    (2) Notwithstanding paragraph (a)(1) of this section, the Finance 
Board may by order extend the registration date for one or more Banks if 
it determines, based on factors presented in a written request to the 
Finance Board, that good cause exists to do so.
    (b) Periodic disclosures. Consistent with the registration required 
pursuant to paragraph (a) of this section, each Bank, after registering 
a class of equity securities with the SEC, shall comply with the 
periodic disclosure requirements of the 1934 Act by preparing and filing 
with the SEC such annual, quarterly, and current reports, as well as any 
other materials required pursuant to SEC rules, regulations, or 
interpretations, including those related to audited financial 
statements, as may be required by the SEC under the 1934 Act.
    (c) Submission to Finance Board. Unless otherwise directed by the 
Finance Board, each Bank shall provide to the Finance Board on a 
concurrent basis copies of all disclosure documents filed with the SEC.



Sec. 998.3  Reservation of authority.

    The requirements of this part do not diminish, or otherwise restrict 
the ability of the Finance Board to exercise, any and all authority 
conferred by the Bank Act to ensure that the Banks operate in a 
financially safe and sound manner, that they carry out their housing 
finance mission, and that they remain adequately capitalized and able to 
raise funds in the capital markets. Nor do the requirements of part 998 
diminish or otherwise restrict the Finance Board's authority to 
supervise the Banks, to conduct examinations, to require reports and 
other disclosures, and to enforce compliance with applicable laws, 
rules, orders or agreements.

[[Page 85]]



           CHAPTER X--BUREAU OF CONSUMER FINANCIAL PROTECTION




  --------------------------------------------------------------------
Part                                                                Page
1002            Equal Credit Opportunity Act (Regulation B).          87
1003            Home mortgage disclosure (Regulation C).....         142
1004            Alternative mortgage transaction parity 
                    (Regulation D)..........................         165
1005            Electronic fund transfers (Regulation E)....         169
1006            Fair Debt Collection Practices Act 
                    (Regulation F)..........................         232
1007            S.A.F.E. Mortgage Licensing Act--Federal 
                    registration of residential mortgage 
                    loan originators (Regulation G).........         235
1008            S.A.F.E. Mortgage Licensing Act--State 
                    compliance and bureau registration 
                    system (Regulation H)...................         243
1009            Disclosure requirements for depository 
                    institutions lacking Federal deposit 
                    insurance (Regulation I)................         257
1010            Land registration (Regulation J)............         259
1011            Purchasers' revocation rights, sales 
                    practices and standards (Regulation K)..         317
1012            Special rules of practice (Regulation J)....         321
1013            Consumer leasing (Regulation M).............         325
1014            Mortgage acts and practices--Advertising 
                    (Regulation N)..........................         351
1015            Mortgage assistance relief services 
                    (Regulation O)..........................         354
1016            Privacy of consumer financial information 
                    (Regulation P)..........................         360
1022            Fair credit reporting (Regulation V)........         394
1024            Real Estate Settlement Procedures Act 
                    (Regulation X)..........................         484
1026            Truth in lending (Regulation Z).............         541
1030            Truth in savings (Regulation DD)............        1020
1070            Disclosure of records and information.......        1059
1080            Rules relating to investigations............        1089
1081            Rules of practice for adjudication 
                    proceedings.............................        1095
1082            State official notification rules...........        1126

[[Page 87]]



PART 1002_EQUAL CREDIT OPPORTUNITY ACT (REGULATION B)--Table of Contents



Sec.
1002.1 Authority, scope and purpose.
1002.2 Definitions.
1002.3 Limited exceptions for certain classes of transactions.
1002.4 General rules.
1002.5 Rules concerning requests for information.
1002.6 Rules concerning evaluation of applications.
1002.7 Rules concerning extensions of credit.
1002.8 Special purpose credit programs.
1002.9 Notifications.
1002.10 Furnishing of credit information.
1002.11 Relation to state law.
1002.12 Record retention.
1002.13 Information for monitoring purposes.
1002.14 Rules on providing appraisal reports.
1002.15 Incentives for self-testing and self-correction.
1002.16 Enforcement, penalties and liabilities.

Appendix A to Part 1002--Federal Agencies to be Listed in Adverse Action 
          Notices
Appendix B to Part 1002--Model Application Forms
Appendix C to Part 1002--Sample Notification Forms
Appendix D to Part 1002--Issuance of Official Interpretations
Supplement I to Part 1002--Official Interpretations

    Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1691b.

    Source: 76 FR 79445, Dec. 21, 2011, unless otherwise noted.



Sec. 1002.1  Authority, scope and purpose.

    (a) Authority and scope. This part, known as Regulation B, is issued 
by the Bureau of Consumer Financial Protection (Bureau) pursuant to 
Title VII (Equal Credit Opportunity Act) of the Consumer Credit 
Protection Act, as amended (15 U.S.C. 1601 et seq.). Except as otherwise 
provided herein, this part applies to all persons who are creditors, as 
defined in Sec. 1002.2(l), other than a person excluded from coverage 
of this part by section 1029 of the Consumer Financial Protection Act of 
2010, Title X of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, Public Law 111-203, 124 Stat. 1376. Information 
collection requirements contained in this part have been approved by the 
Office of Management and Budget under the provisions of 44 U.S.C. 3501 
et seq. and have been assigned OMB No. 3170-0013.
    (b) Purpose. The purpose of this part is to promote the availability 
of credit to all creditworthy applicants without regard to race, color, 
religion, national origin, sex, marital status, or age (provided the 
applicant has the capacity to contract); to the fact that all or part of 
the applicant's income derives from a public assistance program; or to 
the fact that the applicant has in good faith exercised any right under 
the Consumer Credit Protection Act. The regulation prohibits creditor 
practices that discriminate on the basis of any of these factors. The 
regulation also requires creditors to notify applicants of action taken 
on their applications; to report credit history in the names of both 
spouses on an account; to retain records of credit applications; to 
collect information about the applicant's race and other personal 
characteristics in applications for certain dwelling-related loans; and 
to provide applicants with copies of appraisal reports used in 
connection with credit transactions.



Sec. 1002.2  Definitions.

    For the purposes of this part, unless the context indicates 
otherwise, the following definitions apply.
    (a) Account means an extension of credit. When employed in relation 
to an account, the word use refers only to open-end credit.
    (b) Act means the Equal Credit Opportunity Act (Title VII of the 
Consumer Credit Protection Act).
    (c) Adverse action. (1) The term means:
    (i) A refusal to grant credit in substantially the amount or on 
substantially the terms requested in an application unless the creditor 
makes a counteroffer (to grant credit in a different amount or on other 
terms) and the applicant uses or expressly accepts the credit offered;
    (ii) A termination of an account or an unfavorable change in the 
terms of an account that does not affect all or substantially all of a 
class of the creditor's accounts; or
    (iii) A refusal to increase the amount of credit available to an 
applicant who

[[Page 88]]

has made an application for an increase.
    (2) The term does not include:
    (i) A change in the terms of an account expressly agreed to by an 
applicant;
    (ii) Any action or forbearance relating to an account taken in 
connection with inactivity, default, or delinquency as to that account;
    (iii) A refusal or failure to authorize an account transaction at 
point of sale or loan, except when the refusal is a termination or an 
unfavorable change in the terms of an account that does not affect all 
or substantially all of a class of the creditor's accounts, or when the 
refusal is a denial of an application for an increase in the amount of 
credit available under the account;
    (iv) A refusal to extend credit because applicable law prohibits the 
creditor from extending the credit requested; or
    (v) A refusal to extend credit because the creditor does not offer 
the type of credit or credit plan requested.
    (3) An action that falls within the definition of both paragraphs 
(c)(1) and (c)(2) of this section is governed by paragraph (c)(2) of 
this section.
    (d) Age refers only to the age of natural persons and means the 
number of fully elapsed years from the date of an applicant's birth.
    (e) Applicant means any person who requests or who has received an 
extension of credit from a creditor, and includes any person who is or 
may become contractually liable regarding an extension of credit. For 
purposes of Sec. 1002.7(d), the term includes guarantors, sureties, 
endorsers, and similar parties.
    (f) Application means an oral or written request for an extension of 
credit that is made in accordance with procedures used by a creditor for 
the type of credit requested. The term application does not include the 
use of an account or line of credit to obtain an amount of credit that 
is within a previously established credit limit. A completed application 
means an application in connection with which a creditor has received 
all the information that the creditor regularly obtains and considers in 
evaluating applications for the amount and type of credit requested 
(including, but not limited to, credit reports, any additional 
information requested from the applicant, and any approvals or reports 
by governmental agencies or other persons that are necessary to 
guarantee, insure, or provide security for the credit or collateral). 
The creditor shall exercise reasonable diligence in obtaining such 
information.
    (g) Business credit refers to extensions of credit primarily for 
business or commercial (including agricultural) purposes, but excluding 
extensions of credit of the types described in Sec. Sec. 1002.3(a)-(d).
    (h) Consumer credit means credit extended to a natural person 
primarily for personal, family, or household purposes.
    (i) Contractually liable means expressly obligated to repay all 
debts arising on an account by reason of an agreement to that effect.
    (j) Credit means the right granted by a creditor to an applicant to 
defer payment of a debt, incur debt and defer its payment, or purchase 
property or services and defer payment therefor.
    (k) Credit card means any card, plate, coupon book, or other single 
credit device that may be used from time to time to obtain money, 
property, or services on credit.
    (l) Creditor means a person who, in the ordinary course of business, 
regularly participates in a credit decision, including setting the terms 
of the credit. The term creditor includes a creditor's assignee, 
transferee, or subrogee who so participates. For purposes of Sec. Sec. 
1002.4(a) and (b), the term creditor also includes a person who, in the 
ordinary course of business, regularly refers applicants or prospective 
applicants to creditors, or selects or offers to select creditors to 
whom requests for credit may be made. A person is not a creditor 
regarding any violation of the Act or this part committed by another 
creditor unless the person knew or had reasonable notice of the act, 
policy, or practice that constituted the violation before becoming 
involved in the credit transaction. The term does not include a person 
whose only participation in a credit transaction involves honoring a 
credit card.

[[Page 89]]

    (m) Credit transaction means every aspect of an applicant's dealings 
with a creditor regarding an application for credit or an existing 
extension of credit (including, but not limited to, information 
requirements; investigation procedures; standards of creditworthiness; 
terms of credit; furnishing of credit information; revocation, 
alteration, or termination of credit; and collection procedures).
    (n) Discriminate against an applicant means to treat an applicant 
less favorably than other applicants.
    (o) Elderly means age 62 or older.
    (p) Empirically derived and other credit scoring systems. (1) A 
credit scoring system is a system that evaluates an applicant's 
creditworthiness mechanically, based on key attributes of the applicant 
and aspects of the transaction, and that determines, alone or in 
conjunction with an evaluation of additional information about the 
applicant, whether an applicant is deemed creditworthy. To qualify as an 
empirically derived, demonstrably and statistically sound, credit 
scoring system, the system must be:
    (i) Based on data that are derived from an empirical comparison of 
sample groups or the population of creditworthy and non-creditworthy 
applicants who applied for credit within a reasonable preceding period 
of time;
    (ii) Developed for the purpose of evaluating the creditworthiness of 
applicants with respect to the legitimate business interests of the 
creditor utilizing the system (including, but not limited to, minimizing 
bad debt losses and operating expenses in accordance with the creditor's 
business judgment);
    (iii) Developed and validated using accepted statistical principles 
and methodology; and
    (iv) Periodically revalidated by the use of appropriate statistical 
principles and methodology and adjusted as necessary to maintain 
predictive ability.
    (2) A creditor may use an empirically derived, demonstrably and 
statistically sound, credit scoring system obtained from another person 
or may obtain credit experience from which to develop such a system. Any 
such system must satisfy the criteria set forth in paragraph (p)(1)(i) 
through (iv) of this section; if the creditor is unable during the 
development process to validate the system based on its own credit 
experience in accordance with paragraph (p)(1) of this section, the 
system must be validated when sufficient credit experience becomes 
available. A system that fails this validity test is no longer an 
empirically derived, demonstrably and statistically sound, credit 
scoring system for that creditor.
    (q) Extend credit and extension of credit mean the granting of 
credit in any form (including, but not limited to, credit granted in 
addition to any existing credit or credit limit; credit granted pursuant 
to an open-end credit plan; the refinancing or other renewal of credit, 
including the issuance of a new credit card in place of an expiring 
credit card or in substitution for an existing credit card; the 
consolidation of two or more obligations; or the continuance of existing 
credit without any special effort to collect at or after maturity).
    (r) Good faith means honesty in fact in the conduct or transaction.
    (s) Inadvertent error means a mechanical, electronic, or clerical 
error that a creditor demonstrates was not intentional and occurred 
notwithstanding the maintenance of procedures reasonably adapted to 
avoid such errors.
    (t) Judgmental system of evaluating applicants means any system for 
evaluating the creditworthiness of an applicant other than an 
empirically derived, demonstrably and statistically sound, credit 
scoring system.
    (u) Marital status means the state of being unmarried, married, or 
separated, as defined by applicable state law. The term ``unmarried'' 
includes persons who are single, divorced, or widowed.
    (v) Negative factor or value, in relation to the age of elderly 
applicants, means utilizing a factor, value, or weight that is less 
favorable regarding elderly applicants than the creditor's experience 
warrants or is less favorable than the factor, value, or weight assigned 
to the class of applicants that are not classified as elderly and are 
most favored by a creditor on the basis of age.
    (w) Open-end credit means credit extended under a plan in which a 
creditor may permit an applicant to make purchases or obtain loans from 
time to

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time directly from the creditor or indirectly by use of a credit card, 
check, or other device.
    (x) Person means a natural person, corporation, government or 
governmental subdivision or agency, trust, estate, partnership, 
cooperative, or association.
    (y) Pertinent element of creditworthiness, in relation to a 
judgmental system of evaluating applicants, means any information about 
applicants that a creditor obtains and considers and that has a 
demonstrable relationship to a determination of creditworthiness.
    (z) Prohibited basis means race, color, religion, national origin, 
sex, marital status, or age (provided that the applicant has the 
capacity to enter into a binding contract); the fact that all or part of 
the applicant's income derives from any public assistance program; or 
the fact that the applicant has in good faith exercised any right under 
the Consumer Credit Protection Act or any state law upon which an 
exemption has been granted by the Bureau.
    (aa) State means any state, the District of Columbia, the 
Commonwealth of Puerto Rico, or any territory or possession of the 
United States.



Sec. 1002.3  Limited exceptions for certain classes of transactions.

    (a) Public utilities credit--(1) Definition. Public utilities credit 
refers to extensions of credit that involve public utility services 
provided through pipe, wire, or other connected facilities, or radio or 
similar transmission (including extensions of such facilities), if the 
charges for service, delayed payment, and any discount for prompt 
payment are filed with or regulated by a government unit.
    (2) Exceptions. The following provisions of this part do not apply 
to public utilities credit:
    (i) Section 1002.5(d)(1) concerning information about marital 
status; and
    (ii) Section 1002.12(b) relating to record retention.
    (b) Securities credit--(1) Definition. Securities credit refers to 
extensions of credit subject to regulation under section 7 of the 
Securities Exchange Act of 1934 or extensions of credit by a broker or 
dealer subject to regulation as a broker or dealer under the Securities 
Exchange Act of 1934.
    (2) Exceptions. The following provisions of this part do not apply 
to securities credit:
    (i) Section 1002.5(b) concerning information about the sex of an 
applicant;
    (ii) Section 1002.5(c) concerning information about a spouse or 
former spouse;
    (iii) Section 1002.5(d)(1) concerning information about marital 
status;
    (iv) Section 1002.7(b) relating to designation of name to the extent 
necessary to comply with rules regarding an account in which a broker or 
dealer has an interest, or rules regarding the aggregation of accounts 
of spouses to determine controlling interests, beneficial interests, 
beneficial ownership, or purchase limitations and restrictions;
    (v) Section 1002.7(c) relating to action concerning open-end 
accounts, to the extent the action taken is on the basis of a change of 
name or marital status;
    (vi) Section 1002.7(d) relating to the signature of a spouse or 
other person;
    (vii) Section 1002.10 relating to furnishing of credit information; 
and
    (viii) Section 1002.12(b) relating to record retention.
    (c) Incidental credit--(1) Definition. Incidental credit refers to 
extensions of consumer credit other than the types described in 
paragraphs (a) and (b) of this section:
    (i) That are not made pursuant to the terms of a credit card 
account;
    (ii) That are not subject to a finance charge (as defined in 
Regulation Z, 12 CFR 1026.4); and
    (iii) That are not payable by agreement in more than four 
installments.
    (2) Exceptions. The following provisions of this part do not apply 
to incidental credit:
    (i) Section 1002.5(b) concerning information about the sex of an 
applicant, but only to the extent necessary for medical records or 
similar purposes;
    (ii) Section 1002.5(c) concerning information about a spouse or 
former spouse;
    (iii) Section 1002.5(d)(1) concerning information about marital 
status;
    (iv) Section 1002.5(d)(2) concerning information about income 
derived from

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alimony, child support, or separate maintenance payments;
    (v) Section 1002.7(d) relating to the signature of a spouse or other 
person;
    (vi) Section 1002.9 relating to notifications;
    (vii) Section 1002.10 relating to furnishing of credit information; 
and
    (viii) Section 1002.12(b) relating to record retention.
    (d) Government credit--(1) Definition. Government credit refers to 
extensions of credit made to governments or governmental subdivisions, 
agencies, or instrumentalities.
    (2) Applicability of regulation. Except for Sec. 1002.4(a), the 
general rule against discrimination on a prohibited basis, the 
requirements of this part do not apply to government credit.



Sec. 1002.4  General rules.

    (a) Discrimination. A creditor shall not discriminate against an 
applicant on a prohibited basis regarding any aspect of a credit 
transaction.
    (b) Discouragement. A creditor shall not make any oral or written 
statement, in advertising or otherwise, to applicants or prospective 
applicants that would discourage on a prohibited basis a reasonable 
person from making or pursuing an application.
    (c) Written applications. A creditor shall take written applications 
for the dwelling-related types of credit covered by Sec. 1002.13(a).
    (d) Form of disclosures--(1) General rule. A creditor that provides 
in writing any disclosures or information required by this part must 
provide the disclosures in a clear and conspicuous manner and, except 
for the disclosures required by Sec. Sec. 1002.5 and 1002.13, in a form 
the applicant may retain.
    (2) Disclosures in electronic form. The disclosures required by this 
part that are required to be given in writing may be provided to the 
applicant in electronic form, subject to compliance with the consumer 
consent and other applicable provisions of the Electronic Signatures in 
Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). 
Where the disclosures under Sec. Sec. 1002.5(b)(1), 1002.5(b)(2), 
1002.5(d)(1), 1002.5(d)(2), 1002.13, and 1002.14(a)(2)(i) accompany an 
application accessed by the applicant in electronic form, these 
disclosures may be provided to the applicant in electronic form on or 
with the application form, without regard to the consumer consent or 
other provisions of the E-Sign Act.
    (e) Foreign-language disclosures. Disclosures may be made in 
languages other than English, provided they are available in English 
upon request.



Sec. 1002.5  Rules concerning requests for information.

    (a) General rules--(1) Requests for information. Except as provided 
in paragraphs (b) through (d) of this section, a creditor may request 
any information in connection with a credit transaction. This paragraph 
does not limit or abrogate any Federal or state law regarding privacy, 
privileged information, credit reporting limitations, or similar 
restrictions on obtainable information.
    (2) Required collection of information. Notwithstanding paragraphs 
(b) through (d) of this section, a creditor shall request information 
for monitoring purposes as required by Sec. 1002.13 for credit secured 
by the applicant's dwelling. In addition, a creditor may obtain 
information required by a regulation, order, or agreement issued by, or 
entered into with, a court or an enforcement agency (including the 
Attorney General of the United States or a similar state official) to 
monitor or enforce compliance with the Act, this part, or other Federal 
or state statutes or regulations.
    (3) Special-purpose credit. A creditor may obtain information that 
is otherwise restricted to determine eligibility for a special purpose 
credit program, as provided in Sec. Sec. 1002.8(b), (c), and (d).
    (b) Limitation on information about race, color, religion, national 
origin, or sex. A creditor shall not inquire about the race, color, 
religion, national origin, or sex of an applicant or any other person in 
connection with a credit transaction, except as provided in paragraphs 
(b)(1) and (b)(2) of this section.
    (1) Self-test. A creditor may inquire about the race, color, 
religion, national origin, or sex of an applicant or any

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other person in connection with a credit transaction for the purpose of 
conducting a self-test that meets the requirements of Sec. 1002.15. A 
creditor that makes such an inquiry shall disclose orally or in writing, 
at the time the information is requested, that:
    (i) The applicant will not be required to provide the information;
    (ii) The creditor is requesting the information to monitor its 
compliance with the Federal Equal Credit Opportunity Act;
    (iii) Federal law prohibits the creditor from discriminating on the 
basis of this information, or on the basis of an applicant's decision 
not to furnish the information; and
    (iv) If applicable, certain information will be collected based on 
visual observation or surname if not provided by the applicant or other 
person.
    (2) Sex. An applicant may be requested to designate a title on an 
application form (such as Ms., Miss, Mr., or Mrs.) if the form discloses 
that the designation of a title is optional. An application form shall 
otherwise use only terms that are neutral as to sex.
    (c) Information about a spouse or former spouse--(1) General rule. 
Except as permitted in this paragraph, a creditor may not request any 
information concerning the spouse or former spouse of an applicant.
    (2) Permissible inquiries. A creditor may request any information 
concerning an applicant's spouse (or former spouse under paragraph 
(c)(2)(v) of this section) that may be requested about the applicant if:
    (i) The spouse will be permitted to use the account;
    (ii) The spouse will be contractually liable on the account;
    (iii) The applicant is relying on the spouse's income as a basis for 
repayment of the credit requested;
    (iv) The applicant resides in a community property state or is 
relying on property located in such a state as a basis for repayment of 
the credit requested; or
    (v) The applicant is relying on alimony, child support, or separate 
maintenance payments from a spouse or former spouse as a basis for 
repayment of the credit requested.
    (3) Other accounts of the applicant. A creditor may request that an 
applicant list any account on which the applicant is contractually 
liable and to provide the name and address of the person in whose name 
the account is held. A creditor may also ask an applicant to list the 
names in which the applicant has previously received credit.
    (d) Other limitations on information requests--(1) Marital status. 
If an applicant applies for individual unsecured credit, a creditor 
shall not inquire about the applicant's marital status unless the 
applicant resides in a community property state or is relying on 
property located in such a state as a basis for repayment of the credit 
requested. If an application is for other than individual unsecured 
credit, a creditor may inquire about the applicant's marital status, but 
shall use only the terms married, unmarried, and separated. A creditor 
may explain that the category unmarried includes single, divorced, and 
widowed persons.
    (2) Disclosure about income from alimony, child support, or separate 
maintenance. A creditor shall not inquire whether income stated in an 
application is derived from alimony, child support, or separate 
maintenance payments unless the creditor discloses to the applicant that 
such income need not be revealed if the applicant does not want the 
creditor to consider it in determining the applicant's creditworthiness.
    (3) Childbearing, childrearing. A creditor shall not inquire about 
birth control practices, intentions concerning the bearing or rearing of 
children, or capability to bear children. A creditor may inquire about 
the number and ages of an applicant's dependents or about dependent-
related financial obligations or expenditures, provided such information 
is requested without regard to sex, marital status, or any other 
prohibited basis.
    (e) Permanent residency and immigration status. A creditor may 
inquire about the permanent residency and immigration status of an 
applicant or any other person in connection with a credit transaction.

[[Page 93]]



Sec. 1002.6  Rules concerning evaluation of applications.

    (a) General rule concerning use of information. Except as otherwise 
provided in the Act and this part, a creditor may consider any 
information obtained, so long as the information is not used to 
discriminate against an applicant on a prohibited basis. The legislative 
history of the Act indicates that the Congress intended an ``effects 
test'' concept, as outlined in the employment field by the Supreme Court 
in the cases of Griggs v. Duke Power Co., 401 U.S. 424 (1971), and 
Albemarle Paper Co. v. Moody, 422 U.S. 405 (1975), to be applicable to a 
creditor's determination of creditworthiness.
    (b) Specific rules concerning use of information. (1) Except as 
provided in the Act and this part, a creditor shall not take a 
prohibited basis into account in any system of evaluating the 
creditworthiness of applicants.
    (2) Age, receipt of public assistance. (i) Except as permitted in 
this paragraph, a creditor shall not take into account an applicant's 
age (provided that the applicant has the capacity to enter into a 
binding contract) or whether an applicant's income derives from any 
public assistance program.
    (ii) In an empirically derived, demonstrably and statistically 
sound, credit scoring system, a creditor may use an applicant's age as a 
predictive variable, provided that the age of an elderly applicant is 
not assigned a negative factor or value.
    (iii) In a judgmental system of evaluating creditworthiness, a 
creditor may consider an applicant's age or whether an applicant's 
income derives from any public assistance program only for the purpose 
of determining a pertinent element of creditworthiness.
    (iv) In any system of evaluating creditworthiness, a creditor may 
consider the age of an elderly applicant when such age is used to favor 
the elderly applicant in extending credit.
    (3) Childbearing, childrearing. In evaluating creditworthiness, a 
creditor shall not make assumptions or use aggregate statistics relating 
to the likelihood that any category of persons will bear or rear 
children or will, for that reason, receive diminished or interrupted 
income in the future.
    (4) Telephone listing. A creditor shall not take into account 
whether there is a telephone listing in the name of an applicant for 
consumer credit but may take into account whether there is a telephone 
in the applicant's residence.
    (5) Income. A creditor shall not discount or exclude from 
consideration the income of an applicant or the spouse of an applicant 
because of a prohibited basis or because the income is derived from 
part-time employment or is an annuity, pension, or other retirement 
benefit; a creditor may consider the amount and probable continuance of 
any income in evaluating an applicant's creditworthiness. When an 
applicant relies on alimony, child support, or separate maintenance 
payments in applying for credit, the creditor shall consider such 
payments as income to the extent that they are likely to be consistently 
made.
    (6) Credit history. To the extent that a creditor considers credit 
history in evaluating the creditworthiness of similarly qualified 
applicants for a similar type and amount of credit, in evaluating an 
applicant's creditworthiness a creditor shall consider:
    (i) The credit history, when available, of accounts designated as 
accounts that the applicant and the applicant's spouse are permitted to 
use or for which both are contractually liable;
    (ii) On the applicant's request, any information the applicant may 
present that tends to indicate the credit history being considered by 
the creditor does not accurately reflect the applicant's 
creditworthiness; and
    (iii) On the applicant's request, the credit history, when 
available, of any account reported in the name of the applicant's spouse 
or former spouse that the applicant can demonstrate accurately reflects 
the applicant's creditworthiness.
    (7) Immigration status. A creditor may consider the applicant's 
immigration status or status as a permanent resident of the United 
States, and any additional information that may be necessary to 
ascertain the creditor's rights and remedies regarding repayment.

[[Page 94]]

    (8) Marital status. Except as otherwise permitted or required by 
law, a creditor shall evaluate married and unmarried applicants by the 
same standards; and in evaluating joint applicants, a creditor shall not 
treat applicants differently based on the existence, absence, or 
likelihood of a marital relationship between the parties.
    (9) Race, color, religion, national origin, sex. Except as otherwise 
permitted or required by law, a creditor shall not consider race, color, 
religion, national origin, or sex (or an applicant's or other person's 
decision not to provide the information) in any aspect of a credit 
transaction.
    (c) State property laws. A creditor's consideration or application 
of state property laws directly or indirectly affecting creditworthiness 
does not constitute unlawful discrimination for the purposes of the Act 
or this part.



Sec. 1002.7  Rules concerning extensions of credit.

    (a) Individual accounts. A creditor shall not refuse to grant an 
individual account to a creditworthy applicant on the basis of sex, 
marital status, or any other prohibited basis.
    (b) Designation of name. A creditor shall not refuse to allow an 
applicant to open or maintain an account in a birth-given first name and 
a surname that is the applicant's birth-given surname, the spouse's 
surname, or a combined surname.
    (c) Action concerning existing open-end accounts--(1) Limitations. 
In the absence of evidence of the applicant's inability or unwillingness 
to repay, a creditor shall not take any of the following actions 
regarding an applicant who is contractually liable on an existing open-
end account on the basis of the applicant's reaching a certain age or 
retiring or on the basis of a change in the applicant's name or marital 
status:
    (i) Require a reapplication, except as provided in paragraph (c)(2) 
of this section;
    (ii) Change the terms of the account; or
    (iii) Terminate the account.
    (2) Requiring reapplication. A creditor may require a reapplication 
for an open-end account on the basis of a change in the marital status 
of an applicant who is contractually liable if the credit granted was 
based in whole or in part on income of the applicant's spouse and if 
information available to the creditor indicates that the applicant's 
income may not support the amount of credit currently available.
    (d) Signature of spouse or other person--(1) Rule for qualified 
applicant. Except as provided in this paragraph, a creditor shall not 
require the signature of an applicant's spouse or other person, other 
than a joint applicant, on any credit instrument if the applicant 
qualifies under the creditor's standards of creditworthiness for the 
amount and terms of the credit requested. A creditor shall not deem the 
submission of a joint financial statement or other evidence of jointly 
held assets as an application for joint credit.
    (2) Unsecured credit. If an applicant requests unsecured credit and 
relies in part upon property that the applicant owns jointly with 
another person to satisfy the creditor's standards of creditworthiness, 
the creditor may require the signature of the other person only on the 
instrument(s) necessary, or reasonably believed by the creditor to be 
necessary, under the law of the state in which the property is located, 
to enable the creditor to reach the property being relied upon in the 
event of the death or default of the applicant.
    (3) Unsecured credit--community property states. If a married 
applicant requests unsecured credit and resides in a community property 
state, or if the applicant is relying on property located in such a 
state, a creditor may require the signature of the spouse on any 
instrument necessary, or reasonably believed by the creditor to be 
necessary, under applicable state law to make the community property 
available to satisfy the debt in the event of default if:
    (i) Applicable state law denies the applicant power to manage or 
control sufficient community property to qualify for the credit 
requested under the creditor's standards of creditworthiness; and
    (ii) The applicant does not have sufficient separate property to 
qualify for the credit requested without regard to community property.
    (4) Secured credit. If an applicant requests secured credit, a 
creditor may

[[Page 95]]

require the signature of the applicant's spouse or other person on any 
instrument necessary, or reasonably believed by the creditor to be 
necessary, under applicable state law to make the property being offered 
as security available to satisfy the debt in the event of default, for 
example, an instrument to create a valid lien, pass clear title, waive 
inchoate rights, or assign earnings.
    (5) Additional parties. If, under a creditor's standards of 
creditworthiness, the personal liability of an additional party is 
necessary to support the credit requested, a creditor may request a 
cosigner, guarantor, endorser, or similar party. The applicant's spouse 
may serve as an additional party, but the creditor shall not require 
that the spouse be the additional party.
    (6) Rights of additional parties. A creditor shall not impose 
requirements upon an additional party that the creditor is prohibited 
from imposing upon an applicant under this section.
    (e) Insurance. A creditor shall not refuse to extend credit and 
shall not terminate an account because credit life, health, accident, 
disability, or other credit-related insurance is not available on the 
basis of the applicant's age.



Sec. 1002.8  Special purpose credit programs.

    (a) Standards for programs. Subject to the provisions of paragraph 
(b) of this section, the Act and this part permit a creditor to extend 
special purpose credit to applicants who meet eligibility requirements 
under the following types of credit programs:
    (1) Any credit assistance program expressly authorized by Federal or 
state law for the benefit of an economically disadvantaged class of 
persons;
    (2) Any credit assistance program offered by a not-for-profit 
organization, as defined under section 501(c) of the Internal Revenue 
Code of 1954, as amended, for the benefit of its members or for the 
benefit of an economically disadvantaged class of persons; or
    (3) Any special purpose credit program offered by a for-profit 
organization, or in which such an organization participates to meet 
special social needs, if:
    (i) The program is established and administered pursuant to a 
written plan that identifies the class of persons that the program is 
designed to benefit and sets forth the procedures and standards for 
extending credit pursuant to the program; and
    (ii) The program is established and administered to extend credit to 
a class of persons who, under the organization's customary standards of 
creditworthiness, probably would not receive such credit or would 
receive it on less favorable terms than are ordinarily available to 
other applicants applying to the organization for a similar type and 
amount of credit.
    (b) Rules in other sections--(1) General applicability. All the 
provisions of this part apply to each of the special purpose credit 
programs described in paragraph (a) of this section except as modified 
by this section.
    (2) Common characteristics. A program described in paragraph (a)(2) 
or (a)(3) of this section qualifies as a special purpose credit program 
only if it was established and is administered so as not to discriminate 
against an applicant on any prohibited basis; however, all program 
participants may be required to share one or more common characteristics 
(for example, race, national origin, or sex) so long as the program was 
not established and is not administered with the purpose of evading the 
requirements of the Act or this part.
    (c) Special rule concerning requests and use of information. If 
participants in a special purpose credit program described in paragraph 
(a) of this section are required to possess one or more common 
characteristics (for example, race, national origin, or sex) and if the 
program otherwise satisfies the requirements of paragraph (a) of this 
section, a creditor may request and consider information regarding the 
common characteristic(s) in determining the applicant's eligibility for 
the program.
    (d) Special rule in the case of financial need. If financial need is 
one of the criteria under a special purpose credit program described in 
paragraph (a) of this section, the creditor may request

[[Page 96]]

and consider, in determining an applicant's eligibility for the program, 
information regarding the applicant's marital status; alimony, child 
support, and separate maintenance income; and the spouse's financial 
resources. In addition, a creditor may obtain the signature of an 
applicant's spouse or other person on an application or credit 
instrument relating to a special purpose credit program if the signature 
is required by Federal or state law.



Sec. 1002.9  Notifications.

    (a) Notification of action taken, ECOA notice, and statement of 
specific reasons--(1) When notification is required. A creditor shall 
notify an applicant of action taken within:
    (i) 30 days after receiving a completed application concerning the 
creditor's approval of, counteroffer to, or adverse action on the 
application;
    (ii) 30 days after taking adverse action on an incomplete 
application, unless notice is provided in accordance with paragraph (c) 
of this section;
    (iii) 30 days after taking adverse action on an existing account; or
    (iv) 90 days after notifying the applicant of a counteroffer if the 
applicant does not expressly accept or use the credit offered.
    (2) Content of notification when adverse action is taken. A 
notification given to an applicant when adverse action is taken shall be 
in writing and shall contain a statement of the action taken; the name 
and address of the creditor; a statement of the provisions of section 
701(a) of the Act; the name and address of the Federal agency that 
administers compliance with respect to the creditor; and either:
    (i) A statement of specific reasons for the action taken; or
    (ii) A disclosure of the applicant's right to a statement of 
specific reasons within 30 days, if the statement is requested within 60 
days of the creditor's notification. The disclosure shall include the 
name, address, and telephone number of the person or office from which 
the statement of reasons can be obtained. If the creditor chooses to 
provide the reasons orally, the creditor shall also disclose the 
applicant's right to have them confirmed in writing within 30 days of 
receiving the applicant's written request for confirmation.
    (3) Notification to business credit applicants. For business credit, 
a creditor shall comply with the notification requirements of this 
section in the following manner:
    (i) With regard to a business that had gross revenues of $1 million 
or less in its preceding fiscal year (other than an extension of trade 
credit, credit incident to a factoring agreement, or other similar types 
of business credit), a creditor shall comply with paragraphs (a)(1) and 
(2) of this section, except that:
    (A) The statement of the action taken may be given orally or in 
writing, when adverse action is taken;
    (B) Disclosure of an applicant's right to a statement of reasons may 
be given at the time of application, instead of when adverse action is 
taken, provided the disclosure contains the information required by 
paragraph (a)(2)(ii) of this section and the ECOA notice specified in 
paragraph (b)(1) of this section;
    (C) For an application made entirely by telephone, a creditor 
satisfies the requirements of paragraph (a)(3)(i) of this section by an 
oral statement of the action taken and of the applicant's right to a 
statement of reasons for adverse action.
    (ii) With regard to a business that had gross revenues in excess of 
$1 million in its preceding fiscal year or an extension of trade credit, 
credit incident to a factoring agreement, or other similar types of 
business credit, a creditor shall:
    (A) Notify the applicant, within a reasonable time, orally or in 
writing, of the action taken; and
    (B) Provide a written statement of the reasons for adverse action 
and the ECOA notice specified in paragraph (b)(1) of this section if the 
applicant makes a written request for the reasons within 60 days of the 
creditor's notification.
    (b) Form of ECOA notice and statement of specific reasons--(1) ECOA 
notice. To satisfy the disclosure requirements of paragraph (a)(2) of 
this section regarding section 701(a) of the Act, the creditor shall 
provide a notice that is substantially similar to the following: The 
Federal Equal Credit Opportunity Act

[[Page 97]]

prohibits creditors from discriminating against credit applicants on the 
basis of race, color, religion, national origin, sex, marital status, 
age (provided the applicant has the capacity to enter into a binding 
contract); because all or part of the applicant's income derives from 
any public assistance program; or because the applicant has in good 
faith exercised any right under the Consumer Credit Protection Act. The 
Federal agency that administers compliance with this law concerning this 
creditor is [name and address as specified by the appropriate agency or 
agencies listed in appendix A of this part]. Until January 1, 2013, a 
creditor may comply with this paragraph (b)(1) and paragraph (a)(2) of 
this section by including in the notice the name and address as 
specified by the appropriate agency in appendix A to 12 CFR part 202, as 
in effect on October 1, 2011.
    (2) Statement of specific reasons. The statement of reasons for 
adverse action required by paragraph (a)(2)(i) of this section must be 
specific and indicate the principal reason(s) for the adverse action. 
Statements that the adverse action was based on the creditor's internal 
standards or policies or that the applicant, joint applicant, or similar 
party failed to achieve a qualifying score on the creditor's credit 
scoring system are insufficient.
    (c) Incomplete applications--(1) Notice alternatives. Within 30 days 
after receiving an application that is incomplete regarding matters that 
an applicant can complete, the creditor shall notify the applicant 
either:
    (i) Of action taken, in accordance with paragraph (a) of this 
section; or
    (ii) Of the incompleteness, in accordance with paragraph (c)(2) of 
this section.
    (2) Notice of incompleteness. If additional information is needed 
from an applicant, the creditor shall send a written notice to the 
applicant specifying the information needed, designating a reasonable 
period of time for the applicant to provide the information, and 
informing the applicant that failure to provide the information 
requested will result in no further consideration being given to the 
application. The creditor shall have no further obligation under this 
section if the applicant fails to respond within the designated time 
period. If the applicant supplies the requested information within the 
designated time period, the creditor shall take action on the 
application and notify the applicant in accordance with paragraph (a) of 
this section.
    (3) Oral request for information. At its option, a creditor may 
inform the applicant orally of the need for additional information. If 
the application remains incomplete the creditor shall send a notice in 
accordance with paragraph (c)(1) of this section.
    (d) Oral notifications by small-volume creditors. In the case of a 
creditor that did not receive more than 150 applications during the 
preceding calendar year, the requirements of this section (including 
statements of specific reasons) are satisfied by oral notifications.
    (e) Withdrawal of approved application. When an applicant submits an 
application and the parties contemplate that the applicant will inquire 
about its status, if the creditor approves the application and the 
applicant has not inquired within 30 days after applying, the creditor 
may treat the application as withdrawn and need not comply with 
paragraph (a)(1) of this section.
    (f) Multiple applicants. When an application involves more than one 
applicant, notification need only be given to one of them but must be 
given to the primary applicant where one is readily apparent.
    (g) Applications submitted through a third party. When an 
application is made on behalf of an applicant to more than one creditor 
and the applicant expressly accepts or uses credit offered by one of the 
creditors, notification of action taken by any of the other creditors is 
not required. If no credit is offered or if the applicant does not 
expressly accept or use the credit offered, each creditor taking adverse 
action must comply with this section, directly or through a third party. 
A notice given by a third party shall disclose the identity of each 
creditor on whose behalf the notice is given.

[[Page 98]]



Sec. 1002.10  Furnishing of credit information.

    (a) Designation of accounts. A creditor that furnishes credit 
information shall designate:
    (1) Any new account to reflect the participation of both spouses if 
the applicant's spouse is permitted to use or is contractually liable on 
the account (other than as a guarantor, surety, endorser, or similar 
party); and
    (2) Any existing account to reflect such participation, within 90 
days after receiving a written request to do so from one of the spouses.
    (b) Routine reports to consumer reporting agency. If a creditor 
furnishes credit information to a consumer reporting agency concerning 
an account designated to reflect the participation of both spouses, the 
creditor shall furnish the information in a manner that will enable the 
agency to provide access to the information in the name of each spouse.
    (c) Reporting in response to inquiry. If a creditor furnishes credit 
information in response to an inquiry, concerning an account designated 
to reflect the participation of both spouses, the creditor shall furnish 
the information in the name of the spouse about whom the information is 
requested.



Sec. 1002.11  Relation to state law.

    (a) Inconsistent state laws. Except as otherwise provided in this 
section, this part alters, affects, or preempts only those state laws 
that are inconsistent with the Act and this part and then only to the 
extent of the inconsistency. A state law is not inconsistent if it is 
more protective of an applicant.
    (b) Preempted provisions of state law. (1) A state law is deemed to 
be inconsistent with the requirements of the Act and this part and less 
protective of an applicant within the meaning of section 705(f) of the 
Act to the extent that the law:
    (i) Requires or permits a practice or act prohibited by the Act or 
this part;
    (ii) Prohibits the individual extension of consumer credit to both 
parties to a marriage if each spouse individually and voluntarily 
applies for such credit;
    (iii) Prohibits inquiries or collection of data required to comply 
with the Act or this part;
    (iv) Prohibits asking about or considering age in an empirically 
derived, demonstrably and statistically sound, credit scoring system to 
determine a pertinent element of creditworthiness, or to favor an 
elderly applicant; or
    (v) Prohibits inquiries necessary to establish or administer a 
special purpose credit program as defined by Sec. 1002.8.
    (2) A creditor, state, or other interested party may request that 
the Bureau determine whether a state law is inconsistent with the 
requirements of the Act and this part.
    (c) Laws on finance charges, loan ceilings. If married applicants 
voluntarily apply for and obtain individual accounts with the same 
creditor, the accounts shall not be aggregated or otherwise combined for 
purposes of determining permissible finance charges or loan ceilings 
under any Federal or state law. Permissible loan ceiling laws shall be 
construed to permit each spouse to become individually liable up to the 
amount of the loan ceilings, less the amount for which the applicant is 
jointly liable.
    (d) State and Federal laws not affected. This section does not alter 
or annul any provision of state property laws, laws relating to the 
disposition of decedents' estates, or Federal or state banking 
regulations directed only toward insuring the solvency of financial 
institutions.
    (e) Exemption for state-regulated transactions--(1) Applications. A 
state may apply to the Bureau for an exemption from the requirements of 
the Act and this part for any class of credit transactions within the 
state. The Bureau will grant such an exemption if the Bureau determines 
that:
    (i) The class of credit transactions is subject to state law 
requirements substantially similar to those of the Act and this part or 
that applicants are afforded greater protection under state law; and
    (ii) There is adequate provision for state enforcement.
    (2) Liability and enforcement. (i) No exemption will extend to the 
civil liability provisions of section 706 of the Act

[[Page 99]]

or the administrative enforcement provisions of section 704 of the Act.
    (ii) After an exemption has been granted, the requirements of the 
applicable state law (except for additional requirements not imposed by 
Federal law) will constitute the requirements of the Act and this part.



Sec. 1002.12  Record retention.

    (a) Retention of prohibited information. A creditor may retain in 
its files information that is prohibited by the Act or this part for use 
in evaluating applications, without violating the Act or this part, if 
the information was obtained:
    (1) From any source prior to March 23, 1977;
    (2) From consumer reporting agencies, an applicant, or others 
without the specific request of the creditor; or
    (3) As required to monitor compliance with the Act and this part or 
other Federal or state statutes or regulations.
    (b) Preservation of records--(1) Applications. For 25 months (12 
months for business credit, except as provided in paragraph (b)(5) of 
this section) after the date that a creditor notifies an applicant of 
action taken on an application or of incompleteness, the creditor shall 
retain in original form or a copy thereof:
    (i) Any application that it receives, any information required to be 
obtained concerning characteristics of the applicant to monitor 
compliance with the Act and this part or other similar law, and any 
other written or recorded information used in evaluating the application 
and not returned to the applicant at the applicant's request;
    (ii) A copy of the following documents if furnished to the applicant 
in written form (or, if furnished orally, any notation or memorandum 
made by the creditor):
    (A) The notification of action taken; and
    (B) The statement of specific reasons for adverse action; and
    (iii) Any written statement submitted by the applicant alleging a 
violation of the Act or this part.
    (2) Existing accounts. For 25 months (12 months for business credit, 
except as provided in paragraph (b)(5) of this section) after the date 
that a creditor notifies an applicant of adverse action regarding an 
existing account, the creditor shall retain as to that account, in 
original form or a copy thereof:
    (i) Any written or recorded information concerning the adverse 
action; and
    (ii) Any written statement submitted by the applicant alleging a 
violation of the Act or this part.
    (3) Other applications. For 25 months (12 months for business 
credit, except as provided in paragraph (b)(5) of this section) after 
the date that a creditor receives an application for which the creditor 
is not required to comply with the notification requirements of Sec. 
1002.9, the creditor shall retain all written or recorded information in 
its possession concerning the applicant, including any notation of 
action taken.
    (4) Enforcement proceedings and investigations. A creditor shall 
retain the information beyond 25 months (12 months for business credit, 
except as provided in paragraph (b)(5) of this section) if the creditor 
has actual notice that it is under investigation or is subject to an 
enforcement proceeding for an alleged violation of the Act or this part, 
by the Attorney General of the United States or by an enforcement agency 
charged with monitoring that creditor's compliance with the Act and this 
part, or if it has been served with notice of an action filed pursuant 
to section 706 of the Act and Sec. 1002.16 of this part. The creditor 
shall retain the information until final disposition of the matter, 
unless an earlier time is allowed by order of the agency or court.
    (5) Special rule for certain business credit applications. With 
regard to a business that had gross revenues in excess of $1 million in 
its preceding fiscal year, or an extension of trade credit, credit 
incident to a factoring agreement, or other similar types of business 
credit, the creditor shall retain records for at least 60 days after 
notifying the applicant of the action taken. If within that time period 
the applicant requests in writing the reasons for adverse action or that 
records be retained, the creditor shall retain records for 12 months.
    (6) Self-tests. For 25 months after a self-test (as defined in Sec. 
1002.15) has

[[Page 100]]

been completed, the creditor shall retain all written or recorded 
information about the self-test. A creditor shall retain information 
beyond 25 months if it has actual notice that it is under investigation 
or is subject to an enforcement proceeding for an alleged violation, or 
if it has been served with notice of a civil action. In such cases, the 
creditor shall retain the information until final disposition of the 
matter, unless an earlier time is allowed by the appropriate agency or 
court order.
    (7) Prescreened solicitations. For 25 months after the date on which 
an offer of credit is made to potential customers (12 months for 
business credit, except as provided in paragraph (b)(5) of this 
section), the creditor shall retain in original form or a copy thereof:
    (i) The text of any prescreened solicitation;
    (ii) The list of criteria the creditor used to select potential 
recipients of the solicitation; and
    (iii) Any correspondence related to complaints (formal or informal) 
about the solicitation.



Sec. 1002.13  Information for monitoring purposes.

    (a) Information to be requested. (1) A creditor that receives an 
application for credit primarily for the purchase or refinancing of a 
dwelling occupied or to be occupied by the applicant as a principal 
residence, where the extension of credit will be secured by the 
dwelling, shall request as part of the application the following 
information regarding the applicant(s):
    (i) Ethnicity, using the categories Hispanic or Latino, and not 
Hispanic or Latino; and race, using the categories American Indian or 
Alaska Native, Asian, Black or African American, Native Hawaiian or 
Other Pacific Islander, and White;
    (ii) Sex;
    (iii) Marital status, using the categories married, unmarried, and 
separated; and
    (iv) Age.
    (2) Dwelling means a residential structure that contains one to four 
units, whether or not that structure is attached to real property. The 
term includes, but is not limited to, an individual condominium or 
cooperative unit and a mobile or other manufactured home.
    (b) Obtaining information. Questions regarding ethnicity, race, sex, 
marital status, and age may be listed, at the creditor's option, on the 
application form or on a separate form that refers to the application. 
The applicant(s) shall be asked but not required to supply the requested 
information. If the applicant(s) chooses not to provide the information 
or any part of it, that fact shall be noted on the form. The creditor 
shall then also note on the form, to the extent possible, the ethnicity, 
race, and sex of the applicant(s) on the basis of visual observation or 
surname.
    (c) Disclosure to applicant(s). The creditor shall inform the 
applicant(s) that the information regarding ethnicity, race, sex, 
marital status, and age is being requested by the Federal Government for 
the purpose of monitoring compliance with Federal statutes that prohibit 
creditors from discriminating against applicants on those bases. The 
creditor shall also inform the applicant(s) that if the applicant(s) 
chooses not to provide the information, the creditor is required to note 
the ethnicity, race and sex on the basis of visual observation or 
surname.
    (d) Substitute monitoring program. A monitoring program required by 
an agency charged with administrative enforcement under section 704 of 
the Act may be substituted for the requirements contained in paragraphs 
(a), (b), and (c) of this section.



Sec. 1002.14  Rules on providing appraisal reports.

    (a) Providing appraisals. A creditor shall provide a copy of an 
appraisal report used in connection with an application for credit that 
is to be secured by a lien on a dwelling. A creditor shall comply with 
either paragraph (a)(1) or (a)(2) of this section.
    (1) Routine delivery. A creditor may routinely provide a copy of an 
appraisal report to an applicant (whether credit is granted or denied or 
the application is withdrawn).
    (2) Upon request. A creditor that does not routinely provide 
appraisal reports shall provide a copy upon an applicant's written 
request.

[[Page 101]]

    (i) Notice. A creditor that provides appraisal reports only upon 
request shall notify an applicant in writing of the right to receive a 
copy of an appraisal report. The notice may be given at any time during 
the application process but no later than when the creditor provides 
notice of action taken under Sec. 1002.9 of this part. The notice shall 
specify that the applicant's request must be in writing, give the 
creditor's mailing address, and state the time for making the request as 
provided in paragraph (a)(2)(ii) of this section.
    (ii) Delivery. A creditor shall mail or deliver a copy of the 
appraisal report promptly (generally within 30 days) after the creditor 
receives an applicant's request, receives the report, or receives 
reimbursement from the applicant for the report, whichever is last to 
occur. A creditor need not provide a copy when the applicant's request 
is received more than 90 days after the creditor has provided notice of 
action taken on the application under Sec. 1002.9 of this part or 90 
days after the application is withdrawn.
    (b) Credit unions. A creditor that is subject to the regulations of 
the National Credit Union Administration on making copies of appraisal 
reports available is not subject to this section.
    (c) Definitions. For purposes of paragraph (a) of this section, the 
term dwelling means a residential structure that contains one to four 
units whether or not that structure is attached to real property. The 
term includes, but is not limited to, an individual condominium or 
cooperative unit, and a mobile or other manufactured home. The term 
appraisal report means the document(s) relied upon by a creditor in 
evaluating the value of the dwelling.



Sec. 1002.15  Incentives for self-testing and self-correction.

    (a) General rules--(1) Voluntary self-testing and correction. The 
report or results of a self-test that a creditor voluntarily conducts 
(or authorizes) are privileged as provided in this section. Data 
collection required by law or by any governmental authority is not a 
voluntary self-test.
    (2) Corrective action required. The privilege in this section 
applies only if the creditor has taken or is taking appropriate 
corrective action.
    (3) Other privileges. The privilege created by this section does not 
preclude the assertion of any other privilege that may also apply.
    (b) Self-test defined--(1) Definition. A self-test is any program, 
practice, or study that:
    (i) Is designed and used specifically to determine the extent or 
effectiveness of a creditor's compliance with the Act or this part; and
    (ii) Creates data or factual information that is not available and 
cannot be derived from loan or application files or other records 
related to credit transactions.
    (2) Types of information privileged. The privilege under this 
section applies to the report or results of the self-test, data or 
factual information created by the self-test, and any analysis, 
opinions, and conclusions pertaining to the self-test report or results. 
The privilege covers workpapers or draft documents as well as final 
documents.
    (3) Types of information not privileged. The privilege under this 
section does not apply to:
    (i) Information about whether a creditor conducted a self-test, the 
methodology used or the scope of the self-test, the time period covered 
by the self-test, or the dates it was conducted; or
    (ii) Loan and application files or other business records related to 
credit transactions, and information derived from such files and 
records, even if the information has been aggregated, summarized, or 
reorganized to facilitate analysis.
    (c) Appropriate corrective action--(1) General requirement. For the 
privilege in this section to apply, appropriate corrective action is 
required when the self-test shows that it is more likely than not that a 
violation occurred, even though no violation has been formally 
adjudicated.
    (2) Determining the scope of appropriate corrective action. A 
creditor must take corrective action that is reasonably likely to remedy 
the cause and effect of a likely violation by:
    (i) Identifying the policies or practices that are the likely cause 
of the violation; and

[[Page 102]]

    (ii) Assessing the extent and scope of any violation.
    (3) Types of relief. Appropriate corrective action may include both 
prospective and remedial relief, except that to establish a privilege 
under this section:
    (i) A creditor is not required to provide remedial relief to a 
tester used in a self-test;
    (ii) A creditor is only required to provide remedial relief to an 
applicant identified by the self-test as one whose rights were more 
likely than not violated; and
    (iii) A creditor is not required to provide remedial relief to a 
particular applicant if the statute of limitations applicable to the 
violation expired before the creditor obtained the results of the self-
test or the applicant is otherwise ineligible for such relief.
    (4) No admission of violation. Taking corrective action is not an 
admission that a violation occurred.
    (d) Scope of privilege--(1) General rule. The report or results of a 
privileged self-test may not be obtained or used:
    (i) By a government agency in any examination or investigation 
relating to compliance with the Act or this part; or
    (ii) By a government agency or an applicant (including a prospective 
applicant who alleges a violation of Sec. 1002.4(b)) in any proceeding 
or civil action in which a violation of the Act or this part is alleged.
    (2) Loss of privilege. The report or results of a self-test are not 
privileged under paragraph (d)(1) of this section if the creditor or a 
person with lawful access to the report or results:
    (i) Voluntarily discloses any part of the report or results, or any 
other information privileged under this section, to an applicant or 
government agency or to the public;
    (ii) Discloses any part of the report or results, or any other 
information privileged under this section, as a defense to charges that 
the creditor has violated the Act or regulation; or
    (iii) Fails or is unable to produce written or recorded information 
about the self-test that is required to be retained under Sec. 
1002.12(b)(6) when the information is needed to determine whether the 
privilege applies. This paragraph does not limit any other penalty or 
remedy that may be available for a violation of Sec. 1002.12.
    (3) Limited use of privileged information. Notwithstanding paragraph 
(d)(1) of this section, the self-test report or results and any other 
information privileged under this section may be obtained and used by an 
applicant or government agency solely to determine a penalty or remedy 
after a violation of the Act or this part has been adjudicated or 
admitted. Disclosures for this limited purpose may be used only for the 
particular proceeding in which the adjudication or admission was made. 
Information disclosed under this paragraph (d)(3) remains privileged 
under paragraph (d)(1) of this section.



Sec. 1002.16  Enforcement, penalties and liabilities.

    (a) Administrative enforcement. (1) As set forth more fully in 
section 704 of the Act, administrative enforcement of the Act and this 
part regarding certain creditors is assigned to the Comptroller of the 
Currency, Board of Governors of the Federal Reserve System, Board of 
Directors of the Federal Deposit Insurance Corporation, National Credit 
Union Administration, Surface Transportation Board, Civil Aeronautics 
Board, Secretary of Agriculture, Farm Credit Administration, Securities 
and Exchange Commission, Small Business Administration, Secretary of 
Transportation, and Bureau of Consumer Financial Protection.
    (2) Except to the extent that administrative enforcement is 
specifically assigned to some government agency other than the Bureau, 
and subject to subtitle B of the Consumer Financial Protection Act of 
2010, the Federal Trade Commission is authorized to enforce the 
requirements imposed under the Act and this part.
    (b) Penalties and liabilities. (1) Sections 702(g) and 706(a) and 
(b) of the Act provide that any creditor that fails to comply with a 
requirement imposed by the Act or this part is subject to civil 
liability for actual and punitive damages in individual or class 
actions. Pursuant to sections 702(g) and 704(b), (c), and (d) of the 
Act, violations of the Act or this part also constitute violations

[[Page 103]]

of other Federal laws. Liability for punitive damages can apply only to 
nongovernmental entities and is limited to $10,000 in individual actions 
and the lesser of $500,000 or 1 percent of the creditor's net worth in 
class actions. Section 706(c) provides for equitable and declaratory 
relief and section 706(d) authorizes the awarding of costs and 
reasonable attorney's fees to an aggrieved applicant in a successful 
action.
    (2) As provided in section 706(f) of the Act, a civil action under 
the Act or this part may be brought in the appropriate United States 
district court without regard to the amount in controversy or in any 
other court of competent jurisdiction within five years after the date 
of the occurrence of the violation, or within one year after the 
commencement of an administrative enforcement proceeding or of a civil 
action brought by the Attorney General of the United States within five 
years after the alleged violation.
    (3) If an agency responsible for administrative enforcement is 
unable to obtain compliance with the Act or this part, it may refer the 
matter to the Attorney General of the United States. If the Bureau, the 
Comptroller of the Currency, the Federal Deposit Insurance Corporation, 
the Board of Governors of the Federal Reserve System, or the National 
Credit Union Administration has reason to believe that one or more 
creditors have engaged in a pattern or practice of discouraging or 
denying applications in violation of the Act or this part, the agency 
shall refer the matter to the Attorney General. If the agency has reason 
to believe that one or more creditors violated section 701(a) of the 
Act, the agency may refer a matter to the Attorney General.
    (4) On referral, or whenever the Attorney General has reason to 
believe that one or more creditors have engaged in a pattern or practice 
in violation of the Act or this part, the Attorney General may bring a 
civil action for such relief as may be appropriate, including actual and 
punitive damages and injunctive relief.
    (5) If the Comptroller of the Currency, the Federal Deposit 
Insurance Corporation, the Board of Governors of the Federal Reserve 
System, or the National Credit Union Administration has reason to 
believe (as a result of a consumer complaint, a consumer compliance 
examination, or some other basis) that a violation of the Act or this 
part has occurred which is also a violation of the Fair Housing Act, and 
the matter is not referred to the Attorney General, the agency shall:
    (i) Notify the Secretary of Housing and Urban Development; and
    (ii) Inform the applicant that the Secretary of Housing and Urban 
Development has been notified and that remedies may be available under 
the Fair Housing Act.
    (c) Failure of compliance. A creditor's failure to comply with 
Sec. Sec. 1002.6(b)(6), 1002.9, 1002.10, 1002.12 or 1002.13 is not a 
violation if it results from an inadvertent error. On discovering an 
error under Sec. Sec. 1002.9 and 1002.10, the creditor shall correct it 
as soon as possible. If a creditor inadvertently obtains the monitoring 
information regarding the ethnicity, race, and sex of the applicant in a 
dwelling-related transaction not covered by Sec. 1002.13, the creditor 
may retain information and act on the application without violating the 
regulation.



 Sec. Appendix A to Part 1002--Federal Agencies to be Listed in Adverse 
                             Action Notices

    The following list indicates the Federal agency or agencies that 
should be listed in notices provided by creditors pursuant to Sec. 
1002.9(b)(1). Any questions concerning a particular creditor may be 
directed to such agencies. This list is not intended to describe 
agencies' enforcement authority for ECOA and Regulation B. Terms that 
are not defined in the Federal Deposit Insurance Act (12 U.S.C. 1813(s)) 
shall have the meaning given to them in the International Banking Act of 
1978 (12 U.S.C. 3101).
    1. Banks, savings associations, and credit unions with total assets 
of over $10 billion and their affiliates: Bureau of Consumer Financial 
Protection, 1700 G Street NW., Washington DC 20006. Such affiliates that 
are not banks, savings associations, or credit unions also should list, 
in addition to the Bureau: FTC Regional Office for region in which the 
creditor operates or Federal Trade Commission, Equal Credit Opportunity, 
Washington, DC 20580.
    2. To the extent not included in item 1 above:

[[Page 104]]

    a. National banks, Federal savings associations, and Federal 
branches and Federal agencies of foreign banks: Office of the 
Comptroller of the Currency, Customer Assistance Group, 1301 McKinney 
Street, Suite 3450, Houston, TX 77010-9050
    b. State member banks, branches and agencies of foreign banks (other 
than Federal branches, Federal agencies, and insured state branches of 
foreign banks), commercial lending companies owned or controlled by 
foreign banks, and organizations operating under section 25 or 25A of 
the Federal Reserve Act: Federal Reserve Consumer Help Center, P.O. Box 
1200, Minneapolis, MN 55480.
    c. Nonmember Insured Banks, Insured State Branches of Foreign Banks, 
and Insured State Savings Associations: FDIC Consumer Response Center, 
1100 Walnut Street, Box 11, Kansas City, MO 64106.
    d. Federal Credit Unions: National Credit Union Administration, 
Office of Consumer Protection (OCP), Division of Consumer Compliance and 
Outreach (DCCO), 1775 Duke Street, Alexandria, VA 22314.
    3. Air carriers: Assistant General Counsel for Aviation Enforcement 
and Proceedings, Department of Transportation, 400 Seventh Street SW., 
Washington, DC 20590.
    4. Creditors Subject to Surface Transportation Board: Office of 
Proceedings, Surface Transportation Board, Department of Transportation, 
1925 K Street NW., Washington, DC 20423.
    5. Creditors Subject to Packers and Stockyards Act: Nearest Packers 
and Stockyards Administration area supervisor.
    6. Small Business Investment Companies: Associate Deputy 
Administrator for Capital Access, United States Small Business 
Administration, 409 Third Street SW., 8th Floor, Washington, DC 20416.
    7. Brokers and Dealers: Securities and Exchange Commission, 
Washington, DC 20549.
    8. Federal Land Banks, Federal Land Bank Associations, Federal 
Intermediate Credit Banks, and Production Credit Associations: Farm 
Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102-5090.
    9. Retailers, Finance Companies, and All Other Creditors Not Listed 
Above: FTC Regional Office for region in which the creditor operates or 
Federal Trade Commission, Equal Credit Opportunity, Washington, DC 
20580.



          Sec. Appendix B to Part 1002--Model Application Forms

    1. This Appendix contains five model credit application forms, each 
designated for use in a particular type of consumer credit transaction 
as indicated by the bracketed caption on each form. The first sample 
form is intended for use in open-end, unsecured transactions; the second 
for closed-end, secured transactions; the third for closed-end 
transactions, whether unsecured or secured; the fourth in transactions 
involving community property or occurring in community property states; 
and the fifth in residential mortgage transactions which contains a 
model disclosure for use in complying with Sec. 1002.13 for certain 
dwelling-related loans. All forms contained in this Appendix are models; 
their use by creditors is optional.
    2. The use or modification of these forms is governed by the 
following instructions. A creditor may change the forms: by asking for 
additional information not prohibited by Sec. 1002.5; by deleting any 
information request; or by rearranging the format without modifying the 
substance of the inquiries. In any of these three instances, however, 
the appropriate notices regarding the optional nature of courtesy 
titles, the option to disclose alimony, child support, or separate 
maintenance, and the limitation concerning marital status inquiries must 
be included in the appropriate places if the items to which they relate 
appear on the creditor's form.
    3. If a creditor uses an appropriate Appendix B model form, or 
modifies a form in accordance with the above instructions, that creditor 
shall be deemed to be acting in compliance with the provisions of 
paragraphs (b), (c) and (d) of Sec. 1002.5 of this part.


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         Sec. Appendix C to Part 1002--Sample Notification Forms

    1. This Appendix contains ten sample notification forms. Forms C-1 
through C-4 are intended for use in notifying an applicant that adverse 
action has been taken on an application or account under Sec. Sec. 
1002.9(a)(1) and (2)(i) of this part. Form C-5 is a notice of disclosure 
of the right to request specific reasons for adverse action under 
Sec. Sec. 1002.9(a)(1) and (2)(ii). Form C-6 is designed for use in 
notifying an applicant, under Sec. 1002.9(c)(2), that an application is 
incomplete. Forms C-7 and C-8 are intended for use in connection with 
applications for business credit under Sec. 1002.9(a)(3). Form C-9 is 
designed for use in notifying an applicant of the right to receive a 
copy of an appraisal under Sec. 1002.14. Form C-10 is designed for use 
in notifying an applicant for nonmortgage credit that the creditor is 
requesting applicant characteristic information.
    2. Form C-1 contains the Fair Credit Reporting Act disclosure as 
required by sections 615(a) and (b) of that act. Forms C-2 through C-5 
contain only the section 615(a) disclosure (that a creditor obtained 
information from a consumer reporting agency that was considered in the 
credit decision). A creditor must provide the section 615(a) disclosure 
when adverse action is taken against a consumer based on information 
from a consumer reporting agency. A creditor must provide the section 
615(b) disclosure when adverse action is taken based on information from 
an outside source other than a consumer reporting agency. In addition, a 
creditor must provide the section 615(b) disclosure if the creditor 
obtained information from an affiliate other than information in a 
consumer report or other than information concerning the affiliate's own 
transactions or experiences with the consumer. Creditors may comply with 
the disclosure requirements for adverse action based on information in a 
consumer report obtained from an affiliate by providing either the 
section 615(a) or section 615(b) disclosure. Optional language in Forms 
C-1 through C-5 may be used to direct the consumer to the entity that 
provided the credit score for any questions about the credit score, 
along with the entity's contact information. Creditors may use or not 
use this additional language without losing the safe harbor, since the 
language is optional.
    3. The sample forms are illustrative and may not be appropriate for 
all creditors. They were designed to include some of the factors that 
creditors most commonly consider. If a creditor chooses to use the 
checklist of reasons provided in one of the sample forms in this 
Appendix and if reasons commonly used by the creditor are not provided 
on the form, the creditor should modify the checklist by substituting or 
adding other reasons. For example, if ``inadequate down payment'' or 
``no deposit relationship with us'' are common reasons for taking 
adverse action on an application, the creditor ought to add or 
substitute such reasons for those presently contained on the sample 
forms.
    4. If the reasons listed on the forms are not the factors actually 
used, a creditor will not satisfy the notice requirement by simply 
checking the closest identifiable factor listed. For example, some 
creditors consider only references from banks or other depository 
institutions and disregard finance company references altogether; their 
statement of reasons should disclose ``insufficient bank references,'' 
not ``insufficient credit references.'' Similarly, a creditor that 
considers bank references and other credit references as distinct 
factors should treat the two factors separately and disclose them as 
appropriate. The creditor should either add such other factors to the 
form or check ``other'' and include the appropriate explanation. The 
creditor need not, however, describe how or why a factor adversely 
affected the application. For example, the notice may say ``length of 
residence'' rather than ``too short a period of residence.''
    5. A creditor may design its own notification forms or use all or a 
portion of the forms contained in this Appendix. Proper use of Forms C-1 
through C-4 will satisfy the requirement of Sec. 1002.9(a)(2)(i). 
Proper use of Forms C-5 and C-6 constitutes full compliance with 
Sec. Sec. 1002.9(a)(2)(ii) and 1002.9(c)(2), respectively. Proper use 
of Forms C-7 and C-8 will satisfy the requirements of Sec. Sec. 
1002.9(a)(2)(i) and (ii), respectively, for applications for business 
credit. Proper use of Form C-9 will satisfy the requirements of Sec. 
1002.14 of this part. Proper use of Form C-10 will satisfy the 
requirements of Sec. 1002.5(b)(1).

    Form C-1--Sample Notice of Action Taken and Statement of Reasons

Statement of Credit Denial, Termination or Change

 Date:__________________________________________________________________
 Applicant's Name:______________________________________________________
 Applicant's Address:___________________________________________________
 Description of Account, Transaction, or Requested Credit:______________
 Description of Action Taken:___________________________________________

  Part I--Principal Reason(s) for Credit Denial, Termination, or Other 
                     Action Taken Concerning Credit

    This section must be completed in all instances.

----Credit application incomplete
----Insufficient number of credit references provided
----Unacceptable type of credit references provided

[[Page 118]]

----Unable to verify credit references
----Temporary or irregular employment
----Unable to verify employment
----Length of employment
----Income insufficient for amount of credit requested
----Excessive obligations in relation to income
----Unable to verify income
----Length of residence
----Temporary residence
----Unable to verify residence
----No credit file
----Limited credit experience
----Poor credit performance with us
----Delinquent past or present credit obligations with others
----Collection action or judgment
----Garnishment or attachment
----Foreclosure or repossession
----Bankruptcy
----Number of recent inquiries on credit bureau report
----Value or type of collateral not sufficient
----Other, specify: ------

   Part II--Disclosure of Use of Information Obtained From an Outside 
                                 Source

    This section should be completed if the credit decision was based in 
whole or in part on information that has been obtained from an outside 
source.
----Our credit decision was based in whole or in part on information 
obtained in a report from the consumer reporting agency listed below. 
You have a right under the Fair Credit Reporting Act to know the 
information contained in your credit file at the consumer reporting 
agency. The reporting agency played no part in our decision and is 
unable to supply specific reasons why we have denied credit to you. You 
also have a right to a free copy of your report from the reporting 
agency, if you request it no later than 60 days after you receive this 
notice. In addition, if you find that any information contained in the 
report you receive is inaccurate or incomplete, you have the right to 
dispute the matter with the reporting agency.
 Name:__________________________________________________________________
 Address:_______________________________________________________________
 [Toll-free] Telephone number:__________________________________________
    [We also obtained your credit score from the consumer reporting 
agency and used it in making our credit decision. Your credit score is a 
number that reflects the information in your consumer report. Your 
credit score can change, depending on how the information in your 
consumer report changes.

 Your credit score:_____________________________________________________
 Date:__________________________________________________________________

    Scores range from a low of -------- to a high of --------.
    Key factors that adversely affected your credit score:

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

[Number of recent inquiries on consumer report, as a key factor]

    [If you have any questions regarding your credit score, you should 
contact [entity that provided the credit score] at:

 Address:_______________________________________________________________

[[Toll-free] Telephone number: --------]

----Our credit decision was based in whole or in part on information 
obtained from an affiliate or from an outside source other than a 
consumer reporting agency. Under the Fair Credit Reporting Act, you have 
the right to make a written request, no later than 60 days after you 
receive this notice, for disclosure of the nature of this information.

    If you have any questions regarding this notice, you should contact:

 Creditor's name:_______________________________________________________
 Creditor's address:____________________________________________________
 Creditor's telephone number:___________________________________________

    Notice: The Federal Equal Credit Opportunity Act prohibits creditors 
from discriminating against credit applicants on the basis of race, 
color, religion, national origin, sex, marital status, age (provided the 
applicant has the capacity to enter into a binding contract); because 
all or part of the applicant's income derives from any public assistance 
program; or because the applicant has in good faith exercised any right 
under the Consumer Credit Protection Act. The Federal agency that 
administers compliance with this law concerning this creditor is (name 
and address as specified by the appropriate agency listed in Appendix 
A).

    Form C-2--Sample Notice of Action Taken and Statement of Reasons

Date

    Dear Applicant: Thank you for your recent application. Your request 
for [a loan/a credit card/an increase in your credit limit] was 
carefully considered, and we regret that we are unable to approve your 
application at this time, for the following reason(s):
    Your Income:

----is below our minimum requirement.
----is insufficient to sustain payments on the amount of credit 
requested.
----could not be verified.

    Your Employment:

----is not of sufficient length to qualify.
----could not be verified.

    Your Credit History:

----of making payments on time was not satisfactory.
----could not be verified.

    Your Application:

----lacks a sufficient number of credit references.

[[Page 119]]

----lacks acceptable types of credit references.
----reveals that current obligations are excessive in relation to 
income.
 Other:_________________________________________________________________

    The consumer reporting agency contacted that provided information 
that influenced our decision in whole or in part was [name, address and 
[toll-free] telephone number of the reporting agency]. The reporting 
agency played no part in our decision and is unable to supply specific 
reasons why we have denied credit to you. You have a right under the 
Fair Credit Reporting Act to know the information contained in your 
credit file at the consumer reporting agency. You also have a right to a 
free copy of your report from the reporting agency, if you request it no 
later than 60 days after you receive this notice. In addition, if you 
find that any information contained in the report you receive is 
inaccurate or incomplete, you have the right to dispute the matter with 
the reporting agency. Any questions regarding such information should be 
directed to [consumer reporting agency]. If you have any questions 
regarding this letter, you should contact us at [creditor's name, 
address and telephone number].

    [We also obtained your credit score from the consumer reporting 
agency and used it in making our credit decision. Your credit score is a 
number that reflects the information in your consumer report. Your 
credit score can change, depending on how the information in your 
consumer report changes.

 Your credit score:_____________________________________________________
 Date:__________________________________________________________________

    Scores range from a low of -------- to a high of --------.
    Key factors that adversely affected your credit score:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

[Number of recent inquiries on consumer report, as a key factor]

    [If you have any questions regarding your credit score, you should 
contact [entity that provided the credit score] at:

 Address:_______________________________________________________________

[[Toll-free] Telephone number: --------]
    Notice: The Federal Equal Credit Opportunity Act prohibits creditors 
from discriminating against credit applicants on the basis of race, 
color, religion, national origin, sex, marital status, age (provided the 
applicant has the capacity to enter into a binding contract); because 
all or part of the applicant's income derives from any public assistance 
program; or because the applicant has in good faith exercised any right 
under the Consumer Credit Protection Act. The Federal agency that 
administers compliance with this law concerning this creditor is (name 
and address as specified by the appropriate agency listed in Appendix 
A).

Form C-3--Sample Notice of Action Taken and Statement of Reasons (Credit 
                                Scoring)

Date

    Dear Applicant: Thank you for your recent application for --------
--. We regret that we are unable to approve your request.
    [Reasons for Denial of Credit]
    Your application was processed by a [credit scoring] system that 
assigns a numerical value to the various items of information we 
consider in evaluating an application. These numerical values are based 
upon the results of analyses of repayment histories of large numbers of 
customers.
    The information you provided in your application did not score a 
sufficient number of points for approval of the application. The reasons 
you did not score well compared with other applicants were:

 Insufficient bank references
 Type of occupation
 Insufficient credit experience
 Number of recent inquiries on credit bureau report

    [Your Right to Get Your Consumer Report]
    In evaluating your application the consumer reporting agency listed 
below provided us with information that in whole or in part influenced 
our decision. The consumer reporting agency played no part in our 
decision and is unable to supply specific reasons why we have denied 
credit to you. You have a right under the Fair Credit Reporting Act to 
know the information contained in your credit file at the consumer 
reporting agency. It can be obtained by contacting: [Name, address, and 
[toll-free] telephone number of the consumer reporting agency]. You also 
have a right to a free copy of your report from the reporting agency, if 
you request it no later than 60 days after you receive this notice. In 
addition, if you find that any information contained in the report you 
receive is inaccurate or incomplete, you have the right to dispute the 
matter with the reporting agency.
    [Information about Your Credit Score]
    [Information about Your Credit Score]
    We also obtained your credit score from the consumer reporting 
agency and used it in making our credit decision. Your credit score is a 
number that reflects the information in your consumer report. Your 
credit score can change, depending on how the information in your 
consumer report changes.
 Your credit score:_____________________________________________________
 Date:__________________________________________________________________

    Scores range from a low of -------- to a high of --------.
    Key factors that adversely affected your credit score:

[[Page 120]]

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

[Number of recent inquiries on consumer report, as a key factor]

    [If you have any questions regarding your credit score, you should 
contact [entity that provided the credit score] at:
 Address:_______________________________________________________________

[Toll-free] Telephone number: --------]
    If you have any questions regarding this letter, you should contact 
us at
 Creditor's Name:_______________________________________________________
 Address:_______________________________________________________________
 Telephone:_____________________________________________________________
     Sincerely,
    Notice: The Federal Equal Credit Opportunity Act prohibits creditors 
from discriminating against credit applicants on the basis of race, 
color, religion, national origin, sex, marital status, age (with certain 
limited exceptions); because all or part of the applicant's income 
derives from any public assistance program; or because the applicant has 
in good faith exercised any right under the Consumer Credit Protection 
Act. The Federal agency that administers compliance with this law 
concerning this creditor is (name and address as specified by the 
appropriate agency listed in Appendix A).

   Form C-4--Sample Notice of Action Taken, Statement of Reasons and 
                              Counteroffer

Date

    Dear Applicant: Thank you for your application for ----------. We 
are unable to offer you credit on the terms that you requested for the 
following reason(s):----------
    We can, however, offer you credit on the following terms: ----------
    If this offer is acceptable to you, please notify us within [amount 
of time] at the following address: ----------.
    Our credit decision on your application was based in whole or in 
part on information obtained in a report from [name, address and [toll-
free] telephone number of the consumer reporting agency]. You have a 
right under the Fair Credit Reporting Act to know the information 
contained in your credit file at the consumer reporting agency. The 
reporting agency played no part in our decision and is unable to supply 
specific reasons why we have denied credit to you. You also have a right 
to a free copy of your report from the reporting agency, if you request 
it no later than 60 days after you receive this notice. In addition, if 
you find that any information contained in the report you receive is 
inaccurate or incomplete, you have the right to dispute the matter with 
the reporting agency.
    [We also obtained your credit score from the consumer reporting 
agency and used it in making our credit decision. Your credit score is a 
number that reflects the information in your consumer report. Your 
credit score can change, depending on how the information in your 
consumer report changes.
 Your credit score:_____________________________________________________
 Date:__________________________________________________________________
    Scores range from a low of -------- to a high of --------.
    Key factors that adversely affected your credit score:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

[Number of recent inquiries on consumer report, as a key factor]

    [If you have any questions regarding your credit score, you should 
contact [entity that provided the credit score] at:

 Address:_______________________________________________________________
    [Toll-free] Telephone number:--------]
    You should know that the Federal Equal Credit Opportunity Act 
prohibits creditors, such as ourselves, from discriminating against 
credit applicants on the basis of their race, color, religion, national 
origin, sex, marital status, age (provided the applicant has the 
capacity to enter into a binding contract), because they receive income 
from a public assistance program, or because they may have exercised 
their rights under the Consumer Credit Protection Act. If you believe 
there has been discrimination in handling your application you should 
contact the [name and address of the appropriate Federal enforcement 
agency listed in Appendix A].
     Sincerely,

  Form C-5--Sample Disclosure of Right To Request Specific Reasons for 
                              Credit Denial

Date
    Dear Applicant: Thank you for applying to us for ----------.
    After carefully reviewing your application, we are sorry to advise 
you that we cannot [open an account for you/grant a loan to you/increase 
your credit limit] at this time. If you would like a statement of 
specific reasons why your application was denied, please contact [our 
credit service manager] shown below within 60 days of the date of this 
letter. We will provide you with the statement of reasons within 30 days 
after receiving your request.

Creditor's name
Address
Telephone number

    If we obtained information from a consumer reporting agency as part 
of our consideration of your application, its name, address, and [toll-
free] telephone number is shown below. The reporting agency played

[[Page 121]]

no part in our decision and is unable to supply specific reasons why we 
have denied credit to you. [You have a right under the Fair Credit 
Reporting Act to know the information contained in your credit file at 
the consumer reporting agency.] You have a right to a free copy of your 
report from the reporting agency, if you request it no later than 60 
days after you receive this notice. In addition, if you find that any 
information contained in the report you received is inaccurate or 
incomplete, you have the right to dispute the matter with the reporting 
agency. You can find out about the information contained in your file 
(if one was used) by contacting:

Consumer reporting agency's name
Address
[Toll-free] Telephone number

    [We also obtained your credit score from the consumer reporting 
agency and used it in making our credit decision. Your credit score is a 
number that reflects the information in your consumer report. Your 
credit score can change, depending on how the information in your 
consumer report changes.
 Your credit score:_____________________________________________________
 Date:__________________________________________________________________

    Scores range from a low of -------- to a high of --------.
    Key factors that adversely affected your credit score:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

[Number of recent inquiries on consumer report, as a key factor]

    [If you have any questions regarding your credit score, you should 
contact [entity that provided the credit score] at:

 Address:_______________________________________________________________
[Toll-free] Telephone number: --------]
     Sincerely,
    Notice: The Federal Equal Credit Opportunity Act prohibits creditors 
from discriminating against credit applicants on the basis of race, 
color, religion, national origin, sex, marital status, age (provided the 
applicant has the capacity to enter into a binding contract); because 
all or part of the applicant's income derives from any public assistance 
program; or because the applicant has in good faith exercised any right 
under the Consumer Credit Protection Act. The Federal agency that 
administers compliance with this law concerning this creditor is (name 
and address as specified by the appropriate agency listed in Appendix 
A).

   Form C-6--Sample Notice of Incomplete Application and Request for 
                         Additional Information

Creditor's name
Address
Telephone number
Date

    Dear Applicant: Thank you for your application for credit. The 
following information is needed to make a decision on your application: 
----------
    We need to receive this information by ---------- (date). If we do 
not receive it by that date, we will regrettably be unable to give 
further consideration to your credit request.
     Sincerely,

    Form C-7--Sample Notice of Action Taken and Statement of Reasons 
                            (Business Credit)

Creditor's name
Creditor's address
Date

    Dear Applicant: Thank you for applying to us for credit. We have 
given your request careful consideration, and regret that we are unable 
to extend credit to you at this time for the following reasons:
    (Insert appropriate reason, such as: Value or type of collateral not 
sufficient; Lack of established earnings record; Slow or past due in 
trade or loan payments)
     Sincerely,
    Notice: The Federal Equal Credit Opportunity Act prohibits creditors 
from discriminating against credit applicants on the basis of race, 
color, religion, national origin, sex, marital status, age (provided the 
applicant has the capacity to enter into a binding contract); because 
all or part of the applicant's income derives from any public assistance 
program; or because the applicant has in good faith exercised any right 
under the Consumer Credit Protection Act. The Federal agency that 
administers compliance with this law concerning this creditor is [name 
and address as specified by the appropriate agency listed in Appendix 
A].

  Form C-8--Sample Disclosure of Right To Request Specific Reasons for 
      Credit Denial Given at Time of Application (Business Credit)

Creditor's name
Creditor's address

    If your application for business credit is denied, you have the 
right to a written statement of the specific reasons for the denial. To 
obtain the statement, please contact [name, address and telephone number 
of the person or office from which the statement of reasons can be 
obtained] within 60 days from the date you are notified of our decision. 
We will send you a written statement of reasons for the denial within 30 
days of receiving your request for the statement.
    Notice: The Federal Equal Credit Opportunity Act prohibits creditors 
from discriminating against credit applicants on the basis of race, 
color, religion, national origin, sex,

[[Page 122]]

marital status, age (provided the applicant has the capacity to enter 
into a binding contract); because all or part of the applicant's income 
derives from any public assistance program; or because the applicant has 
in good faith exercised any right under the Consumer Credit Protection 
Act. The Federal agency that administers compliance with this law 
concerning this creditor is [name and address as specified by the 
appropriate agency listed in Appendix A].

 Form C-9--Sample Disclosure of Right To Receive a Copy of an Appraisal

    You have the right to a copy of the appraisal report used in 
connection with your application for credit. If you wish a copy, please 
write to us at the mailing address we have provided. We must hear from 
you no later than 90 days after we notify you about the action taken on 
your credit application or you withdraw your application.
    [In your letter, give us the following information:]

       Form C-10--Sample Disclosure About Voluntary Data Notation

    We are requesting the following information to monitor our 
compliance with the Federal Equal Credit Opportunity Act, which 
prohibits unlawful discrimination. You are not required to provide this 
information. We will not take this information (or your decision not to 
provide this information) into account in connection with your 
application or credit transaction. The law provides that a creditor may 
not discriminate based on this information, or based on whether or not 
you choose to provide it. [If you choose not to provide the information, 
we will note it by visual observation or surname].



   Sec. Appendix D to Part 1002--Issuance of Official Interpretations

    1.Official Interpretations. Interpretations of this part issued by 
officials of the Bureau provide the protection afforded under section 
706(e) of the Act. Except in unusual circumstances, such interpretations 
will not be issued separately but will be incorporated in an official 
commentary to the regulation, which will be amended periodically.
    2. Requests for Issuance of Official Interpretations. A request for 
an official interpretation should be in writing and addressed to the 
Assistant Director, Office of Regulations, Division of Research, 
Markets, and Regulations, Bureau of Consumer Financial Protection, 1700 
G Street, NW., Washington, DC 20006. The request should contain a 
complete statement of all relevant facts concerning the issue, including 
copies of all pertinent documents.
    3. Scope of Interpretations. No interpretations will be issued 
approving creditors' forms or statements. This restriction does not 
apply to forms or statements whose use is required or sanctioned by a 
government agency.



        Sec. Supplement I to Part 1002--Official Interpretations

    Following is an official interpretation of Regulation B (12 CFR Part 
1002) issued by the Bureau of Consumer Financial Protection. References 
are to sections of the regulation or the Equal Credit Opportunity Act 
(15 U.S.C. 1601 et seq.).

                              Introduction

    1.Official status. Section 706(e) of the Equal Credit Opportunity 
Act protects a creditor from civil liability for any act done or omitted 
in good faith in conformity with an interpretation issued by a duly 
authorized official of the Bureau. This commentary is the means by which 
the Bureau of Consumer Financial Protection issues official 
interpretations of Regulation B. Good-faith compliance with this 
commentary affords a creditor protection under section 706(e) of the 
Act.
    2. Issuance of interpretations. Under Appendix D to the regulation, 
any person may request an official interpretation. Interpretations will 
be issued at the discretion of designated officials and incorporated in 
this commentary following publication for comment in the Federal 
Register. Except in unusual circumstances, official interpretations will 
be issued only by means of this commentary.
    3. Comment designations. The comments are designated with as much 
specificity as possible according to the particular regulatory provision 
addressed. Each comment in the commentary is identified by a number and 
the regulatory section or paragraph that it interprets. For example, 
comments to Sec. 1002.2(c) are further divided by subparagraph, such as 
comment 2(c)(1)(ii)-1 and comment 2(c)(2)(ii-1.

              Section 1002.1--Authority, Scope, and Purpose

    1(a) Authority and scope.
    1. Scope. The Equal Credit Opportunity Act and Regulation B apply to 
all credit--commercial as well as personal--without regard to the nature 
or type of the credit or the creditor, except for an entity excluded 
from coverage of this part (but not the Act) by section 1029 of the 
Consumer Financial Protection Act of 2010 (12 U.S.C. 5519). If a 
transaction provides for the deferral of the payment of a debt, it is 
credit covered by Regulation B even though it may not be a credit 
transaction covered by Regulation Z (Truth in Lending) (12 CFR Part 
1026). Further, the definition of creditor is not restricted to the 
party or person to whom the obligation is

[[Page 123]]

initially payable, as is the case under Regulation Z. Moreover, the Act 
and regulation apply to all methods of credit evaluation, whether 
performed judgmentally or by use of a credit scoring system.
    2. Foreign applicability. Regulation B generally does not apply to 
lending activities that occur outside the United States. The regulation 
does apply to lending activities that take place within the United 
States (as well as the Commonwealth of Puerto Rico and any territory or 
possession of the United States), whether or not the applicant is a 
citizen.
    3. Bureau. The term Bureau, as used in this part, means the Bureau 
of Consumer Financial Protection.

                       Section 1002.2--Definitions

    2(c) Adverse action.
    Paragraph 2(c)(1)(i).
    1. Application for credit. If the applicant applied in accordance 
with the creditor's procedures, a refusal to refinance or extend the 
term of a business or other loan is adverse action.
    Paragraph 2(c)(1)(ii).
    1. Move from service area. If a credit card issuer terminates the 
open-end account of a customer because the customer has moved out of the 
card issuer's service area, the termination is adverse action unless 
termination on this ground was explicitly provided for in the credit 
agreement between the parties. In cases where termination is adverse 
action, notification is required under Sec. 1002.9.
    2. Termination based on credit limit. If a creditor terminates 
credit accounts that have low credit limits (for example, under $400) 
but keeps open accounts with higher credit limits, the termination is 
adverse action and notification is required under Sec. 1002.9.
    Paragraph 2(c)(2)(ii).
    1. Default--exercise of due-on-sale clause. If a mortgagor sells or 
transfers mortgaged property without the consent of the mortgagee, and 
the mortgagee exercises its contractual right to accelerate the mortgage 
loan, the mortgagee may treat the mortgagor as being in default. An 
adverse action notice need not be given to the mortgagor or the 
transferee. (See comment 2(e)-1 for treatment of a purchaser who 
requests to assume the loan.)
    2. Current delinquency or default. The term adverse action does not 
include a creditor's termination of an account when the accountholder is 
currently in default or delinquent on that account. Notification in 
accordance with Sec. 1002.9 of the regulation generally is required, 
however, if the creditor's action is based on a past delinquency or 
default on the account.
    Paragraph 2(c)(2)(iii).
    1. Point-of-sale transactions. Denial of credit at point of sale is 
not adverse action except under those circumstances specified in the 
regulation. For example, denial at point of sale is not adverse action 
in the following situations:
    i. A credit cardholder presents an expired card or a card that has 
been reported to the card issuer as lost or stolen.
    ii. The amount of a transaction exceeds a cash advance or credit 
limit.
    iii. The circumstances (such as excessive use of a credit card in a 
short period of time) suggest that fraud is involved.
    iv. The authorization facilities are not functioning.
    v. Billing statements have been returned to the creditor for lack of 
a forwarding address.
    2. Application for increase in available credit. A refusal or 
failure to authorize an account transaction at the point of sale or loan 
is not adverse action except when the refusal is a denial of an 
application, submitted in accordance with the creditor's procedures, for 
an increase in the amount of credit.
    Paragraph 2(c)(2)(v).
    1. Terms of credit versus type of credit offered. When an applicant 
applies for credit and the creditor does not offer the credit terms 
requested by the applicant (for example, the interest rate, length of 
maturity, collateral, or amount of downpayment), a denial of the 
application for that reason is adverse action (unless the creditor makes 
a counteroffer that is accepted by the applicant) and the applicant is 
entitled to notification under Sec. 1002.9.
    2(e) Applicant.
    1. Request to assume loan. If a mortgagor sells or transfers the 
mortgaged property and the buyer makes an application to the creditor to 
assume the mortgage loan, the mortgagee must treat the buyer as an 
applicant unless its policy is not to permit assumptions.
    2(f) Application.
    1. General. A creditor has the latitude under the regulation to 
establish its own application process and to decide the type and amount 
of information it will require from credit applicants.
    2. Procedures used. The term ``procedures'' refers to the actual 
practices followed by a creditor for making credit decisions as well as 
its stated application procedures. For example, if a creditor's stated 
policy is to require all applications to be in writing on the creditor's 
application form, but the creditor also makes credit decisions based on 
oral requests, the creditor's procedures are to accept both oral and 
written applications.
    3. When an inquiry or prequalification request becomes an 
application. A creditor is encouraged to provide consumers with 
information about loan terms. However, if in giving information to the 
consumer the creditor also evaluates information about the consumer, 
decides to decline the request, and communicates this to the consumer, 
the creditor

[[Page 124]]

has treated the inquiry or prequalification request as an application 
and must then comply with the notification requirements under Sec. 
1002.9. Whether the inquiry or prequalification request becomes an 
application depends on how the creditor responds to the consumer, not on 
what the consumer says or asks. (See comment 9-5 for further discussion 
of prequalification requests; see comment 2(f)-5 for a discussion of 
preapproval requests.)
    4. Examples of inquiries that are not applications. The following 
examples illustrate situations in which only an inquiry has taken place:
    i. A consumer calls to ask about loan terms and an employee explains 
the creditor's basic loan terms, such as interest rates, loan-to-value 
ratio, and debt-to-income ratio.
    ii. A consumer calls to ask about interest rates for car loans, and, 
in order to quote the appropriate rate, the loan officer asks for the 
make and sales price of the car and the amount of the downpayment, then 
gives the consumer the rate.
    iii. A consumer asks about terms for a loan to purchase a home and 
tells the loan officer her income and intended downpayment, but the loan 
officer only explains the creditor's loan-to-value ratio policy and 
other basic lending policies, without telling the consumer whether she 
qualifies for the loan.
    iv. A consumer calls to ask about terms for a loan to purchase 
vacant land and states his income and the sales price of the property to 
be financed, and asks whether he qualifies for a loan; the employee 
responds by describing the general lending policies, explaining that he 
would need to look at all of the consumer's qualifications before making 
a decision, and offering to send an application form to the consumer.
    5. Examples of an application. An application for credit includes 
the following situations:
    i. A person asks a financial institution to ``preapprove'' her for a 
loan (for example, to finance a house or a vehicle she plans to buy) and 
the institution reviews the request under a program in which the 
institution, after a comprehensive analysis of her creditworthiness, 
issues a written commitment valid for a designated period of time to 
extend a loan up to a specified amount. The written commitment may not 
be subject to conditions other than conditions that require the 
identification of adequate collateral, conditions that require no 
material change in the applicant's financial condition or 
creditworthiness prior to funding the loan, and limited conditions that 
are not related to the financial condition or creditworthiness of the 
applicant that the lender ordinarily attaches to a traditional 
application (such as certification of a clear termite inspection for a 
home purchase loan, or a maximum mileage requirement for a used car 
loan). But if the creditor's program does not provide for giving written 
commitments, requests for preapprovals are treated as prequalification 
requests for purposes of the regulation.
    ii. Under the same facts as above, the financial institution 
evaluates the person's creditworthiness and determines that she does not 
qualify for a preapproval.
    6. Completed application--diligence requirement. The regulation 
defines a completed application in terms that give a creditor the 
latitude to establish its own information requirements. Nevertheless, 
the creditor must act with reasonable diligence to collect information 
needed to complete the application. For example, the creditor should 
request information from third parties, such as a credit report, 
promptly after receiving the application. If additional information is 
needed from the applicant, such as an address or a telephone number to 
verify employment, the creditor should contact the applicant promptly. 
(But see comment 9(a)(1)-3, which discusses the creditor's option to 
deny an application on the basis of incompleteness.)
    2(g) Business credit.
    1. Definition. The test for deciding whether a transaction qualifies 
as business credit is one of primary purpose. For example, an open-end 
credit account used for both personal and business purposes is not 
business credit unless the primary purpose of the account is business-
related. A creditor may rely on an applicant's statement of the purpose 
for the credit requested.
    2(j) Credit.
    1. General. Regulation B covers a wider range of credit transactions 
than Regulation Z (Truth in Lending). Under Regulation B, a transaction 
is credit if there is a right to defer payment of a debt--regardless of 
whether the credit is for personal or commercial purposes, the number of 
installments required for repayment, or whether the transaction is 
subject to a finance charge.
    2(l) Creditor.
    1. Assignees. The term creditor includes all persons participating 
in the credit decision. This may include an assignee or a potential 
purchaser of the obligation who influences the credit decision by 
indicating whether or not it will purchase the obligation if the 
transaction is consummated.
    2. Referrals to creditors. For certain purposes, the term creditor 
includes persons such as real estate brokers, automobile dealers, home 
builders, and home-improvement contractors who do not participate in 
credit decisions but who only accept applications and refer applicants 
to creditors, or select or offer to select creditors to whom credit 
requests can be made. These persons must

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comply with Sec. 1002.4(a), the general rule prohibiting 
discrimination, and with Sec. 1002.4(b), the general rule against 
discouraging applications.
    2(p) Empirically derived and other credit scoring systems.
    1. Purpose of definition. The definition under Sec. Sec. 
1002.2(p)(1)(i) through (iv) sets the criteria that a credit system must 
meet in order to use age as a predictive factor. Credit systems that do 
not meet these criteria are judgmental systems and may consider age only 
for the purpose of determining a ``pertinent element of 
creditworthiness.'' (Both types of systems may favor an elderly 
applicant. See Sec. 1002.6(b)(2).)
    2. Periodic revalidation. The regulation does not specify how often 
credit scoring systems must be revalidated. The credit scoring system 
must be revalidated frequently enough to ensure that it continues to 
meet recognized professional statistical standards for statistical 
soundness. To ensure that predictive ability is being maintained, the 
creditor must periodically review the performance of the system. This 
could be done, for example, by analyzing the loan portfolio to determine 
the delinquency rate for each score interval, or by analyzing population 
stability over time to detect deviations of recent applications from the 
applicant population used to validate the system. If this analysis 
indicates that the system no longer predicts risk with statistical 
soundness, the system must be adjusted as necessary to reestablish its 
predictive ability. A creditor is responsible for ensuring its system is 
validated and revalidated based on the creditor's own data.
    3. Pooled data scoring systems. A scoring system or the data from 
which to develop such a system may be obtained from either a single 
credit grantor or multiple credit grantors. The resulting system will 
qualify as an empirically derived, demonstrably and statistically sound, 
credit scoring system provided the criteria set forth in paragraph 
(p)(1)(i) through (iv) of this section are met. A creditor is 
responsible for ensuring its system is validated and revalidated based 
on the creditor's own data when it becomes available.
    4. Effects test and disparate treatment. An empirically derived, 
demonstrably and statistically sound, credit scoring system may include 
age as a predictive factor (provided that the age of an elderly 
applicant is not assigned a negative factor or value). Besides age, no 
other prohibited basis may be used as a variable. Generally, credit 
scoring systems treat all applicants objectively and thus avoid problems 
of disparate treatment. In cases where a credit scoring system is used 
in conjunction with individual discretion, disparate treatment could 
conceivably occur in the evaluation process. In addition, neutral 
factors used in credit scoring systems could nonetheless be subject to 
challenge under the effects test. (See comment 6(a)-2 for a discussion 
of the effects test).
    2(w) Open-end credit.
    1. Open-end real estate mortgages. The term ``open-end credit'' does 
not include negotiated advances under an open-end real estate mortgage 
or a letter of credit.
    2(z) Prohibited basis.
    1. Persons associated with applicant. As used in this part, 
prohibited basis refers not only to characteristics--the race, color, 
religion, national origin, sex, marital status, or age--of an applicant 
(or officers of an applicant in the case of a corporation) but also to 
the characteristics of individuals with whom an applicant is affiliated 
or with whom the applicant associates. This means, for example, that 
under the general rule stated in Sec. 1002.4(a), a creditor may not 
discriminate against an applicant because of that person's personal or 
business dealings with members of a certain religion, because of the 
national origin of any persons associated with the extension of credit 
(such as the tenants in the apartment complex being financed), or 
because of the race of other residents in the neighborhood where the 
property offered as collateral is located.
    2. National origin. A creditor may not refuse to grant credit 
because an applicant comes from a particular country but may take the 
applicant's immigration status into account. A creditor may also take 
into account any applicable law, regulation, or executive order 
restricting dealings with citizens (or the government) of a particular 
country or imposing limitations regarding credit extended for their use.
    3. Public assistance program. Any Federal, state, or local 
governmental assistance program that provides a continuing, periodic 
income supplement, whether premised on entitlement or need, is ``public 
assistance'' for purposes of the regulation. The term includes (but is 
not limited to) Temporary Aid to Needy Families, food stamps, rent and 
mortgage supplement or assistance programs, social security and 
supplemental security income, and unemployment compensation. Only 
physicians, hospitals, and others to whom the benefits are payable need 
consider Medicare and Medicaid as public assistance.

 Section 1002.3--Limited Exceptions for Certain Classes of Transactions

    1. Scope. Under this section, procedural requirements of the 
regulation do not apply to certain types of credit. All classes of 
transactions remain subject to Sec. 1002.4(a), the general rule barring 
discrimination on a prohibited basis, and to any other provision not 
specifically excepted.
    3(a) Public-utilities credit.
    1. Definition. This definition applies only to credit for the 
purchase of a utility service,

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such as electricity, gas, or telephone service. Credit provided or 
offered by a public utility for some other purpose--such as for 
financing the purchase of a gas dryer, telephone equipment, or other 
durable goods, or for insulation or other home improvements--is not 
excepted.
    2. Security deposits. A utility company is a creditor when it 
supplies utility service and bills the user after the service has been 
provided. Thus, any credit term (such as a requirement for a security 
deposit) is subject to the regulation's bar against discrimination on a 
prohibited basis.
    3. Telephone companies. A telephone company's credit transactions 
qualify for the exceptions provided in Sec. 1002.3(a)(2) only if the 
company is regulated by a government unit or files the charges for 
service, delayed payment, or any discount for prompt payment with a 
government unit.
    3(c) Incidental credit.
    1. Examples. If a service provider (such as a hospital, doctor, 
lawyer, or merchant) allows the client or customer to defer the payment 
of a bill, this deferral of debt is credit for purposes of the 
regulation, even though there is no finance charge and no agreement for 
payment in installments. Because of the exceptions provided by this 
section, however, these particular credit extensions are excepted from 
compliance with certain procedural requirements as specified in Sec. 
1002.3(c).
    3(d) Government credit.
    1. Credit to governments. The exception relates to credit extended 
to (not by) governmental entities. For example, credit extended to a 
local government is covered by this exception, but credit extended to 
consumers by a Federal or state housing agency does not qualify for 
special treatment under this category.

                      Section 1002.4--General Rules

    Paragraph 4(a).
    1. Scope of rule. The general rule stated in Sec. 1002.4(a) covers 
all dealings, without exception, between an applicant and a creditor, 
whether or not addressed by other provisions of the regulation. Other 
provisions of the regulation identify specific practices that the Bureau 
has decided are impermissible because they could result in credit 
discrimination on a basis prohibited by the Act. The general rule 
covers, for example, application procedures, criteria used to evaluate 
creditworthiness, administration of accounts, and treatment of 
delinquent or slow accounts. Thus, whether or not specifically 
prohibited elsewhere in the regulation, a credit practice that treats 
applicants differently on a prohibited basis violates the law because it 
violates the general rule. Disparate treatment on a prohibited basis is 
illegal whether or not it results from a conscious intent to 
discriminate.
    2. Examples.
    i. Disparate treatment would exist, for example, in the following 
situations:
    A. A creditor provides information only on ``subprime'' and similar 
products to minority applicants who request information about the 
creditor's mortgage products, but provides information on a wider 
variety of mortgage products to similarly situated nonminority 
applicants.
    B. A creditor provides more comprehensive information to men than to 
similarly situated women.
    C. A creditor requires a minority applicant to provide greater 
documentation to obtain a loan than a similarly situated nonminority 
applicant.
    D. A creditor waives or relaxes credit standards for a nonminority 
applicant but not for a similarly situated minority applicant.
    ii. Treating applicants differently on a prohibited basis is 
unlawful if the creditor lacks a legitimate nondiscriminatory reason for 
its action, or if the asserted reason is found to be a pretext for 
discrimination.
    Paragraph 4(b).
    1. Prospective applicants. Generally, the regulation's protections 
apply only to persons who have requested or received an extension of 
credit. In keeping with the purpose of the Act--to promote the 
availability of credit on a nondiscriminatory basis--Sec. 1002.4(b) 
covers acts or practices directed at prospective applicants that could 
discourage a reasonable person, on a prohibited basis, from applying for 
credit. Practices prohibited by this section include:
    i. A statement that the applicant should not bother to apply, after 
the applicant states that he is retired.
    ii. The use of words, symbols, models or other forms of 
communication in advertising that express, imply, or suggest a 
discriminatory preference or a policy of exclusion in violation of the 
Act.
    iii. The use of interview scripts that discourage applications on a 
prohibited basis.
    2. Affirmative advertising. A creditor may affirmatively solicit or 
encourage members of traditionally disadvantaged groups to apply for 
credit, especially groups that might not normally seek credit from that 
creditor.
    Paragraph 4(c).
    1. Requirement for written applications. Model application forms are 
provided in Appendix B to the regulation, although use of a printed form 
is not required. A creditor will satisfy the requirement by writing down 
the information that it normally considers in making a credit decision. 
The creditor may complete an application on behalf of an applicant and 
need not require the applicant to sign the application.
    2. Telephone applications. A creditor that accepts applications by 
telephone for dwelling-related credit covered by Sec. 1002.13 can

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meet the requirement for written applications by writing down pertinent 
information that is provided by the applicant.
    3. Computerized entry. Information entered directly into and 
retained by a computerized system qualifies as a written application 
under this paragraph. (See the commentary to Sec. 1002.13(b), 
Applications through electronic media and Applications through video.)
    Paragraph 4(d).
    1. Clear and conspicuous. This standard requires that disclosures be 
presented in a reasonably understandable format in a way that does not 
obscure the required information. No minimum type size is mandated, but 
the disclosures must be legible, whether typewritten, handwritten, or 
printed by computer.
    2. Form of disclosures. Whether the disclosures required to be on or 
with an application must be in electronic form depends upon the 
following:
    i. If an applicant accesses a credit application electronically 
(other than as described under ii below), such as online at a home 
computer, the creditor must provide the disclosures in electronic form 
(such as with the application form on its Web site) in order to meet the 
requirement to provide disclosures in a timely manner on or with the 
application. If the creditor instead mailed paper disclosures to the 
applicant, this requirement would not be met.
    ii. In contrast, if an applicant is physically present in the 
creditor's office, and accesses a credit application electronically, 
such as via a terminal or kiosk (or if the applicant uses a terminal or 
kiosk located on the premises of an affiliate or third party that has 
arranged with the creditor to provide applications to consumers), the 
creditor may provide disclosures in either electronic or paper form, 
provided the creditor complies with the timing, delivery, and 
retainability requirements of the regulation.

        Section 1002.5--Rules Concerning Requests for Information

    5(a) General rules.
    Paragraph 5(a)(1).
    1. Requests for information. This section governs the types of 
information that a creditor may gather. Section1002.6 governs how 
information may be used.
    Paragraph 5(a)(2).
    1. Local laws. Information that a creditor is allowed to collect 
pursuant to a ``state'' statute or regulation includes information 
required by a local statute, regulation, or ordinance.
    2. Information required by Regulation C. Regulation C generally 
requires creditors covered by the Home Mortgage Disclosure Act (HMDA) to 
collect and report information about the race, ethnicity, and sex of 
applicants for home-improvement loans and home-purchase loans, including 
some types of loans not covered by Sec. 1002.13.
    3. Collecting information on behalf of creditors. Persons such as 
loan brokers and correspondents do not violate the ECOA or Regulation B 
if they collect information that they are otherwise prohibited from 
collecting, where the purpose of collecting the information is to 
provide it to a creditor that is subject to the Home Mortgage Disclosure 
Act or another Federal or state statute or regulation requiring data 
collection.
    5(d) Other limitations on information requests.
    Paragraph 5(d)(1).
    1. Indirect disclosure of prohibited information. The fact that 
certain credit-related information may indirectly disclose marital 
status does not bar a creditor from seeking such information. For 
example, the creditor may ask about:
    i. The applicant's obligation to pay alimony, child support, or 
separate maintenance income.
    ii. The source of income to be used as the basis for repaying the 
credit requested, which could disclose that it is the income of a 
spouse.
    iii. Whether any obligation disclosed by the applicant has a co-
obligor, which could disclose that the co-obligor is a spouse or former 
spouse.
    iv. The ownership of assets, which could disclose the interest of a 
spouse.
    Paragraph 5(d)(2).
    1. Disclosure about income. The sample application forms in Appendix 
B to the regulation illustrate how a creditor may inform an applicant of 
the right not to disclose alimony, child support, or separate 
maintenance income.
    2. General inquiry about source of income. Since a general inquiry 
about the source of income may lead an applicant to disclose alimony, 
child support, or separate maintenance income, a creditor making such an 
inquiry on an application form should preface the request with the 
disclosure required by this paragraph.
    3. Specific inquiry about sources of income. A creditor need not 
give the disclosure if the inquiry about income is specific and worded 
in a way that is unlikely to lead the applicant to disclose the fact 
that income is derived from alimony, child support, or separate 
maintenance payments. For example, an application form that asks about 
specific types of income such as salary, wages, or investment income 
need not include the disclosure.

       Section 1002.6--Rules Concerning Evaluation of Applications

    6(a) General rule concerning use of information.
    1. General. When evaluating an application for credit, a creditor 
generally may consider

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any information obtained. However, a creditor may not consider in its 
evaluation of creditworthiness any information that it is barred by 
Sec. 1002.5 from obtaining or from using for any purpose other than to 
conduct a self-test under Sec. 1002.15.
    2. Effects test. The effects test is a judicial doctrine that was 
developed in a series of employment cases decided by the U.S. Supreme 
Court under Title VII of the Civil Rights Act of 1964 (42 U.S.C. 2000e 
et seq.), and the burdens of proof for such employment cases were 
codified by Congress in the Civil Rights Act of 1991 (42 U.S.C. 2000e-
2). Congressional intent that this doctrine apply to the credit area is 
documented in the Senate Report that accompanied H.R. 6516, No. 94-589, 
pp. 4-5; and in the House Report that accompanied H.R. 6516, No. 94-210, 
p.5. The Act and regulation may prohibit a creditor practice that is 
discriminatory in effect because it has a disproportionately negative 
impact on a prohibited basis, even though the creditor has no intent to 
discriminate and the practice appears neutral on its face, unless the 
creditor practice meets a legitimate business need that cannot 
reasonably be achieved as well by means that are less disparate in their 
impact. For example, requiring that applicants have income in excess of 
a certain amount to qualify for an overdraft line of credit could mean 
that women and minority applicants will be rejected at a higher rate 
than men and nonminority applicants. If there is a demonstrable 
relationship between the income requirement and creditworthiness for the 
level of credit involved, however, use of the income standard would 
likely be permissible.
    6(b) Specific rules concerning use of information.
    Paragraph 6(b)(1).
    1. Prohibited basis--special purpose credit. In a special purpose 
credit program, a creditor may consider a prohibited basis to determine 
whether the applicant possesses a characteristic needed for eligibility. 
(See Sec. 1002.8.)
    Paragraph 6(b)(2).
    1. Favoring the elderly. Any system of evaluating creditworthiness 
may favor a credit applicant who is age 62 or older. A credit program 
that offers more favorable credit terms to applicants age 62 or older is 
also permissible; a program that offers more favorable credit terms to 
applicants at an age lower than 62 is permissible only if it meets the 
special-purpose credit requirements of Sec. 1002.8.
    2. Consideration of age in a credit scoring system. Age may be taken 
directly into account in a credit scoring system that is ``demonstrably 
and statistically sound,'' as defined in Sec. 1002.2(p), with one 
limitation: Applicants age 62 years or older must be treated at least as 
favorably as applicants who are under age 62. If age is scored by 
assigning points to an applicant's age category, elderly applicants must 
receive the same or a greater number of points as the most favored class 
of nonelderly applicants.
    i. Age-split scorecards. Some credit systems segment the population 
and use different scorecards based on the age of an applicant. In such a 
system, one card may cover a narrow age range (for example, applicants 
in their twenties or younger) who are evaluated under attributes 
predictive for that age group. A second card may cover all other 
applicants, who are evaluated under the attributes predictive for that 
broader class. When a system uses a card covering a wide age range that 
encompasses elderly applicants, the credit scoring system is not deemed 
to score age. Thus, the system does not raise the issue of assigning a 
negative factor or value to the age of elderly applicants. But if a 
system segments the population by age into multiple scorecards, and 
includes elderly applicants in a narrower age range, the credit scoring 
system does score age. To comply with the Act and regulation in such a 
case, the creditor must ensure that the system does not assign a 
negative factor or value to the age of elderly applicants as a class.
    3. Consideration of age in a judgmental system. In a judgmental 
system, defined in Sec. 1002.2(t), a creditor may not decide whether to 
extend credit or set the terms and conditions of credit based on age or 
information related exclusively to age. Age or age-related information 
may be considered only in evaluating other ``pertinent elements of 
creditworthiness'' that are drawn from the particular facts and 
circumstances concerning the applicant. For example, a creditor may not 
reject an application or terminate an account because the applicant is 
60 years old. But a creditor that uses a judgmental system may relate 
the applicant's age to other information about the applicant that the 
creditor considers in evaluating creditworthiness. As the following 
examples illustrate, the evaluation must be made in an individualized, 
case-by-case manner:
    i. A creditor may consider the applicant's occupation and length of 
time to retirement to ascertain whether the applicant's income 
(including retirement income) will support the extension of credit to 
its maturity.
    ii. A creditor may consider the adequacy of any security offered 
when the term of the credit extension exceeds the life expectancy of the 
applicant and the cost of realizing on the collateral could exceed the 
applicant's equity. An elderly applicant might not qualify for a 5 
percent down, 30-year mortgage loan but might qualify with a larger 
downpayment or a shorter loan maturity.
    iii. A creditor may consider the applicant's age to assess the 
significance of length of employment (a young applicant may have just 
entered the job market) or length of time at an address (an elderly 
applicant may

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recently have retired and moved from a long-term residence).
    4. Consideration of age in a reverse mortgage. A reverse mortgage is 
a home-secured loan in which the borrower receives payments from the 
creditor, and does not become obligated to repay these amounts (other 
than in the case of default) until the borrower dies, moves permanently 
from the home, or transfers title to the home, or upon a specified 
maturity date. Disbursements to the borrower under a reverse mortgage 
typically are determined by considering the value of the borrower's 
home, the current interest rate, and the borrower's life expectancy. A 
reverse mortgage program that requires borrowers to be age 62 or older 
is permissible under Sec. 1002.6(b)(2)(iv). In addition, under Sec. 
1002.6(b)(2)(iii), a creditor may consider a borrower's age to evaluate 
a pertinent element of creditworthiness, such as the amount of the 
credit or monthly payments that the borrower will receive, or the 
estimated repayment date.
    5. Consideration of age in a combined system. A creditor using a 
credit scoring system that qualifies as ``empirically derived'' under 
Sec. 1002.2(p) may consider other factors (such as a credit report or 
the applicant's cash flow) on a judgmental basis. Doing so will not 
negate the classification of the credit scoring component of the 
combined system as ``demonstrably and statistically sound.'' While age 
could be used in the credit scoring portion, however, in the judgmental 
portion age may not be considered directly. It may be used only for the 
purpose of determining a ``pertinent element of creditworthiness.'' (See 
comment 6(b)(2)-3.)
    6. Consideration of public assistance. When considering income 
derived from a public assistance program, a creditor may take into 
account, for example:
    i. The length of time an applicant will likely remain eligible to 
receive such income.
    ii. Whether the applicant will continue to qualify for benefits 
based on the status of the applicant's dependents (as in the case of 
Temporary Aid to Needy Families, or social security payments to a 
minor).
    iii. Whether the creditor can attach or garnish the income to assure 
payment of the debt in the event of default.
    Paragraph 6(b)(5).
    1. Consideration of an individual applicant. A creditor must 
evaluate income derived from part-time employment, alimony, child 
support, separate maintenance payments, retirement benefits, or public 
assistance on an individual basis, not on the basis of aggregate 
statistics; and must assess its reliability or unreliability by 
analyzing the applicant's actual circumstances, not by analyzing 
statistical measures derived from a group.
    2. Payments consistently made. In determining the likelihood of 
consistent payments of alimony, child support, or separate maintenance, 
a creditor may consider factors such as whether payments are received 
pursuant to a written agreement or court decree; the length of time that 
the payments have been received; whether the payments are regularly 
received by the applicant; the availability of court or other procedures 
to compel payment; and the creditworthiness of the payor, including the 
credit history of the payor when it is available to the creditor.
    3. Consideration of income.
    i. A creditor need not consider income at all in evaluating 
creditworthiness. If a creditor does consider income, there are several 
acceptable methods, whether in a credit scoring or a judgmental system:
    A. A creditor may score or take into account the total sum of all 
income stated by the applicant without taking steps to evaluate the 
income for reliability.
    B. A creditor may evaluate each component of the applicant's income, 
and then score or take into account income determined to be reliable 
separately from other income; or the creditor may disregard that portion 
of income that is not reliable when it aggregates reliable income.
    C. A creditor that does not evaluate all income components for 
reliability must treat as reliable any component of protected income 
that is not evaluated.
    ii. In considering the separate components of an applicant's income, 
the creditor may not automatically discount or exclude from 
consideration any protected income. Any discounting or exclusion must be 
based on the applicant's actual circumstances.
    4. Part-time employment, sources of income. A creditor may score or 
take into account the fact that an applicant has more than one source of 
earned income--a full-time and a part-time job or two part-time jobs. A 
creditor may also score or treat earned income from a secondary source 
differently than earned income from a primary source. The creditor may 
not, however, score or otherwise take into account the number of sources 
for income such as retirement income, social security, supplemental 
security income, and alimony. Nor may the creditor treat negatively the 
fact that an applicant's only earned income is derived from, for 
example, a part-time job.
    Paragraph 6(b)(6).
    1. Types of credit references. A creditor may restrict the types of 
credit history and credit references that it will consider, provided 
that the restrictions are applied to all credit applicants without 
regard to sex, marital status, or any other prohibited basis. On the 
applicant's request, however, a creditor must consider credit 
information not reported

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through a credit bureau when the information relates to the same types 
of credit references and history that the creditor would consider if 
reported through a credit bureau.
    Paragraph 6(b)(7).
    1. National origin--immigration status. The applicant's immigration 
status and ties to the community (such as employment and continued 
residence in the area) could have a bearing on a creditor's ability to 
obtain repayment. Accordingly, the creditor may consider immigration 
status and differentiate, for example, between a noncitizen who is a 
long-time resident with permanent resident status and a noncitizen who 
is temporarily in this country on a student visa.
    2. National origin--citizenship. A denial of credit on the ground 
that an applicant is not a United States citizen is not per se 
discrimination based on national origin.
    Paragraph 6(b)(8).
    1. Prohibited basis--marital status. A creditor may consider the 
marital status of an applicant or joint applicant for the purpose of 
ascertaining the creditor's rights and remedies applicable to the 
particular extension of credit. For example, in a secured transaction 
involving real property, a creditor could take into account whether 
state law gives the applicant's spouse an interest in the property being 
offered as collateral.

          Section 1002.7--Rules Concerning Extensions of Credit

    7(a) Individual accounts.
    1. Open-end credit--authorized user. A creditor may not require a 
creditworthy applicant seeking an individual credit account to provide 
additional signatures. But the creditor may condition the designation of 
an authorized user by the account holder on the authorized user's 
becoming contractually liable for the account, as long as the creditor 
does not differentiate on any prohibited basis in imposing this 
requirement.
    2. Open-end credit--choice of authorized user. A creditor that 
permits an account holder to designate an authorized user may not 
restrict this designation on a prohibited basis. For example, if the 
creditor allows the designation of spouses as authorized users, the 
creditor may not refuse to accept a non-spouse as an authorized user.
    3. Overdraft authority on transaction accounts. If a transaction 
account (such as a checking account or NOW account) includes an 
overdraft line of credit, the creditor may require that all persons 
authorized to draw on the transaction account assume liability for any 
overdraft.
    7(b) Designation of name.
    1. Single name on account. A creditor may require that joint 
applicants on an account designate a single name for purposes of 
administering the account and that a single name be embossed on any 
credit cards issued on the account. But the creditor may not require 
that the name be the husband's name. (See Sec. 1002.10 for rules 
governing the furnishing of credit history on accounts held by spouses.)
    7(c) Action concerning existing open-end accounts.
    Paragraph 7(c)(1).
    1. Termination coincidental with marital status change. When an 
account holder's marital status changes, a creditor generally may not 
terminate the account unless it has evidence that the account holder is 
now unable or unwilling to repay. But the creditor may terminate an 
account on which both spouses are jointly liable, even if the action 
coincides with a change in marital status, when one or both spouses:
    i. Repudiate responsibility for future charges on the joint account.
    ii. Request separate accounts in their own names.
    iii. Request that the joint account be closed.
    2. Updating information. A creditor may periodically request updated 
information from applicants but may not use events related to a 
prohibited basis--such as an applicant's retirement or reaching a 
particular age, or a change in name or marital status--to trigger such a 
request.
    Paragraph 7(c)(2).
    1. Procedure pending reapplication. A creditor may require a 
reapplication from an account holder, even when there is no evidence of 
unwillingness or inability to repay, if (1) the credit was based on the 
qualifications of a person who is no longer available to support the 
credit and (2) the creditor has information indicating that the account 
holder's income may be insufficient to support the credit. While a 
reapplication is pending, the creditor must allow the account holder 
full access to the account under the existing contract terms. The 
creditor may specify a reasonable time period within which the account 
holder must submit the required information.
    7(d) Signature of spouse or other person.
    1. Qualified applicant. The signature rules ensure that qualified 
applicants are able to obtain credit in their own names. Thus, when an 
applicant requests individual credit, a creditor generally may not 
require the signature of another person unless the creditor has first 
determined that the applicant alone does not qualify for the credit 
requested.
    2. Unqualified applicant. When an applicant requests individual 
credit but does not meet a creditor's standards, the creditor may 
require a cosigner, guarantor, endorser, or similar party--but cannot 
require that it be the spouse. (See commentary to Sec. Sec. 
1002.7(d)(5) and (6).)
    Paragraph 7(d)(1).

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    1. Signature of another person. It is impermissible for a creditor 
to require an applicant who is individually creditworthy to provide a 
cosigner-even if the creditor applies the requirement without regard to 
sex, marital status, or any other prohibited basis. (But see comment 
7(d)(6)-1 concerning guarantors of closely held corporations.)
    2. Joint applicant. The term ``joint applicant'' refers to someone 
who applies contemporaneously with the applicant for shared or joint 
credit. It does not refer to someone whose signature is required by the 
creditor as a condition for granting the credit requested.
    3. Evidence of joint application. A person's intent to be a joint 
applicant must be evidenced at the time of application. Signatures on a 
promissory note may not be used to show intent to apply for joint 
credit. On the other hand, signatures or initials on a credit 
application affirming applicants' intent to apply for joint credit may 
be used to establish intent to apply for joint credit. (See Appendix B.) 
The method used to establish intent must be distinct from the means used 
by individuals to affirm the accuracy of information. For example, 
signatures on a joint financial statement affirming the veracity of 
information are not sufficient to establish intent to apply for joint 
credit.
    Paragraph 7(d)(2).
    1. Jointly owned property. If an applicant requests unsecured 
credit, does not own sufficient separate property, and relies on joint 
property to establish creditworthiness, the creditor must value the 
applicant's interest in the jointly owned property. A creditor may not 
request that a nonapplicant joint owner sign any instrument as a 
condition of the credit extension unless the applicant's interest does 
not support the amount and terms of the credit sought.
    i. Valuation of applicant's interest. In determining the value of an 
applicant's interest in jointly owned property, a creditor may consider 
factors such as the form of ownership and the property's susceptibility 
to attachment, execution, severance, or partition; the value of the 
applicant's interest after such action; and the cost associated with the 
action. This determination must be based on the existing form of 
ownership, and not on the possibility of a subsequent change. For 
example, in determining whether a married applicant's interest in 
jointly owned property is sufficient to satisfy the creditor's standards 
of creditworthiness for individual credit, a creditor may not consider 
that the applicant's separate property could be transferred into tenancy 
by the entirety after consummation. Similarly, a creditor may not 
consider the possibility that the couple may divorce. Accordingly, a 
creditor may not require the signature of the non-applicant spouse in 
these or similar circumstances.
    ii. Other options to support credit. If the applicant's interest in 
jointly owned property does not support the amount and terms of credit 
sought, the creditor may offer the applicant other options to qualify 
for the extension of credit. For example:
    A. Providing a co-signer or other party (Sec. 1002.7(d)(5));
    B. Requesting that the credit be granted on a secured basis (Sec. 
1002.7(d)(4)); or
    C. Providing the signature of the joint owner on an instrument that 
ensures access to the property in the event of the applicant's death or 
default, but does not impose personal liability unless necessary under 
state law (such as a limited guarantee). A creditor may not routinely 
require, however, that a joint owner sign an instrument (such as a 
quitclaim deed) that would result in the forfeiture of the joint owner's 
interest in the property.
    2. Need for signature--reasonable belief. A creditor's reasonable 
belief as to what instruments need to be signed by a person other than 
the applicant should be supported by a thorough review of pertinent 
statutory and decisional law or an opinion of the state attorney 
general.
    Paragraph 7(d)(3).
    1. Residency. In assessing the creditworthiness of a person who 
applies for credit in a community property state, a creditor may assume 
that the applicant is a resident of the state unless the applicant 
indicates otherwise.
    Paragraph 7(d)(4).
    1. Creation of enforceable lien. Some state laws require that both 
spouses join in executing any instrument by which real property is 
encumbered. If an applicant offers such property as security for credit, 
a creditor may require the applicant's spouse to sign the instruments 
necessary to create a valid security interest in the property. The 
creditor may not require the spouse to sign the note evidencing the 
credit obligation if signing only the mortgage or other security 
agreement is sufficient to make the property available to satisfy the 
debt in the event of default. However, if under state law both spouses 
must sign the note to create an enforceable lien, the creditor may 
require the signatures.
    2. Need for signature--reasonable belief. Generally, a signature to 
make the secured property available will only be needed on a security 
agreement. A creditor's reasonable belief that, to ensure access to the 
property, the spouse's signature is needed on an instrument that imposes 
personal liability should be supported by a thorough review of pertinent 
statutory and decisional law or an opinion of the state attorney 
general.
    3. Integrated instruments. When a creditor uses an integrated 
instrument that combines the note and the security agreement, the

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spouse cannot be asked to sign the integrated instrument if the 
signature is only needed to grant a security interest. But the spouse 
could be asked to sign an integrated instrument that makes clear--for 
example, by a legend placed next to the spouse's signature--that the 
spouse's signature is only to grant a security interest and that signing 
the instrument does not impose personal liability.
    Paragraph 7(d)(5).
    1. Qualifications of additional parties. In establishing guidelines 
for eligibility of guarantors, cosigners, or similar additional parties, 
a creditor may restrict the applicant's choice of additional parties but 
may not discriminate on the basis of sex, marital status, or any other 
prohibited basis. For example, the creditor could require that the 
additional party live in the creditor's market area.
    2. Reliance on income of another person--individual credit. An 
applicant who requests individual credit relying on the income of 
another person (including a spouse in a non-community property state) 
may be required to provide the signature of the other person to make the 
income available to pay the debt. In community property states, the 
signature of a spouse may be required if the applicant relies on the 
spouse's separate income. If the applicant relies on the spouse's future 
earnings that as a matter of state law cannot be characterized as 
community property until earned, the creditor may require the spouse's 
signature, but need not do so--even if it is the creditor's practice to 
require the signature when an applicant relies on the future earnings of 
a person other than a spouse. (See Sec. 1002.6(c) on consideration of 
state property laws.)
    3. Renewals. If the borrower's creditworthiness is reevaluated when 
a credit obligation is renewed, the creditor must determine whether an 
additional party is still warranted and, if not warranted, release the 
additional party.
    Paragraph 7(d)(6).
    1. Guarantees. A guarantee on an extension of credit is part of a 
credit transaction and therefore subject to the regulation. A creditor 
may require the personal guarantee of the partners, directors, or 
officers of a business, and the shareholders of a closely held 
corporation, even if the business or corporation is creditworthy. The 
requirement must be based on the guarantor's relationship with the 
business or corporation, however, and not on a prohibited basis. For 
example, a creditor may not require guarantees only for women-owned or 
minority-owned businesses. Similarly, a creditor may not require 
guarantees only of the married officers of a business or the married 
shareholders of a closely held corporation.
    2. Spousal guarantees. The rules in Sec. 1002.7(d) bar a creditor 
from requiring the signature of a guarantor's spouse just as they bar 
the creditor from requiring the signature of an applicant's spouse. For 
example, although a creditor may require all officers of a closely held 
corporation to personally guarantee a corporate loan, the creditor may 
not automatically require that spouses of married officers also sign the 
guarantee. If an evaluation of the financial circumstances of an officer 
indicates that an additional signature is necessary, however, the 
creditor may require the signature of another person in appropriate 
circumstances in accordance with Sec. 1002.7(d)(2).
    7(e) Insurance.
    1. Differences in terms. Differences in the availability, rates, and 
other terms on which credit-related casualty insurance or credit life, 
health, accident, or disability insurance is offered or provided to an 
applicant does not violate Regulation B.
    2. Insurance information. A creditor may obtain information about an 
applicant's age, sex, or marital status for insurance purposes. The 
information may only be used for determining eligibility and premium 
rates for insurance, however, and not in making the credit decision.

             Section 1002.8--Special Purpose Credit Programs

    8(a) Standards for programs.
    1. Determining qualified programs. The Bureau does not determine 
whether individual programs qualify for special purpose credit status, 
or whether a particular program benefits an ``economically disadvantaged 
class of persons.'' The agency or creditor administering or offering the 
loan program must make these decisions regarding the status of its 
program.
    2. Compliance with a program authorized by Federal or state law. A 
creditor does not violate Regulation B when it complies in good faith 
with a regulation promulgated by a government agency implementing a 
special purpose credit program under Sec. 1002.8(a)(1). It is the 
agency's responsibility to promulgate a regulation that is consistent 
with Federal and state law.
    3. Expressly authorized. Credit programs authorized by Federal or 
state law include programs offered pursuant to Federal, state, or local 
statute, regulation or ordinance, or pursuant to judicial or 
administrative order.
    4. Creditor liability. A refusal to grant credit to an applicant is 
not a violation of the Act or regulation if the applicant does not meet 
the eligibility requirements under a special purpose credit program.
    5. Determining need. In designing a special purpose credit program 
under Sec. 1002.8(a), a for-profit organization must determine that the 
program will benefit a class of people who would otherwise be denied 
credit or would receive it on less favorable terms. This determination 
can be based on a broad analysis using the organization's own research 
or

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data from outside sources, including governmental reports and studies. 
For example, a creditor might design new products to reach consumers who 
would not meet, or have not met, its traditional standards of 
creditworthiness due to such factors as credit inexperience or the use 
of credit sources that may not report to consumer reporting agencies. 
Or, a bank could review Home Mortgage Disclosure Act data along with 
demographic data for its assessment area and conclude that there is a 
need for a special purpose credit program for low-income minority 
borrowers.
    6. Elements of the program. The written plan must contain 
information that supports the need for the particular program. The plan 
also must either state a specific period of time for which the program 
will last, or contain a statement regarding when the program will be 
reevaluated to determine if there is a continuing need for it.
    8(b) Rules in other sections.
    1. Applicability of rules. A creditor that rejects an application 
because the applicant does not meet the eligibility requirements (common 
characteristic or financial need, for example) must nevertheless notify 
the applicant of action taken as required by Sec. 1002.9.
    8(c) Special rule concerning requests and use of information.
    1. Request of prohibited basis information. This section permits a 
creditor to request and consider certain information that would 
otherwise be prohibited by Sec. Sec. 1002.5 and 1002.6 to determine an 
applicant's eligibility for a particular program.
    2. Examples. Examples of programs under which the creditor can ask 
for and consider information about a prohibited basis are:
    i. Energy conservation programs to assist the elderly, for which the 
creditor must consider the applicant's age.
    ii. Programs under a Minority Enterprise Small Business Investment 
Corporation, for which a creditor must consider the applicant's minority 
status.
    8(d) Special rule in the case of financial need.
    1. Request of prohibited basis information. This section permits a 
creditor to request and consider certain information that would 
otherwise be prohibited by Sec. Sec. 1002.5 and 1002.6, and to require 
signatures that would otherwise be prohibited by Sec. 1002.7(d).
    2. Examples. Examples of programs in which financial need is a 
criterion are:
    i. Subsidized housing programs for low-to moderate-income 
households, for which a creditor may have to consider the applicant's 
receipt of alimony or child support, the spouse's or parents' income, 
etc.
    ii. Student loan programs based on the family's financial need, for 
which a creditor may have to consider the spouse's or parents' financial 
resources.
    3. Student loans. In a guaranteed student loan program, a creditor 
may obtain the signature of a parent as a guarantor when required by 
Federal or state law or agency regulation, or when the student does not 
meet the creditor's standards of creditworthiness. (See Sec. Sec. 
1002.7(d)(1) and (5).) The creditor may not require an additional 
signature when a student has a work or credit history that satisfies the 
creditor's standards.

                      Section 1002.9--Notifications

    1. Use of the term adverse action. The regulation does not require 
that a creditor use the term adverse action in communicating to an 
applicant that a request for an extension of credit has not been 
approved. In notifying an applicant of adverse action as defined by 
Sec. 1002.2(c)(1), a creditor may use any words or phrases that 
describe the action taken on the application.
    2. Expressly withdrawn applications. When an applicant expressly 
withdraws a credit application, the creditor is not required to comply 
with the notification requirements under Sec. 1002.9. (The creditor 
must comply, however, with the record retention requirements of the 
regulation. See Sec. 1002.12(b)(3).)
    3. When notification occurs. Notification occurs when a creditor 
delivers or mails a notice to the applicant's last known address or, in 
the case of an oral notification, when the creditor communicates the 
credit decision to the applicant.
    4. Location of notice. The notifications required under Sec. 1002.9 
may appear on either or both sides of a form or letter.
    5. Prequalification requests. Whether a creditor must provide a 
notice of action taken for a prequalification request depends on the 
creditor's response to the request, as discussed in comment 2(f)-3. For 
instance, a creditor may treat the request as an inquiry if the creditor 
evaluates specific information about the consumer and tells the consumer 
the loan amount, rate, and other terms of credit the consumer could 
qualify for under various loan programs, explaining the process the 
consumer must follow to submit a mortgage application and the 
information the creditor will analyze in reaching a credit decision. On 
the other hand, a creditor has treated a request as an application, and 
is subject to the adverse action notice requirements of Sec. 1002.9 if, 
after evaluating information, the creditor decides that it will not 
approve the request and communicates that decision to the consumer. For 
example, if the creditor tells the consumer that it would not approve an 
application for a mortgage because of a bankruptcy in the consumer's 
record, the creditor has denied an application for credit.
    9(a) Notification of action taken, ECOA notice, and statement of 
specific reasons.
    Paragraph 9(a)(1).

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    1. Timing of notice--when an application is complete. Once a 
creditor has obtained all the information it normally considers in 
making a credit decision, the application is complete and the creditor 
has 30 days in which to notify the applicant of the credit decision. 
(See also comment 2(f)-6.)
    2. Notification of approval. Notification of approval may be express 
or by implication. For example, the creditor will satisfy the 
notification requirement when it gives the applicant the credit card, 
money, property, or services requested.
    3. Incomplete application--denial for incompleteness. When an 
application is incomplete regarding information that the applicant can 
provide and the creditor lacks sufficient data for a credit decision, 
the creditor may deny the application giving as the reason for denial 
that the application is incomplete. The creditor has the option, 
alternatively, of providing a notice of incompleteness under Sec. 
1002.9(c).
    4. Incomplete application--denial for reasons other than 
incompleteness. When an application is missing information but provides 
sufficient data for a credit decision, the creditor may evaluate the 
application, make its credit decision, and notify the applicant 
accordingly. If credit is denied, the applicant must be given the 
specific reasons for the credit denial (or notice of the right to 
receive the reasons); in this instance missing information or 
``incomplete application'' cannot be given as the reason for the denial.
    5. Length of counteroffer. Section 1002.9(a)(1)(iv) does not require 
a creditor to hold a counteroffer open for 90 days or any other 
particular length of time.
    6. Counteroffer combined with adverse action notice. A creditor that 
gives the applicant a combined counteroffer and adverse action notice 
that complies with Sec. 1002.9(a)(2) need not send a second adverse 
action notice if the applicant does not accept the counteroffer. A 
sample of a combined notice is contained in form C-4 of Appendix C to 
the regulation.
    7. Denial of a telephone application. When an application is made by 
telephone and adverse action is taken, the creditor must request the 
applicant's name and address in order to provide written notification 
under this section. If the applicant declines to provide that 
information, then the creditor has no further notification 
responsibility.
    Paragraph 9(a)(3).
    1. Coverage. In determining which rules in this paragraph apply to a 
given business credit application, a creditor may rely on the 
applicant's assertion about the revenue size of the business. 
(Applications to start a business are governed by the rules in Sec. 
1002.9(a)(3)(i).) If an applicant applies for credit as a sole 
proprietor, the revenues of the sole proprietorship will determine which 
rules govern the application. However, if an applicant applies for 
business credit as an individual, the rules in Sec. 1002.9(a)(3)(i) 
apply unless the application is for trade or similar credit.
    2. Trade credit. The term trade credit generally is limited to a 
financing arrangement that involves a buyer and a seller--such as a 
supplier who finances the sale of equipment, supplies, or inventory; it 
does not apply to an extension of credit by a bank or other financial 
institution for the financing of such items.
    3. Factoring. Factoring refers to a purchase of accounts receivable, 
and thus is not subject to the Act or regulation. If there is a credit 
extension incident to the factoring arrangement, the notification rules 
in Sec. 1002.9(a)(3)(ii) apply, as do other relevant sections of the 
Act and regulation.
    4. Manner of compliance. In complying with the notice provisions of 
the Act and regulation, creditors offering business credit may follow 
the rules governing consumer credit. Similarly, creditors may elect to 
treat all business credit the same (irrespective of revenue size) by 
providing notice in accordance with Sec. 1002.9(a)(3)(i).
    5. Timing of notification. A creditor subject to Sec. 
1002.9(a)(3)(ii)(A) is required to notify a business credit applicant, 
orally or in writing, of action taken on an application within a 
reasonable time of receiving a completed application. Notice provided in 
accordance with the timing requirements of Sec. 1002.9(a)(1) is deemed 
reasonable in all instances.
    9(b) Form of ECOA notice and statement of specific reasons.
    Paragraph 9(b)(1).
    1. Substantially similar notice. The ECOA notice sent with a 
notification of a credit denial or other adverse action will comply with 
the regulation if it is ``substantially similar'' to the notice 
contained in Sec. 1002.9(b)(1). For example, a creditor may add a 
reference to the fact that the ECOA permits age to be considered in 
certain credit scoring systems, or add a reference to a similar state 
statute or regulation and to a state enforcement agency.
    Paragraph 9(b)(2).
    1. Number of specific reasons. A creditor must disclose the 
principal reasons for denying an application or taking other adverse 
action. The regulation does not mandate that a specific number of 
reasons be disclosed, but disclosure of more than four reasons is not 
likely to be helpful to the applicant.
    2. Source of specific reasons. The specific reasons disclosed under 
Sec. Sec. 1002.9(a)(2) and (b)(2) must relate to and accurately 
describe the factors actually considered or scored by a creditor.
    3. Description of reasons. A creditor need not describe how or why a 
factor adversely

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affected an applicant. For example, the notice may say ``length of 
residence'' rather than ``too short a period of residence.''
    4. Credit scoring system. If a creditor bases the denial or other 
adverse action on a credit scoring system, the reasons disclosed must 
relate only to those factors actually scored in the system. Moreover, no 
factor that was a principal reason for adverse action may be excluded 
from disclosure. The creditor must disclose the actual reasons for 
denial (for example, ``age of automobile'') even if the relationship of 
that factor to predicting creditworthiness may not be clear to the 
applicant.
    5. Credit scoring--method for selecting reasons. The regulation does 
not require that any one method be used for selecting reasons for a 
credit denial or other adverse action that is based on a credit scoring 
system. Various methods will meet the requirements of the regulation. 
One method is to identify the factors for which the applicant's score 
fell furthest below the average score for each of those factors achieved 
by applicants whose total score was at or slightly above the minimum 
passing score. Another method is to identify the factors for which the 
applicant's score fell furthest below the average score for each of 
those factors achieved by all applicants. These average scores could be 
calculated during the development or use of the system. Any other method 
that produces results substantially similar to either of these methods 
is also acceptable under the regulation.
    6. Judgmental system. If a creditor uses a judgmental system, the 
reasons for the denial or other adverse action must relate to those 
factors in the applicant's record actually reviewed by the person making 
the decision.
    7. Combined credit scoring and judgmental system. If a creditor 
denies an application based on a credit evaluation system that employs 
both credit scoring and judgmental components, the reasons for the 
denial must come from the component of the system that the applicant 
failed. For example, if a creditor initially credit scores an 
application and denies the credit request as a result of that scoring, 
the reasons disclosed to the applicant must relate to the factors scored 
in the system. If the application passes the credit scoring stage but 
the creditor then denies the credit request based on a judgmental 
assessment of the applicant's record, the reasons disclosed must relate 
to the factors reviewed judgmentally, even if the factors were also 
considered in the credit scoring component. If the application is not 
approved or denied as a result of the credit scoring, but falls into a 
gray band, and the creditor performs a judgmental assessment and denies 
the credit after that assessment, the reasons disclosed must come from 
both components of the system. The same result applies where a 
judgmental assessment is the first component of the combined system. As 
provided in comment 9(b)(2)-1, disclosure of more than a combined total 
of four reasons is not likely to be helpful to the applicant.
    8. Automatic denial. Some credit decision methods contain features 
that call for automatic denial because of one or more negative factors 
in the applicant's record (such as the applicant's previous bad credit 
history with that creditor, the applicant's declaration of bankruptcy, 
or the fact that the applicant is a minor). When a creditor denies the 
credit request because of an automatic-denial factor, the creditor must 
disclose that specific factor.
    9. Combined ECOA-FCRA disclosures. The ECOA requires disclosure of 
the principal reasons for denying or taking other adverse action on an 
application for an extension of credit. The Fair Credit Reporting Act 
(FCRA) requires a creditor to disclose when it has based its decision in 
whole or in part on information from a source other than the applicant 
or its own files. Disclosing that a credit report was obtained and used 
in the denial of the application, as the FCRA requires, does not satisfy 
the ECOA requirement to disclose specific reasons. For example, if the 
applicant's credit history reveals delinquent credit obligations and the 
application is denied for that reason, to satisfy Sec. 1002.9(b)(2) the 
creditor must disclose that the application was denied because of the 
applicant's delinquent credit obligations. The FCRA also requires a 
creditor to disclose, as applicable, a credit score it used in taking 
adverse action along with related information, including up to four key 
factors that adversely affected the consumer's credit score (or up to 
five factors if the number of inquiries made with respect to that 
consumer report is a key factor). Disclosing the key factors that 
adversely affected the consumer's credit score does not satisfy the ECOA 
requirement to disclose specific reasons for denying or taking other 
adverse action on an application or extension of credit. Sample forms C-
1 through C-5 of Appendix C of the regulation provide for both the ECOA 
and FCRA disclosures. See also comment 9(b)(2)-1.
    9(c) Incomplete applications.
    Paragraph 9(c)(1).
    1. Exception for preapprovals. The requirement to provide a notice 
of incompleteness does not apply to preapprovals that constitute 
applications under Sec. 1002.2(f).
    Paragraph 9(c)(2).
    1. Reapplication. If information requested by a creditor is 
submitted by an applicant after the expiration of the time period 
designated by the creditor, the creditor may require the applicant to 
make a new application.
    Paragraph 9(c)(3).

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    1. Oral inquiries for additional information. If an applicant fails 
to provide the information in response to an oral request, a creditor 
must send a written notice to the applicant within the 30-day period 
specified in Sec. Sec. 1002.9(c)(1) and (2). If the applicant provides 
the information, the creditor must take action on the application and 
notify the applicant in accordance with Sec. 1002.9(a).
    9(g) Applications submitted through a third party.
    1. Third parties. The notification of adverse action may be given by 
one of the creditors to whom an application was submitted, or by a 
noncreditor third party. If one notification is provided on behalf of 
multiple creditors, the notice must contain the name and address of each 
creditor. The notice must either disclose the applicant's right to a 
statement of specific reasons within 30 days, or give the primary 
reasons each creditor relied upon in taking the adverse action--clearly 
indicating which reasons relate to which creditor.
    2. Third party notice--enforcement agency. If a single adverse 
action notice is being provided to an applicant on behalf of several 
creditors and they are under the jurisdiction of different Federal 
enforcement agencies, the notice need not name each agency; disclosure 
of any one of them will suffice.
    3. Third-party notice--liability. When a notice is to be provided 
through a third party, a creditor is not liable for an act or omission 
of the third party that constitutes a violation of the regulation if the 
creditor accurately and in a timely manner provided the third party with 
the information necessary for the notification and maintains reasonable 
procedures adapted to prevent such violations.

            Section 1002.10--Furnishing of Credit Information

    1. Scope. The requirements of Sec. 1002.10 for designating and 
reporting credit information apply only to consumer credit transactions. 
Moreover, they apply only to creditors that opt to furnish credit 
information to credit bureaus or to other creditors; there is no 
requirement that a creditor furnish credit information on its accounts.
    2. Reporting on all accounts. The requirements of Sec. 1002.10 
apply only to accounts held or used by spouses. However, a creditor has 
the option to designate all joint accounts (or all accounts with an 
authorized user) to reflect the participation of both parties, whether 
or not the accounts are held by persons married to each other.
    3. Designating accounts. In designating accounts and reporting 
credit information, a creditor need not distinguish between accounts on 
which the spouse is an authorized user and accounts on which the spouse 
is a contractually liable party.
    4. File and index systems. The regulation does not require the 
creation or maintenance of separate files in the name of each 
participant on a joint or user account, or require any other particular 
system of recordkeeping or indexing. It requires only that a creditor be 
able to report information in the name of each spouse on accounts 
covered by Sec. 1002.10. Thus, if a creditor receives a credit inquiry 
about the wife, it should be able to locate her credit file without 
asking the husband's name.
    10(a) Designation of accounts.
    1. New parties. When new parties who are spouses undertake a legal 
obligation on an account, as in the case of a mortgage loan assumption, 
the creditor must change the designation on the account to reflect the 
new parties and must furnish subsequent credit information on the 
account in the new names.
    2. Request to change designation of account. A request to change the 
manner in which information concerning an account is furnished does not 
alter the legal liability of either spouse on the account and does not 
require a creditor to change the name in which the account is 
maintained.

                 Section 1002.11--Relation to State Law

    11(a) Inconsistent state laws.
    1. Preemption determination--New York. The Bureau recognizes state 
law preemption determinations made by the Board of Governors of the 
Federal Reserve System prior to July 21, 2011, until and unless the 
Bureau makes and publishes any contrary determination. The Board of 
Governors determined that the following provisions in the state law of 
New York are preempted by the Federal law, effective November 11, 1988:
    i. Article 15, section 296a(1)(b). Unlawful discriminatory practices 
in relation to credit on the basis of race, creed, color, national 
origin, age, sex, marital status, or disability. This provision is 
preempted to the extent that it bars taking a prohibited basis into 
account when establishing eligibility for certain special-purpose credit 
programs.
    ii. Article 15, section 296a(1)(c). Unlawful discriminatory practice 
to make any record or inquiry based on race, creed, color, national 
origin, age, sex, marital status, or disability. This provision is 
preempted to the extent that it bars a creditor from requesting and 
considering information regarding the particular characteristics (for 
example, race, national origin, or sex) required for eligibility for 
special-purpose credit programs.
    2. Preemption determination--Ohio. The Bureau recognizes state law 
preemption determinations made by the Board of Governors of the Federal 
Reserve System prior to July 21, 2011, until and unless the Bureau makes 
and publishes any contrary determination. The Board of Governors 
determined that the following provision in the state law of Ohio

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is preempted by the Federal law, effective July 23, 1990:
    i. Section 4112.021(B)(1)--Unlawful discriminatory practices in 
credit transactions. This provision is preempted to the extent that it 
bars asking or favorably considering the age of an elderly applicant; 
prohibits the consideration of age in a credit scoring system; permits 
without limitation the consideration of age in real estate transactions; 
and limits the consideration of age in special-purpose credit programs 
to certain government-sponsored programs identified in the state law.

                    Section 1002.12--Record Retention

    12(a) Retention of prohibited information.
    1. Receipt of prohibited information. Unless the creditor 
specifically requested such information, a creditor does not violate 
this section when it receives prohibited information from a consumer 
reporting agency.
    2. Use of retained information. Although a creditor may keep in its 
files prohibited information as provided in Sec. 1002.12(a), the 
creditor may use the information in evaluating credit applications only 
if permitted to do so by Sec. 1002.6.
    12(b) Preservation of records.
    1. Copies. Copies of the original record include carbon copies, 
photocopies, microfilm or microfiche copies, or copies produced by any 
other accurate retrieval system, such as documents stored and reproduced 
by computer. A creditor that uses a computerized or mechanized system 
need not keep a paper copy of a document (for example, of an adverse 
action notice) if it can regenerate all pertinent information in a 
timely manner for examination or other purposes.
    2. Computerized decisions. A creditor that enters information items 
from a written application into a computerized or mechanized system and 
makes the credit decision mechanically, based only on the items of 
information entered into the system, may comply with Sec. 1002.12(b) by 
retaining the information actually entered. It is not required to store 
the complete written application, nor is it required to enter the 
remaining items of information into the system. If the transaction is 
subject to Sec. 1002.13, however, the creditor is required to enter and 
retain the data on personal characteristics in order to comply with the 
requirements of that section.
    Paragraph 12(b)(3).
    1. Withdrawn and brokered applications. In most cases, the 25-month 
retention period for applications runs from the date a notification is 
sent to the applicant granting or denying the credit requested. In 
certain transactions, a creditor is not obligated to provide a notice of 
the action taken. (See, for example, comment 9-2.) In such cases, the 
25-month requirement runs from the date of application, as when:
    i. An application is withdrawn by the applicant.
    ii. An application is submitted to more than one creditor on behalf 
of the applicant, and the application is approved by one of the other 
creditors.
    12(b)(6) Self-tests.
    1. The rule requires all written or recorded information about a 
self-test to be retained for 25 months after a self-test has been 
completed. For this purpose, a self-test is completed after the creditor 
has obtained the results and made a determination about what corrective 
action, if any, is appropriate. Creditors are required to retain 
information about the scope of the self-test, the methodology used and 
time period covered by the self-test, the report or results of the self-
test including any analysis or conclusions, and any corrective action 
taken in response to the self-test.
    12(b)(7) Preapplication marketing information.
    1. Prescreened credit solicitations. The rule requires creditors to 
retain copies of prescreened credit solicitations. For purposes of this 
part, a prescreened solicitation is an ``offer of credit'' as described 
in 15 U.S.C. 1681a(1) of the Fair Credit Reporting Act. A creditor 
complies with this rule if it retains a copy of each solicitation 
mailing that contains different terms, such as the amount of credit 
offered, annual percentage rate, or annual fee.
    2. List of criteria. A creditor must retain the list of criteria 
used to select potential recipients. This includes the criteria used by 
the creditor both to determine the potential recipients of the 
particular solicitation and to determine who will actually be offered 
credit.
    3. Correspondence. A creditor may retain correspondence relating to 
consumers' complaints about prescreened solicitations in any manner that 
is reasonably accessible and is understandable to examiners. There is no 
requirement to establish a separate database or set of files for such 
correspondence, or to match consumer complaints with specific 
solicitation programs.

          Section 1002.13--Information for Monitoring Purposes

    13(a) Information to be requested.
    1. Natural person. Section1002.13 applies only to applications from 
natural persons.
    2. Principal residence. The requirements of Sec. 1002.13 apply only 
if an application relates to a dwelling that is or will be occupied by 
the applicant as the principal residence. A credit application related 
to a vacation home or a rental unit is not covered. In the case of a 
two-to four-unit dwelling, the application is covered if the applicant 
intends to occupy one of the units as a principal residence.

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    3. Temporary financing. An application for temporary financing to 
construct a dwelling is not subject to Sec. 1002.13. But an application 
for both a temporary loan to finance construction of a dwelling and a 
permanent mortgage loan to take effect upon the completion of 
construction is subject to Sec. 1002.13.
    4. New principal residence. A person can have only one principal 
residence at a time. However, if a person buys or builds a new dwelling 
that will become that person's principal residence within a year or upon 
completion of construction, the new dwelling is considered the principal 
residence for purposes of Sec. 1002.13.
    5. Transactions not covered. The information-collection requirements 
of this section apply to applications for credit primarily for the 
purchase or refinancing of a dwelling that is or will become the 
applicant's principal residence. Therefore, applications for credit 
secured by the applicant's principal residence but made primarily for a 
purpose other than the purchase or refinancing of the principal 
residence (such as loans for home improvement and debt consolidation) 
are not subject to the information-collection requirements. An 
application for an open-end home equity line of credit is not subject to 
this section unless it is readily apparent to the creditor when the 
application is taken that the primary purpose of the line is for the 
purchase or refinancing of a principal dwelling.
    6. Refinancings. A refinancing occurs when an existing obligation is 
satisfied and replaced by a new obligation undertaken by the same 
borrower. A creditor that receives an application to refinance an 
existing extension of credit made by that creditor for the purchase of 
the applicant's dwelling may request the monitoring information again 
but is not required to do so if it was obtained in the earlier 
transaction.
    7. Data collection under Regulation C. See comment 5(a)(2)-2.
    13(b) Obtaining of information.
    1. Forms for collecting data. A creditor may collect the information 
specified in Sec. 1002.13(a) either on an application form or on a 
separate form referring to the application. The applicant must be 
offered the option to select more than one racial designation.
    2. Written applications. The regulation requires written 
applications for the types of credit covered by Sec. 1002.13. A 
creditor can satisfy this requirement by recording on paper or by means 
of computer the information that the applicant provides orally and that 
the creditor normally considers in a credit decision.
    3. Telephone, mail applications.
    i. A creditor that accepts an application by telephone or mail must 
request the monitoring information.
    ii. A creditor that accepts an application by mail need not make a 
special request for the monitoring information if the applicant has 
failed to provide it on the application form returned to the creditor.
    iii. If it is not evident on the face of an application that it was 
received by mail, telephone, or via an electronic medium, the creditor 
should indicate on the form or other application record how the 
application was received.
    4. Video and other electronic-application processes.
    i. If a creditor takes an application through an electronic medium 
that allows the creditor to see the applicant, the creditor must treat 
the application as taken in person. The creditor must note the 
monitoring information on the basis of visual observation or surname, if 
the applicant chooses not to provide the information.
    ii. If an applicant applies through an electronic medium without 
video capability, the creditor treats the application as if it were 
received by mail.
    5. Applications through loan-shopping services. When a creditor 
receives an application through an unaffiliated loan-shopping service, 
it does not have to request the monitoring information for purposes of 
the ECOA or Regulation B. Creditors subject to the Home Mortgage 
Disclosure Act should be aware, however, that data collection may be 
called for under Regulation C (12 CFR part 1003), which generally 
requires creditors to report, among other things, the sex and race of an 
applicant on brokered applications or applications received through a 
correspondent.
    6. Inadvertent notation. If a creditor inadvertently obtains the 
monitoring information in a dwelling-related transaction not covered by 
Sec. 1002.13, the creditor may process and retain the application 
without violating the regulation.
    13(c) Disclosure to applicants.
    1. Procedures for providing disclosures. The disclosure to an 
applicant regarding the monitoring information may be provided in 
writing. Appendix B contains a sample disclosure. A creditor may devise 
its own disclosure so long as it is substantially similar. The creditor 
need not orally request the monitoring information if it is requested in 
writing.
    13(d) Substitute monitoring program.
    1. Substitute program. An enforcement agency may adopt, under its 
established rulemaking or enforcement procedures, a program requiring 
creditors under its jurisdiction to collect information in addition to 
information required by this section.

          Section 1002.14--Rules on Providing Appraisal Reports

    14(a) Providing appraisals.

[[Page 139]]

    1. Coverage. This section covers applications for credit to be 
secured by a lien on a dwelling, as that term is defined in Sec. 
1002.14(c), whether the credit is for a business purpose (for example, a 
loan to start a business) or a consumer purpose (for example, a loan to 
finance a child's education).
    2. Renewals. This section applies when an applicant requests the 
renewal of an existing extension of credit and the creditor obtains a 
new appraisal report. This section does not apply when a creditor uses 
the appraisal report previously obtained to evaluate the renewal 
request.
    14(a)(2)(i) Notice.
    1. Multiple applicants. When an application that is subject to this 
section involves more than one applicant, the notice about the appraisal 
report need only be given to one applicant, but it must be given to the 
primary applicant where one is readily apparent.
    14(a)(2)(ii) Delivery.
    1. Reimbursement. Creditors may charge for photocopy and postage 
costs incurred in providing a copy of the appraisal report, unless 
prohibited by state or other law. If the consumer has already paid for 
the report--for example, as part of an application fee--the creditor may 
not require additional fees for the appraisal (other than photocopy and 
postage costs).
    14(c) Definitions.
    1. Appraisal reports. Examples of appraisal reports are:
    i. A report prepared by an appraiser (whether or not licensed or 
certified), including written comments and other documents submitted to 
the creditor in support of the appraiser's estimate or opinion of the 
property's value.
    ii. A document prepared by the creditor's staff that assigns value 
to the property, if a third-party appraisal report has not been used.
    iii. An internal review document reflecting that the creditor's 
valuation is different from a valuation in a third party's appraisal 
report (or different from valuations that are publicly available or 
valuations such as manufacturers' invoices for mobile homes).
    2. Other reports. The term ``appraisal report'' does not cover all 
documents relating to the value of the applicant's property. Examples of 
reports not covered are:
    i. Internal documents, if a third-party appraisal report was used to 
establish the value of the property.
    ii. Governmental agency statements of appraised value.
    iii. Valuations lists that are publicly available (such as published 
sales prices or mortgage amounts, tax assessments, and retail price 
ranges) and valuations such as manufacturers' invoices for mobile homes.

    Section 1002.15--Incentives for Self-Testing and Self-Correction

    15(a) General rules.
    15(a)(1) Voluntary self-testing and correction.
    1. Activities required by any governmental authority are not 
voluntary self-tests. A governmental authority includes both 
administrative and judicial authorities for Federal, State, and local 
governments.
    15(a)(2) Corrective action required.
    1. To qualify for the privilege, appropriate corrective action is 
required when the results of a self-test show that it is more likely 
than not that there has been a violation of the ECOA or this part. A 
self-test is also privileged when it identifies no violations.
    2. In some cases, the issue of whether certain information is 
privileged may arise before the self-test is complete or corrective 
actions are fully under way. This would not necessarily prevent a 
creditor from asserting the privilege. In situations where the self-test 
is not complete, for the privilege to apply the lender must satisfy the 
regulation's requirements within a reasonable period of time. To assert 
the privilege where the self-test shows a likely violation, the rule 
requires, at a minimum, that the creditor establish a plan for 
corrective action and a method to demonstrate progress in implementing 
the plan. Creditors must take appropriate corrective action on a timely 
basis after the results of the self-test are known.
    3. A creditor's determination about the type of corrective action 
needed, or a finding that no corrective action is required, is not 
conclusive in determining whether the requirements of this paragraph 
have been satisfied. If a creditor's claim of privilege is challenged, 
an assessment of the need for corrective action or the type of 
corrective action that is appropriate must be based on a review of the 
self-testing results, which may require an in camera inspection of the 
privileged documents.
    15(a)(3) Other privileges.
    1. A creditor may assert the privilege established under this 
section in addition to asserting any other privilege that may apply, 
such as the attorney-client privilege or the work-product privilege. 
Self-testing data may be privileged under this section whether or not 
the creditor's assertion of another privilege is upheld.
    15(b) Self-test defined.
    15(b)(1) Definition.
    Paragraph 15(b)(1)(i).
    1. To qualify for the privilege, a self-test must be sufficient to 
constitute a determination of the extent or effectiveness of the 
creditor's compliance with the Act and Regulation B. Accordingly, a 
self-test is only privileged if it was designed and used for that 
purpose. A self-test that is designed or used to determine compliance 
with other laws or regulations or for other purposes is

[[Page 140]]

not privileged under this rule. For example, a self-test designed to 
evaluate employee efficiency or customers' satisfaction with the level 
of service provided by the creditor is not privileged even if evidence 
of discrimination is uncovered incidentally. If a self-test is designed 
for multiple purposes, only the portion designed to determine compliance 
with the ECOA is eligible for the privilege.
    Paragraph 15(b)(1)(ii).
    1. The principal attribute of self-testing is that it constitutes a 
voluntary undertaking by the creditor to produce new data or factual 
information that otherwise would not be available and could not be 
derived from loan or application files or other records related to 
credit transactions. Self-testing includes, but is not limited to, the 
practice of using fictitious applicants for credit (testers), either 
with or without the use of matched pairs. A creditor may elect to test a 
defined segment of its business, for example, loan applications 
processed by a specific branch or loan officer, or applications made for 
a particular type of credit or loan program. A creditor also may use 
other methods of generating information that is not available in loan 
and application files, such as surveying mortgage loan applicants. To 
the extent permitted by law, creditors might also develop new methods 
that go beyond traditional pre-application testing, such as hiring 
testers to submit fictitious loan applications for processing.
    2. The privilege does not protect a creditor's analysis performed as 
part of processing or underwriting a credit application. A creditor's 
evaluation or analysis of its loan files, Home Mortgage Disclosure Act 
data, or similar types of records (such as broker or loan officer 
compensation records) does not produce new information about a 
creditor's compliance and is not a self-test for purposes of this 
section. Similarly, a statistical analysis of data derived from existing 
loan files is not privileged.
    15(b)(3) Types of information not privileged.
    Paragraph 15(b)(3)(i).
    1. The information listed in this paragraph is not privileged and 
may be used to determine whether the prerequisites for the privilege 
have been satisfied. Accordingly, a creditor might be asked to identify 
the self-testing method, for example, whether preapplication testers 
were used or data were compiled by surveying loan applicants. 
Information about the scope of the self-test (such as the types of 
credit transactions examined, or the geographic area covered by the 
test) also is not privileged.
    Paragraph 15(b)(3)(ii).
    1. Property appraisal reports, minutes of loan committee meetings or 
other documents reflecting the basis for a decision to approve or deny 
an application, loan policies or procedures, underwriting standards, and 
broker compensation records are examples of the types of records that 
are not privileged. If a creditor arranges for testers to submit loan 
applications for processing, the records are not related to actual 
credit transactions for purposes of this paragraph and may be privileged 
self-testing records.
    15(c) Appropriate corrective action.
    1. The rule only addresses the corrective actions required for a 
creditor to take advantage of the privilege in this section. A creditor 
may be required to take other actions or provide additional relief if a 
formal finding of discrimination is made.
    15(c)(1) General requirement.
    1. Appropriate corrective action is required even though no 
violation has been formally adjudicated or admitted by the creditor. In 
determining whether it is more likely than not that a violation 
occurred, a creditor must treat testers as if they are actual applicants 
for credit. A creditor may not refuse to take appropriate corrective 
action under this section because the self-test used fictitious loan 
applicants. The fact that a tester's agreement with the creditor waives 
the tester's legal right to assert a violation does not eliminate the 
requirement for the creditor to take corrective action, although no 
remedial relief for the tester is required under paragraph 15(c)(3).
    15(c)(2) Determining the scope of appropriate corrective action.
    1. Whether a creditor has taken or is taking corrective action that 
is appropriate will be determined on a case-by-case basis. Generally, 
the scope of the corrective action that is needed to preserve the 
privilege is governed by the scope of the self-test. For example, a 
creditor that self-tests mortgage loans and discovers evidence of 
discrimination may focus its corrective actions on mortgage loans, and 
is not required to expand its testing to other types of loans.
    2. In identifying the policies or practices that are a likely cause 
of the violation, a creditor might identify inadequate or improper 
lending policies, failure to implement established policies, employee 
conduct, or other causes. The extent and scope of a likely violation may 
be assessed by determining which areas of operations are likely to be 
affected by those policies and practices, for example, by determining 
the types of loans and stages of the application process involved and 
the branches or offices where the violations may have occurred.
    3. Depending on the method and scope of the self-test and the 
results of the test, appropriate corrective action may include one or 
more of the following:
    i. If the self-test identifies individuals whose applications were 
inappropriately processed, offering to extend credit if the application 
was improperly denied and compensating such persons for out-of-pocket 
costs and other compensatory damages;

[[Page 141]]

    ii. Correcting institutional policies or procedures that may have 
contributed to the likely violation, and adopting new policies as 
appropriate;
    iii. Identifying and then training and/or disciplining the employees 
involved;
    iv. Developing outreach programs, marketing strategies, or loan 
products to serve more effectively segments of the lender's markets that 
may have been affected by the likely discrimination; and
    v. Improving audit and oversight systems to avoid a recurrence of 
the likely violations.
    15(c)(3) Types of relief.
    Paragraph 15(c)(3)(ii).
    1. The use of pre-application testers to identify policies and 
practices that illegally discriminate does not require creditors to 
review existing loan files for the purpose of identifying and 
compensating applicants who might have been adversely affected.
    2. If a self-test identifies a specific applicant who was 
discriminated against on a prohibited basis, to qualify for the 
privilege in this section the creditor must provide appropriate remedial 
relief to that applicant; the creditor is not required to identify other 
applicants who might also have been adversely affected.
    Paragraph 15(c)(3)(iii).
    1. A creditor is not required to provide remedial relief to an 
applicant that would not be available by law. An applicant might also be 
ineligible for certain types of relief due to changed circumstances. For 
example, a creditor is not required to offer credit to a denied 
applicant if the applicant no longer qualifies for the credit due to a 
change in financial circumstances, although some other type of relief 
might be appropriate.
    15(d)(1) Scope of privilege.
    1. The privilege applies with respect to any examination, 
investigation or proceeding by Federal, State, or local government 
agencies relating to compliance with the Act or this part. Accordingly, 
in a case brought under the ECOA, the privilege established under this 
section preempts any inconsistent laws or court rules to the extent they 
might require disclosure of privileged self-testing data. The privilege 
does not apply in other cases (such as in litigation filed solely under 
a State's fair lending statute). In such cases, if a court orders a 
creditor to disclose self-test results, the disclosure is not a 
voluntary disclosure or waiver of the privilege for purposes of 
paragraph 15(d)(2); a creditor may protect the information by seeking a 
protective order to limit availability and use of the self-testing data 
and prevent dissemination beyond what is necessary in that case. 
Paragraph 15(d)(1) precludes a party who has obtained privileged 
information from using it in a case brought under the ECOA, provided the 
creditor has not lost the privilege through voluntary disclosure under 
paragraph 15(d)(2).
    15(d)(2) Loss of privilege.
    Paragraph 15(d)(2)(i).
    1. A creditor's corrective action, by itself, is not considered a 
voluntary disclosure of the self-test report or results. For example, a 
creditor does not disclose the results of a self-test merely by offering 
to extend credit to a denied applicant or by inviting the applicant to 
reapply for credit. Voluntary disclosure could occur under this 
paragraph, however, if the creditor disclosed the self-test results in 
connection with a new offer of credit.
    2. The disclosure of self-testing results to an independent 
contractor acting as an auditor or consultant for the creditor on 
compliance matters does not result in loss of the privilege.
    Paragraph 15(d)(2)(ii).
    1. The privilege is lost if the creditor discloses privileged 
information, such as the results of the self-test. The privilege is not 
lost if the creditor merely reveals or refers to the existence of the 
self-test.
    Paragraph 15(d)(2)(iii).
    1. A creditor's claim of privilege may be challenged in a court or 
administrative law proceeding with appropriate jurisdiction. In 
resolving the issue, the presiding officer may require the creditor to 
produce privileged information about the self-test.
    Paragraph 15(d)(3) Limited use of privileged information.
    1. A creditor may be required to produce privileged documents for 
the purpose of determining a penalty or remedy after a violation of the 
ECOA or Regulation B has been formally adjudicated or admitted. A 
creditor's compliance with such a requirement does not evidence the 
creditor's intent to forfeit the privilege.

        Section 1002.16--Enforcement, Penalties, and Liabilities

    16(c) Failure of compliance.
    1. Inadvertent errors. Inadvertent errors include, but are not 
limited to, clerical mistake, calculation error, computer malfunction, 
and printing error. An error of legal judgment is not an inadvertent 
error under the regulation.
    2. Correction of error. For inadvertent errors that occur under 
Sec. Sec. 1002.12 and 1002.13, this section requires that they be 
corrected prospectively.

                   Appendix B--Model Application Forms

    1. Freddie Mac/Fannie Mae form--residential loan application. The 
uniform residential loan application form (Freddie Mac 65/Fannie Mae 
1003), including supplemental form (Freddie Mac 65A/Fannie Mae 1003A), 
prepared by the Federal Home Loan Mortgage Corporation

[[Page 142]]

and the Federal National Mortgage Association and dated October 1992 may 
be used by creditors without violating this part. Creditors that are 
governed by the monitoring requirements of this part (which limits 
collection to applications primarily for the purchase or refinancing of 
the applicant's principal residence) should delete, strike, or modify 
the data-collection section on the form when using it for transactions 
not covered by Sec. 1002.13(a) to ensure that they do not collect the 
information. Creditors that are subject to more extensive collection 
requirements by a substitute monitoring program under Sec. 1002.13(d) 
or by the Home Mortgage Disclosure Act (HMDA) may use the form as 
issued, in compliance with the substitute program or HMDA.
    2. FHLMC/FNMA form--home improvement loan application. The home-
improvement and energy loan application form (FHLMC 703/FNMA 1012), 
prepared by the Federal Home Loan Mortgage Corporation and the Federal 
National Mortgage Association and dated October 1986, complies with the 
requirements of the regulation for some creditors but not others because 
of the form's section ``Information for Government Monitoring 
Purposes.'' Creditors that are governed by Sec. 1002.13(a) of the 
regulation (which limits collection to applications primarily for the 
purchase or refinancing of the applicant's principal residence) should 
delete, strike, or modify the data-collection section on the form when 
using it for transactions not covered by Sec. 1002.13(a) to ensure that 
they do not collect the information. Creditors that are subject to more 
extensive collection requirements by a substitute monitoring program 
under Sec. 1002.13(d) may use the form as issued, in compliance with 
that substitute program.

                  Appendix C--Sample Notification Forms

    1. Form C-9. Creditors may design their own form, add to, or modify 
the model form to reflect their individual policies and procedures. For 
example, a creditor may want to add:
    i. A telephone number that applicants may call to leave their name 
and the address to which an appraisal report should be sent.
    ii. A notice of the cost the applicant will be required to pay the 
creditor for the appraisal or a copy of the report.



PART 1003_HOME MORTGAGE DISCLOSURE (REGULATION C)--Table of Contents



Sec.
1003.1 Authority, purpose, and scope.
1003.2 Definitions.
1003.3 Exempt institutions.
1003.4 Compilation of loan data.
1003.5 Disclosure and reporting.
1003.6 Enforcement.

Appendix A to Part 1003--Form and Instructions for Completion of HMDA 
          Loan/Application Register
Appendix B to Part 1003--Form and Instructions for Data Collection on 
          Ethnicity, Race, and Sex
Supplement I to Part 1003--Staff Commentary

    Authority: 12 U.S.C. 2803, 2804, 2805, 5512, 5581.

    Source: 76 FR 78468, Dec. 19, 2011, unless otherwise noted.



Sec. 1003.1  Authority, purpose, and scope.

    (a) Authority. This part, known as Regulation C, is issued by the 
Bureau of Consumer Financial Protection (Bureau) pursuant to the Home 
Mortgage Disclosure Act (HMDA) (12 U.S.C. 2801 et seq.), as amended. The 
information-collection requirements have been approved by the U.S. 
Office of Management and Budget (OMB) under 44 U.S.C. 3501 et seq. and 
have been assigned OMB numbers for institutions reporting data to the 
Office of the Comptroller of the Currency (1557-0159), the Federal 
Deposit Insurance Corporation (3064-0046), the Federal Reserve System 
(7100-0247), the Department of Housing and Urban Development (HUD) 
(2502-0529), the National Credit Union Administration (3133-0166), and 
the Bureau of Consumer Financial Protection (3170-0008).
    (b) Purpose. (1) This part implements the Home Mortgage Disclosure 
Act, which is intended to provide the public with loan data that can be 
used:
    (i) To help determine whether financial institutions are serving the 
housing needs of their communities;
    (ii) To assist public officials in distributing public-sector 
investment so as to attract private investment to areas where it is 
needed; and
    (iii) To assist in identifying possible discriminatory lending 
patterns and enforcing antidiscrimination statutes.
    (2) Neither the act nor this part is intended to encourage unsound 
lending practices or the allocation of credit.
    (c) Scope. This part applies to certain financial institutions, 
including banks, savings associations, credit unions, and other mortgage 
lending institutions, as defined in Sec. 1003.2. The regulation 
requires an institution to report data to the appropriate Federal agency 
about

[[Page 143]]

home purchase loans, home improvement loans, and refinancings that it 
originates or purchases, or for which it receives applications; and to 
disclose certain data to the public.



Sec. 1003.2  Definitions.

    In this part:
    Act means the Home Mortgage Disclosure Act (HMDA) (12 U.S.C. 2801 et 
seq.), as amended.
    Application--(1) In general. Application means an oral or written 
request for a home purchase loan, a home improvement loan, or a 
refinancing that is made in accordance with procedures used by a 
financial institution for the type of credit requested.
    (2) Preapproval programs. A request for preapproval for a home 
purchase loan is an application under this section if the request is 
reviewed under a program in which the financial institution, after a 
comprehensive analysis of the creditworthiness of the applicant, issues 
a written commitment to the applicant valid for a designated period of 
time to extend a home purchase loan up to a specified amount. The 
written commitment may not be subject to conditions other than:
    (i) Conditions that require the identification of a suitable 
property;
    (ii) Conditions that require that no material change has occurred in 
the applicant's financial condition or creditworthiness prior to 
closing; and
    (iii) Limited conditions that are not related to the financial 
condition or creditworthiness of the applicant that the lender 
ordinarily attaches to a traditional home mortgage application (such as 
certification of a clear termite inspection).
    Branch office means:
    (1) Any office of a bank, savings association, or credit union that 
is approved as a branch by a Federal or state supervisory agency, but 
excludes free-standing electronic terminals such as automated teller 
machines; and
    (2) Any office of a for-profit mortgage-lending institution (other 
than a bank, savings association, or credit union) that takes 
applications from the public for home purchase loans, home improvement 
loans, or refinancings. A for-profit mortgage-lending institution is 
also deemed to have a branch office in an MSA or in a Metropolitan 
Division, if, in the preceding calendar year, it received applications 
for, originated, or purchased five or more home purchase loans, home 
improvement loans, or refinancings related to property located in that 
MSA or Metropolitan Division, respectively.
    Dwelling means a residential structure (whether or not attached to 
real property) located in a state of the United States of America, the 
District of Columbia, or the Commonwealth of Puerto Rico. The term 
includes an individual condominium unit, cooperative unit, or mobile or 
manufactured home.
    Financial institution means:
    (1) A bank, savings association, or credit union that:
    (i) On the preceding December 31 had assets in excess of the asset 
threshold established and published annually by the Bureau for coverage 
by the act, based on the year-to-year change in the average of the 
Consumer Price Index for Urban Wage Earners and Clerical Workers, not 
seasonally adjusted, for each twelve month period ending in November, 
with rounding to the nearest million;
    (ii) On the preceding December 31, had a home or branch office in an 
MSA;
    (iii) In the preceding calendar year, originated at least one home 
purchase loan (excluding temporary financing such as a construction 
loan) or refinancing of a home purchase loan, secured by a first lien on 
a one-to four-family dwelling; and
    (iv) Meets one or more of the following three criteria:
    (A) The institution is Federally insured or regulated;
    (B) The mortgage loan referred to in paragraph (1)(iii) of this 
definition was insured, guaranteed, or supplemented by a Federal agency; 
or
    (C) The mortgage loan referred to in paragraph (1)(iii) of this 
definition was intended by the institution for sale to Fannie Mae or 
Freddie Mac; and
    (2) A for-profit mortgage-lending institution (other than a bank, 
savings association, or credit union) that:
    (i) In the preceding calendar year, either:

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    (A) Originated home purchase loans, including refinancings of home 
purchase loans, that equaled at least 10 percent of its loan-origination 
volume, measured in dollars; or
    (B) Originated home purchase loans, including refinancings of home 
purchase loans, that equaled at least $25 million; and
    (ii) On the preceding December 31, had a home or branch office in an 
MSA; and
    (iii) Either:
    (A) On the preceding December 31, had total assets of more than $10 
million, counting the assets of any parent corporation; or
    (B) In the preceding calendar year, originated at least 100 home 
purchase loans, including refinancings of home purchase loans.
    Home-equity line of credit means an open-end credit plan secured by 
a dwelling as defined in Regulation Z (Truth in Lending), 12 CFR part 
1026.
    Home improvement loan means:
    (1) A loan secured by a lien on a dwelling that is for the purpose, 
in whole or in part, of repairing, rehabilitating, remodeling, or 
improving a dwelling or the real property on which it is located; and
    (2) A non-dwelling secured loan that is for the purpose, in whole or 
in part, of repairing, rehabilitating, remodeling, or improving a 
dwelling or the real property on which it is located, and that is 
classified by the financial institution as a home improvement loan.
    Home purchase loan means a loan secured by and made for the purpose 
of purchasing a dwelling.
    Manufactured home means any residential structure as defined under 
regulations of the Department of Housing and Urban Development 
establishing manufactured home construction and safety standards (24 CFR 
3280.2).
    Metropolitan Statistical Area or MSA and Metropolitan Division or 
MD. (1) Metropolitan Statistical Area or MSA means a metropolitan 
statistical area as defined by the U.S. Office of Management and Budget.
    (2) Metropolitan Division or MD means a metropolitan division of an 
MSA, as defined by the U.S. Office of Management and Budget.
    Refinancing means a new obligation that satisfies and replaces an 
existing obligation by the same borrower, in which:
    (1) For coverage purposes, the existing obligation is a home 
purchase loan (as determined by the lender, for example, by reference to 
available documents; or as stated by the applicant), and both the 
existing obligation and the new obligation are secured by first liens on 
dwellings; and
    (2) For reporting purposes, both the existing obligation and the new 
obligation are secured by liens on dwellings.



Sec. 1003.3  Exempt institutions.

    (a) Exemption based on state law. (1) A state-chartered or state-
licensed financial institution is exempt from the requirements of this 
part if the Bureau determines that the institution is subject to a state 
disclosure law that contains requirements substantially similar to those 
imposed by this part and that contains adequate provisions for 
enforcement.
    (2) Any state, state-chartered or state-licensed financial 
institution, or association of such institutions, may apply to the 
Bureau for an exemption under paragraph (a) of this section.
    (3) An institution that is exempt under paragraph (a) of this 
section shall use the disclosure form required by its state law and 
shall submit the data required by that law to its state supervisory 
agency for purposes of aggregation.
    (b) Loss of exemption. An institution losing a state-law exemption 
under paragraph (a) of this section shall comply with this part 
beginning with the calendar year following the year for which it last 
reported loan data under the state disclosure law.



Sec. 1003.4  Compilation of loan data.

    (a) Data format and itemization. A financial institution shall 
collect data regarding applications for, and originations and purchases 
of, home purchase loans, home improvement loans, and refinancings for 
each calendar year. An institution is required to collect data regarding 
requests under a preapproval program (as defined in Sec. 1003.2) only 
if

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the preapproval request is denied or results in the origination of a 
home purchase loan. All reportable transactions shall be recorded, 
within thirty calendar days after the end of the calendar quarter in 
which final action is taken (such as origination or purchase of a loan, 
or denial or withdrawal of an application), on a register in the format 
prescribed in appendix A of this part. The data recorded shall include 
the following items:
    (1) An identifying number for the loan or loan application, and the 
date the application was received.
    (2) The type of loan or application.
    (3) The purpose of the loan or application.
    (4) Whether the application is a request for preapproval and whether 
it resulted in a denial or in an origination.
    (5) The property type to which the loan or application relates.
    (6) The owner-occupancy status of the property to which the loan or 
application relates.
    (7) The amount of the loan or the amount applied for.
    (8) The type of action taken, and the date.
    (9) The location of the property to which the loan or application 
relates, by MSA or by Metropolitan Division, by state, by county, and by 
census tract, if the institution has a home or branch office in that MSA 
or Metropolitan Division.
    (10) The ethnicity, race, and sex of the applicant or borrower, and 
the gross annual income relied on in processing the application.
    (11) The type of entity purchasing a loan that the institution 
originates or purchases and then sells within the same calendar year 
(this information need not be included in quarterly updates).
    (12)(i) For originated loans subject to Regulation Z, 12 CFR part 
1026, the difference between the loan's annual percentage rate (APR) and 
the average prime offer rate for a comparable transaction as of the date 
the interest rate is set, if that difference is equal to or greater than 
1.5 percentage points for loans secured by a first lien on a dwelling, 
or equal to or greater than 3.5 percentage points for loans secured by a 
subordinate lien on a dwelling.
    (ii) ``Average prime offer rate'' means an annual percentage rate 
that is derived from average interest rates, points, and other loan 
pricing terms currently offered to consumers by a representative sample 
of creditors for mortgage loans that have low-risk pricing 
characteristics. The Bureau publishes average prime offer rates for a 
broad range of types of transactions in tables updated at least weekly, 
as well as the methodology the Bureau uses to derive these rates.
    (13) Whether the loan is subject to the Home Ownership and Equity 
Protection Act of 1994, as implemented in Regulation Z (12 CFR 1026.32).
    (14) The lien status of the loan or application (first lien, 
subordinate lien, or not secured by a lien on a dwelling).
    (b) Collection of data on ethnicity, race, sex, and income. (1) A 
financial institution shall collect data about the ethnicity, race, and 
sex of the applicant or borrower as prescribed in Appendix B of this 
part.
    (2) Ethnicity, race, sex, and income data may but need not be 
collected for loans purchased by the financial institution.
    (c) Optional data. A financial institution may report:
    (1) The reasons it denied a loan application;
    (2) Requests for preapproval that are approved by the institution 
but not accepted by the applicant; and
    (3) Home-equity lines of credit made in whole or in part for the 
purpose of home improvement or home purchase.
    (d) Excluded data. A financial institution shall not report:
    (1) Loans originated or purchased by the financial institution 
acting in a fiduciary capacity (such as trustee);
    (2) Loans on unimproved land;
    (3) Temporary financing (such as bridge or construction loans);
    (4) The purchase of an interest in a pool of loans (such as 
mortgage-participation certificates, mortgage-backed securities, or real 
estate mortgage investment conduits);
    (5) The purchase solely of the right to service loans; or

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    (6) Loans acquired as part of a merger or acquisition, or as part of 
the acquisition of all of the assets and liabilities of a branch office 
as defined in Sec. 1003.2.
    (e) Data reporting for banks and savings associations that are 
required to report data on small business, small farm, and community 
development lending under CRA. Banks and savings associations that are 
required to report data on small business, small farm, and community 
development lending under regulations that implement the Community 
Reinvestment Act of 1977 (12 U.S.C. 2901 et seq.) shall also collect the 
location of property located outside MSAs and Metropolitan Divisions in 
which the institution has a home or branch office, or outside any MSA.



Sec. 1003.5  Disclosure and reporting.

    (a) Reporting to agency. (1) By March 1 following the calendar year 
for which the loan data are compiled, a financial institution shall send 
its complete loan/application register to the agency office specified in 
appendix A of this part. The institution shall retain a copy for its 
records for at least three years.
    (2) A subsidiary of a bank or savings association shall complete a 
separate loan/application register. The subsidiary shall submit the 
register, directly or through its parent, to the same agency as its 
parent.
    (b) Public disclosure of statement. (1) The Federal Financial 
Institutions Examination Council (FFIEC) will prepare a disclosure 
statement from the data each financial institution submits.
    (2) An institution shall make its disclosure statement (prepared by 
the FFIEC) available to the public at the institution's home office no 
later than three business days after receiving the disclosure statement 
from the FFIEC.
    (3) In addition, an institution shall either:
    (i) Make its disclosure statement available to the public, within 
ten business days of receiving it, in at least one branch office in each 
other MSA and each other Metropolitan Division where the institution has 
offices (the disclosure statement need only contain data relating to the 
MSA or Metropolitan Division where the branch is located); or
    (ii) Post the address for sending written requests in the lobby of 
each branch office in other MSAs and Metropolitan Divisions where the 
institution has offices; and mail or deliver a copy of the disclosure 
statement within fifteen calendar days of receiving a written request 
(the disclosure statement need only contain data relating to the MSA or 
Metropolitan Division for which the request is made). Including the 
address in the general notice required under paragraph (e) of this 
section satisfies this requirement.
    (c) Public disclosure of modified loan/application register. A 
financial institution shall make its loan/application register available 
to the public after removing the following information regarding each 
entry: The application or loan number, the date that the application was 
received, and the date action was taken. An institution shall make its 
modified register available following the calendar year for which the 
data are compiled, by March 31 for a request received on or before March 
1, and within thirty calendar days for a request received after March 1. 
The modified register need only contain data relating to the MSA or 
Metropolitan Division for which the request is made.
    (d) Availability of data. A financial institution shall make its 
modified register available to the public for a period of three years 
and its disclosure statement available for a period of five years. An 
institution shall make the data available for inspection and copying 
during the hours the office is normally open to the public for business. 
It may impose a reasonable fee for any cost incurred in providing or 
reproducing the data.
    (e) Notice of availability. A financial institution shall post a 
general notice about the availability of its HMDA data in the lobby of 
its home office and of each branch office located in an MSA and 
Metropolitan Division. An institution shall provide promptly upon 
request the location of the institution's offices where the statement is 
available for inspection and copying, or it may include the location in 
the lobby notice.

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    (f) Loan aggregation and central data depositories. Using the loan 
data submitted by financial institutions, the FFIEC will produce reports 
for individual institutions and reports of aggregate data for each MSA 
and Metropolitan Division, showing lending patterns by property 
location, age of housing stock, and income level, sex, ethnicity, and 
race. These reports will be available to the public at central data 
depositories located in each MSA and Metropolitan Division. A listing of 
central data depositories can be obtained from the Federal Financial 
Institutions Examination Council, Washington, DC 20006.



Sec. 1003.6  Enforcement.

    (a) Administrative enforcement. A violation of the Act or this part 
is subject to administrative sanctions as provided in section 305 of the 
Act, including the imposition of civil money penalties, where 
applicable. Compliance is enforced by the agencies listed in section 305 
of the Act (12 U.S.C. 2804).
    (b) Bona fide errors. (1) An error in compiling or recording loan 
data is not a violation of the act or this part if the error was 
unintentional and occurred despite the maintenance of procedures 
reasonably adapted to avoid such errors.
    (2) An incorrect entry for a census tract number is deemed a bona 
fide error, and is not a violation of the act or this part, provided 
that the institution maintains procedures reasonably adapted to avoid 
such errors.
    (3) If an institution makes a good-faith effort to record all data 
concerning covered transactions fully and accurately within thirty 
calendar days after the end of each calendar quarter, and some data are 
nevertheless inaccurate or incomplete, the error or omission is not a 
violation of the act or this part provided that the institution corrects 
or completes the information prior to submitting the loan/application 
register to its regulatory agency.



 Sec. Appendix A to Part 1003--Form and Instructions for Completion of 
                     HMDA Loan/Application Register

                     Paperwork Reduction Act Notice

    This report is required by law (12 U.S.C. 2801-2810 and 12 CFR 
1003). An agency may not conduct or sponsor, and an organization is not 
required to respond to, a collection of information unless it displays a 
valid Office of Management and Budget (OMB) Control Number. See 12 CFR 
1003.1(a) for the valid OMB Control Numbers applicable to this 
information collection. Send comments regarding this burden estimate or 
any other aspect of this collection of information, including 
suggestions for reducing the burden, to the respective agencies and to 
OMB, Office of Information and Regulatory Affairs, Paperwork Reduction 
Project, Washington, DC 20503. Be sure to reference the applicable 
agency and the OMB Control Number, as found in 12 CFR 1003.1(a), when 
submitting comments to OMB.

       I. Instructions for Completion of Loan/Application Register

                   A. Application or Loan Information

    1. Application or Loan Number. Enter an identifying loan number that 
can be used later to retrieve the loan or application file. It can be 
any number of your institution's choosing (not exceeding 25 characters). 
You may use letters, numerals, or a combination of both.
    2. Date Application Received. Enter the date the loan application 
was received by your institution by month, day, and year. If your 
institution normally records the date shown on the application form you 
may use that date instead. Enter ``NA'' for loans purchased by your 
institution. For paper submissions only, use numerals in the form MM/DD/
YYYY (for example, 01/15/2003). For submissions in electronic form, the 
proper format is YYYYMMDD.
    3. Type of Loan or Application. Indicate the type of loan or 
application by entering the applicable Code from the following:

Code 1--Conventional (any loan other than FHA, VA, FSA, or RHS loans)
Code 2--FHA-insured (Federal Housing Administration)
Code 3--VA-guaranteed (Veterans Administration)
Code 4--FSA/RHS-guaranteed (Farm Service Agency or Rural Housing 
Service)

    4. Property Type. Indicate the property type by entering the 
applicable Code from the following:

Code 1--One-to four-family dwelling (other than manufactured housing)
Code 2--Manufactured housing

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Code 3--Multifamily dwelling

    a. Use Code 1, not Code 3, for loans on individual condominium or 
cooperative units.
    b. If you cannot determine (despite reasonable efforts to find out) 
whether the loan or application relates to a manufactured home, use Code 
1.
    5. Purpose of Loan or Application. Indicate the purpose of the loan 
or application by entering the applicable Code from the following:

Code 1--Home purchase
Code 2--Home improvement
Code 3--Refinancing

    a. Do not report a refinancing if, under the loan agreement, you 
were unconditionally obligated to refinance the obligation, or you were 
obligated to refinance the obligation subject to conditions within the 
borrower's control.
    6. Owner Occupancy. Indicate whether the property to which the loan 
or loan application relates is to be owner-occupied as a principal 
residence by entering the applicable Code from the following:

Code 1--Owner-occupied as a principal dwelling
Code 2--Not owner-occupied as a principal dwelling
Code 3--Not applicable

    a. For purchased loans, use Code 1 unless the loan documents or 
application indicate that the property will not be owner-occupied as a 
principal residence.
    b. Use Code 2 for second homes or vacation homes, as well as for 
rental properties.
    c. Use Code 3 if the property to which the loan relates is a 
multifamily dwelling; is not located in an MSA; or is located in an MSA 
or an MD in which your institution has neither a home nor a branch 
office. Alternatively, at your institution's option, you may report the 
actual occupancy status, using Code 1 or 2 as applicable.
    7. Loan Amount. Enter the amount of the loan or application. Do not 
report loans below $500. Show the amount in thousands, rounding to the 
nearest thousand (round $500 up to the next $1,000). For example, a loan 
for $167,300 should be entered as 167 and one for $15,500 as 16.
    a. For a home purchase loan that you originated, enter the principal 
amount of the loan.
    b. For a home purchase loan that you purchased, enter the unpaid 
principal balance of the loan at the time of purchase.
    c. For a home improvement loan, enter the entire amount of the 
loan--including unpaid finance charges if that is how such loans are 
recorded on your books--even if only a part of the proceeds is intended 
for home improvement.
    d. If you opt to report home-equity lines of credit, report only the 
portion of the line intended for home improvement or home purchase.
    e. For a refinancing, indicate the total amount of the refinancing, 
including both the amount outstanding on the original loan and any 
amount of ``new money.''
    f. For a loan application that was denied or withdrawn, enter the 
amount for which the applicant applied.
    8. Request for Preapproval of a Home Purchase Loan. Indicate whether 
the application or loan involved a request for preapproval of a home 
purchase loan by entering the applicable Code from the following:

Code 1--Preapproval requested
Code 2--Preapproval not requested
Code 3--Not applicable

    a. Enter Code 2 if your institution has a covered preapproval 
program but the applicant does not request a preapproval.
    b. Enter Code 3 if your institution does not have a preapproval 
program as defined in Sec. 1003.2.
    c. Enter Code 3 for applications or loans for home improvement or 
refinancing, and for purchased loans.

                             B. Action Taken

    1. Type of Action. Indicate the type of action taken on the 
application or loan by using one of the following Codes.

Code 1--Loan originated
Code 2--Application approved but not accepted
Code 3--Application denied
Code 4--Application withdrawn
Code 5--File closed for incompleteness
Code 6--Loan purchased by your institution
Code 7--Preapproval request denied
Code 8--Preapproval request approved but not accepted (optional 
reporting)

    a. Use Code 1 for a loan that is originated, including one resulting 
from a request for preapproval.
    b. For a counteroffer (your offer to the applicant to make the loan 
on different terms or in a different amount from the terms or amount 
applied for), use Code 1 if the applicant accepts. Use Code 3 if the 
applicant turns down the counteroffer or does not respond.
    c. Use Code 2 when the application is approved but the applicant (or 
the loan broker or correspondent) fails to respond to your notification 
of approval or your commitment letter within the specified time. Do not 
use this Code for a preapproval request.
    d. Use Code 4 only when the application is expressly withdrawn by 
the applicant before a credit decision is made. Do not use Code 4 if a 
request for preapproval is withdrawn; preapproval requests that are 
withdrawn are not reported under HMDA.
    e. Use Code 5 if you sent a written notice of incompleteness under 
Sec. 1002.9(c)(2) of Regulation B (Equal Credit Opportunity) and the

[[Page 149]]

applicant did not respond to your request for additional information 
within the period of time specified in your notice. Do not use this Code 
for requests for preapproval that are incomplete; these preapproval 
requests are not reported under HMDA.
    2. Date of Action. For paper submissions only, enter the date by 
month, day, and year, using numerals in the form MM/DD/YYYY (for 
example, 02/22/2003). For submissions in electronic form, the proper 
format is YYYYMMDD.
    a. For loans originated, enter the settlement or closing date.
    b. For loans purchased, enter the date of purchase by your 
institution.
    c. For applications and preapprovals denied, applications and 
preapprovals approved but not accepted by the applicant, and files 
closed for incompleteness, enter the date that the action was taken by 
your institution or the date the notice was sent to the applicant.
    d. For applications withdrawn, enter the date you received the 
applicant's express withdrawal, or enter the date shown on the 
notification from the applicant, in the case of a written withdrawal.
    e. For preapprovals that lead to a loan origination, enter the date 
of the origination.

                          C. Property Location

    Except as otherwise provided, enter in these columns the applicable 
Codes for the MSA, or the MD if the MSA is divided into MDs, state, 
county, and census tract to indicate the location of the property to 
which a loan relates.
    1. MSA or Metropolitan Division.--For each loan or loan application, 
enter the MSA, or the MD number if the MSA is divided into MDs. MSA and 
MD boundaries are defined by OMB; use the boundaries that were in effect 
on January 1 of the calendar year for which you are reporting. A listing 
of MSAs and MDs is available from the appropriate Federal agency to 
which you report data or the FFIEC.
    2. State and County. Use the Federal Information Processing Standard 
(FIPS) two-digit numerical code for the state and the three-digit 
numerical code for the county. These codes are available from the 
appropriate Federal agency to which you report data or the FFIEC.
    3. Census Tract.--Indicate the census tract where the property is 
located. Notwithstanding paragraph 6, if the property is located in a 
county with a population of 30,000 or less in the 2000 Census, enter 
``NA'' (even if the population has increased above 30,000 since 2000), 
or enter the census tract number. County population data can be obtained 
from the U.S. Census Bureau.
    4. Census Tract Number.--For the census tract number, consult the 
resources provided by the U.S. Census Bureau or the FFIEC.
    5. Property Located Outside MSAs or Metropolitan Divisions.--For 
loans on property located outside the MSAs and MDs in which an 
institution has a home or branch office, or for property located outside 
of any MSA or MD, the institution may choose one of the following two 
options. Under option one, the institution may enter the MSA or MD, 
state and county codes and the census tract number; and if the property 
is not located in any MSA or MD, the institution may enter ``NA'' in the 
MSA or MD column. (Codes exist for all states and counties and numbers 
exist for all census tracts.) Under this first option, the codes and 
census tract number must accurately identify the property location. 
Under the second option, which is not available if paragraph 6 applies, 
an institution may enter ``NA'' in all four columns, whether or not the 
codes or numbers exist for the property location.
    6. Data Reporting for Banks and Savings Associations Required To 
Report Data on Small Business, Small Farm, and Community Development 
Lending Under the CRA Regulations.--If your institution is a bank or 
savings association that is required to report data under the 
regulations that implement the CRA, you must enter the property location 
on your HMDA/LAR even if the property is outside the MSAs or MDs in 
which you have a home or branch office, or is not located in any MSA.
    7. Requests for Preapproval. Notwithstanding paragraphs 1 through 6, 
if the application is a request for preapproval that is denied or that 
is approved but not accepted by the applicant, you may enter ``NA'' in 
all four columns.

       D. Applicant Information--Ethnicity, Race, Sex, and Income

    Appendix B contains instructions for the collection of data on 
ethnicity, race, and sex, and also contains a sample form for data 
collection.
    1. Applicability. Report this information for loans that you 
originate as well as for applications that do not result in an 
origination.
    a. You need not collect or report this information for loans 
purchased. If you choose not to report this information, use the Codes 
for ``not applicable.''
    b. If the borrower or applicant is not a natural person (a 
corporation or partnership, for example), use the Codes for ``not 
applicable.''
    2. Mail, Internet, or Telephone Applications.--All loan 
applications, including applications taken by mail, internet, or 
telephone must use a collection form similar to that shown in Appendix B 
regarding ethnicity, race, and sex. For applications taken

[[Page 150]]

by telephone, the information in the collection form must be stated 
orally by the lender, except for information that pertains uniquely to 
applications taken in writing. If the applicant does not provide these 
data in an application taken by mail or telephone or on the internet, 
enter the Code for ``information not provided by applicant in mail, 
internet, or telephone application'' specified in paragraphs I.D.3., 4., 
and 5. of this appendix. (See Appendix B for complete information on the 
collection of these data in mail, Internet, or telephone applications.)
    3. Ethnicity of Borrower or Applicant. Use the following Codes to 
indicate the ethnicity of the applicant or borrower under column ``A'' 
and of any co-applicant or co-borrower under column ``CA.''

Code 1--Hispanic or Latino
Code 2--Not Hispanic or Latino
Code 3--Information not provided by applicant in mail, internet, or 
telephone application
Code 4--Not applicable
Code 5--No co-applicant

    4. Race of Borrower or Applicant. Use the following Codes to 
indicate the race of the applicant or borrower under column ``A'' and of 
any co-applicant or co-borrower under column ``CA.''

Code 1--American Indian or Alaska Native
Code 2--Asian
Code 3--Black or African American
Code 4--Native Hawaiian or Other Pacific Islander
Code 5--White
Code 6--Information not provided by applicant in mail, internet, or 
telephone application
Code 7--Not applicable
Code 8--No co-applicant

    a. If an applicant selects more than one racial designation, enter 
all Codes corresponding to the applicant's selections.
    b. Use Code 4 (for ethnicity) and Code 7 (for race) for ``not 
applicable'' only when the applicant or co-applicant is not a natural 
person or when applicant or co-applicant information is unavailable 
because the loan has been purchased by your institution.
    c. If there is more than one co-applicant, provide the required 
information only for the first co-applicant listed on the application 
form. If there are no co-applicants or co-borrowers, use Code 5 (for 
ethnicity) and Code 8 (for race) for ``no co-applicant'' in the co-
applicant column.
    5. Sex of Borrower or Applicant. Use the following Codes to indicate 
the sex of the applicant or borrower under column ``A'' and of any co-
applicant or co-borrower under column ``CA.''

Code 1--Male
Code 2--Female
Code 3--Information not provided by applicant in mail, internet, or 
telephone application
Code 4--Not applicable
Code 5--No co-applicant or co-borrower

    a. Use Code 4 for ``not applicable'' only when the applicant or co-
applicant is not a natural person or when applicant or co-applicant 
information is unavailable because the loan has been purchased by your 
institution.
    b. If there is more than one co-applicant, provide the required 
information only for the first co-applicant listed on the application 
form. If there are no co-applicants or co-borrowers, use Code 5 for ``no 
co-applicant'' in the co-applicant column.
    6. Income. Enter the gross annual income that your institution 
relied on in making the credit decision.
    a. Round all dollar amounts to the nearest thousand (round $500 up 
to the next $1,000), and show in thousands. For example, report $35,500 
as 36.
    b. For loans on multifamily dwellings, enter ``NA.''
    c. If no income information is asked for or relied on in the credit 
decision, enter ``NA.''
    d. If the applicant or co-applicant is not a natural person or the 
applicant or co-applicant information is unavailable because the loan 
has been purchased by your institution, enter ``NA.''

                          E. Type of Purchaser

    Enter the applicable Code to indicate whether a loan that your 
institution originated or purchased was then sold to a secondary market 
entity within the same calendar year:

Code 0--Loan was not originated or was not sold in calendar year covered 
by register
Code 1--Fannie Mae
Code 2--Ginnie Mae
Code 3--Freddie Mac
Code 4--Farmer Mac
Code 5--Private securitization
Code 6--Commercial bank, savings bank, or savings association
Code 7--Life insurance company, credit union, mortgage bank, or finance 
company
Code 8--Affiliate institution
Code 9--Other type of purchaser

    a. Use Code 0 for applications that were denied, withdrawn, or 
approved but not accepted by the applicant; and for files closed for 
incompleteness.
    b. Use Code 0 if you originated or purchased a loan and did not sell 
it during that same calendar year. If you sell the loan in a succeeding 
year, you need not report the sale.
    c. Use Code 2 if you conditionally assign a loan to Ginnie Mae in 
connection with a mortgage-backed security transaction.

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    d. Use Code 8 for loans sold to an institution affiliated with you, 
such as your subsidiary or a subsidiary of your parent corporation.

                          F. Reasons for Denial

    1. You may report the reason for denial, and you may indicate up to 
three reasons, using the following Codes. Leave this column blank if the 
``action taken'' on the application is not a denial. For example, do not 
complete this column if the application was withdrawn or the file was 
closed for incompleteness.

Code 1--Debt-to-income ratio
Code 2--Employment history
Code 3--Credit history
Code 4--Collateral
Code 5--Insufficient cash (downpayment, closing costs)
Code 6--Unverifiable information
Code 7--Credit application incomplete
Code 8--Mortgage insurance denied
Code 9--Other

    2. If your institution uses the model form for adverse action 
contained in Appendix C to Regulation B (Form C-1, Sample Notification 
Form), use the foregoing Codes as follows:
    a. Code 1 for: Income insufficient for amount of credit requested, 
and Excessive obligations in relation to income.
    b. Code 2 for: Temporary or irregular employment, and Length of 
employment.
    c. Code 3 for: Insufficient number of credit references provided; 
Unacceptable type of credit references provided; No credit file; Limited 
credit experience; Poor credit performance with us; Delinquent past or 
present credit obligations with others; Garnishment, attachment, 
foreclosure, repossession, collection action, or judgment; and 
Bankruptcy.
    d. Code 4 for: Value or type of collateral not sufficient.
    e. Code 6 for: Unable to verify credit references; Unable to verify 
employment; Unable to verify income; and Unable to verify residence.
    f. Code 7 for: Credit application incomplete.
    g. Code 9 for: Length of residence; Temporary residence; and Other 
reasons specified on notice.

                         G. Pricing-Related Data

    1. Rate Spread. a. For a home-purchase loan, a refinancing, or a 
dwelling-secured home improvement loan that you originated, report the 
spread between the annual percentage rate (APR) and the average prime 
offer rate for a comparable transaction if the spread is equal to or 
greater than 1.5 percentage points for first-lien loans or 3.5 
percentage points for subordinate-lien loans. To determine whether the 
rate spread meets this threshold, use the average prime offer rate in 
effect for the type of transaction as of the date the interest rate was 
set, and use the APR for the loan, as calculated and disclosed to the 
consumer under Sec. Sec. 1026.6 or 1026.18, as applicable, of 
Regulation Z (12 CFR part 1026). Current and historic average prime 
offer rates are set forth in the tables published on the FFIEC's Web 
site (http://www.ffiec.gov/hmda) entitled ``Average Prime Offer Rates-
Fixed'' and ``Average Prime Offer Rates-Adjustable.'' Use the most 
recently available average prime offer rate. ``Most recently available'' 
means the average prime offer rate set forth in the applicable table 
with the most recent effective date as of the date the interest rate was 
set. Do not use an average prime offer rate before its effective date.
    b. If the loan is not subject to Regulation Z, or is a home 
improvement loan that is not dwelling-secured, or is a loan that you 
purchased, enter ``NA.''
    c. Enter ``NA'' in the case of an application that does not result 
in a loan origination.
    d. Enter the rate spread to two decimal places, and use a leading 
zero. For example, enter 03.29. If the difference between the APR and 
the average prime offer rate is a figure with more than two decimal 
places, round the figure or truncate the digits beyond two decimal 
places.
    e. If the difference between the APR and the average prime offer 
rate is less than 1.5 percentage points for a first-lien loan and less 
than 3.5 percentage points for a subordinate-lien loan, enter ``NA.''
    2. Date the interest rate was set. The relevant date to use to 
determine the average prime offer rate for a comparable transaction is 
the date on which the loan's interest rate was set by the financial 
institution for the final time before closing. If an interest rate is 
set pursuant to a ``lock-in'' agreement between the lender and the 
borrower, then the date on which the agreement fixes the interest rate 
is the date the rate was set. If a rate is re-set after a lock-in 
agreement is executed (for example, because the borrower exercises a 
float-down option or the agreement expires), then the relevant date is 
the date the rate is re-set for the final time before closing. If no 
lock-in agreement is executed, then the relevant date is the date on 
which the institution sets the rate for the final time before closing.
    3. HOEPA Status. a. For a loan that you originated or purchased that 
is subject to the Home Ownership and Equity Protection Act of 1994 
(HOEPA), as implemented in Regulation Z (12 CFR 1026.32), because the 
APR or the points and fees on the loan exceed the HOEPA triggers, enter 
Code 1.
    b. Enter Code 2 in all other cases. For example, enter Code 2 for a 
loan that you originated or purchased that is not subject to the 
requirements of HOEPA for any reason; also

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enter Code 2 in the case of an application that does not result in a 
loan origination.

                             H. Lien Status

    Use the following Codes for loans that you originate and for 
applications that do not result in an origination:

Code 1--Secured by a first lien.
Code 2--Secured by a subordinate lien.
Code 3--Not secured by a lien.
Code 4--Not applicable (purchased loan).

    a. Use Codes 1 through 3 for loans that you originate, as well as 
for applications that do not result in an origination (applications that 
are approved but not accepted, denied, withdrawn, or closed for 
incompleteness).
    b. Use Code 4 for loans that you purchase.

           II. Appropriate Federal Agencies for HMDA Reporting

    A. You are strongly encouraged to submit your loan/application 
register via email. If you elect to use this method of transmission and 
the appropriate Federal agency for your institution is the Bureau of 
Consumer Financial Protection, the Office of the Comptroller of the 
Currency, the Federal Deposit Insurance Corporation, or the National 
Credit Union Administration, then you should submit your institution's 
files to the email address dedicated to that purpose by the Bureau, 
which can be found on the Web site of the FFIEC. If one of the foregoing 
agencies is the appropriate Federal agency for your institution and you 
elect to submit your data by regular mail, then use the following 
address: HMDA, Federal Reserve Board, Attention: HMDA Processing, 
(insert name of the appropriate Federal agency for your institution), 
20th & Constitution Ave NW., MS N502, Washington, DC 20551-0001.
    B. If the Federal Reserve System (but not the Bureau of Consumer 
Financial Protection) is the appropriate Federal agency for your 
institution, you should use the email or regular mail address of your 
district bank indicated on the Web site of the FFIEC. If the Department 
of Housing and Urban Development is the appropriate Federal agency for 
your institution, then you should use the email or regular mail address 
indicated on the Web site of the FFIEC.


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Sec. Appendix B to Part 1003--Form and Instructions for Data Collection 
                       on Ethnicity, Race, and Sex

    I. Instructions on Collection of Data on Ethnicity, Race, and Sex

    You may list questions regarding the ethnicity, race, and sex of the 
applicant on your loan application form, or on a separate form that 
refers to the application. (See the sample form below for model 
language.)

                             II. Procedures

    A. You must ask the applicant for this information (but you cannot 
require the applicant to provide it) whether the application is taken in 
person, by mail or telephone, or on the internet. For applications taken 
by telephone, the information in the collection form must be stated 
orally by the lender, except for that information which pertains 
uniquely to applications taken in writing.
    B. Inform the applicant that the Federal government requests this 
information in order to monitor compliance with Federal statutes that 
prohibit lenders from discriminating against applicants on these bases. 
Inform the applicant that if the information is not provided where the 
application is taken in person, you are required to note the data on the 
basis of visual observation or surname.
    C. You must offer the applicant the option of selecting one or more 
racial designations.
    D. If the applicant chooses not to provide the information for an 
application taken in person, note this fact on the form and then note 
the applicant's ethnicity, race, and sex on the basis of visual 
observation and surname, to the extent possible.
    E. If the applicant declines to answer these questions or fails to 
provide the information on an application taken by mail or telephone or 
on the internet, the data need not be provided. In such a case, indicate 
that the application was received by mail, telephone, or Internet, if it 
is not otherwise evident on the face of the application.

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            Sec. Supplement I to Part 1003--Staff Commentary

                              Introduction

    1. Status. The commentary in this supplement is the vehicle by which 
the Bureau of Consumer Financial Protection issues formal staff 
interpretations of Regulation C (12 CFR part 1003).

              Section 1003.1--Authority, Purpose, and Scope

    1(c) Scope.
    1. General. The comments in this section address issues affecting 
coverage of institutions and exemptions from coverage.
    2. The broker rule and the meaning of ``broker'' and ``investor.'' 
For the purposes of the guidance given in this commentary, an 
institution that takes and processes a loan application and arranges for 
another institution to acquire the loan at or after closing is

[[Page 158]]

acting as a ``broker,'' and an institution that acquires a loan from a 
broker at or after closing is acting as an ``investor.'' (The terms used 
in this commentary may have different meanings in certain parts of the 
mortgage lending industry, and other terms may be used in place of these 
terms, for example in the Federal Housing Administration mortgage 
insurance programs.) Depending on the facts, a broker may or may not 
make a credit decision on an application (and thus it may or may not 
have reporting responsibilities). If the broker makes a credit decision, 
it reports that decision; if it does not make a credit decision, it does 
not report. If an investor reviews an application and makes a credit 
decision prior to closing, the investor reports that decision. If the 
investor does not review the application prior to closing, it reports 
only the loans that it purchases; it does not report the loans it does 
not purchase. An institution that makes a credit decision on an 
application prior to closing reports that decision regardless of whose 
name the loan closes in.
    3. Illustrations of the broker rule. Assume that, prior to closing, 
four investors receive the same application from a broker; two deny it, 
one approves it, and one approves it and acquires the loan. In these 
circumstances, the first two report denials, the third reports the 
transaction as approved but not accepted, and the fourth reports an 
origination (whether the loan closes in the name of the broker or the 
investor). Alternatively, assume that the broker denies a loan before 
sending it to an investor; in this situation, the broker reports a 
denial.
    4. Broker's use of investor's underwriting criteria. If a broker 
makes a credit decision based on underwriting criteria set by an 
investor, but without the investor's review prior to closing, the broker 
has made the credit decision. The broker reports as an origination a 
loan that it approves and closes, and reports as a denial an application 
that it turns down (either because the application does not meet the 
investor's underwriting guidelines or for some other reason). The 
investor reports as purchases only those loans it purchases.
    5. Insurance and other criteria. If an institution evaluates an 
application based on the criteria or actions of a third party other than 
an investor (such as a government or private insurer or guarantor), the 
institution must report the action taken on the application (loan 
originated, approved but not accepted, or denied, for example).
    6. Credit decision of agent is decision of principal. If an 
institution approves loans through the actions of an agent, the 
institution must report the action taken on the application (loan 
originated, approved but not accepted, or denied, for example). State 
law determines whether one party is the agent of another.
    7. Affiliate bank underwriting (250.250 review). If an institution 
makes an independent evaluation of the creditworthiness of an applicant 
(for example, as part of a preclosing review by an affiliate bank under 
12 CFR 250.250, a regulation of the Board of Governors of the Federal 
Reserve System that interprets section 23A of the Federal Reserve Act), 
the institution is making a credit decision. If the institution then 
acquires the loan, it reports the loan as an origination whether the 
loan closes in the name of the institution or its affiliate. An 
institution that does not acquire the loan but takes some other action 
reports that action.
    8. Participation loan. An institution that originates a loan and 
then sells partial interests to other institutions reports the loan as 
an origination. An institution that acquires only a partial interest in 
such a loan does not report the transaction even if it has participated 
in the underwriting and origination of the loan.
    9. Assumptions. An assumption occurs when an institution enters into 
a written agreement accepting a new borrower as the obligor on an 
existing obligation. An institution reports an assumption (or an 
application for an assumption) as a home purchase loan in the amount of 
the outstanding principal. If a transaction does not involve a written 
agreement between a new borrower and the institution, it is not an 
assumption for HMDA purposes and is not reported.

                       Section 1003.2--Definitions

    Application.
    1. Consistency With Regulation B. Bureau interpretations that appear 
in the official staff commentary to Regulation B (Equal Credit 
Opportunity, 12 CFR part 1002, Supplement I) are generally applicable to 
the definition of an application under Regulation C. However, under 
Regulation C the definition of an application does not include 
prequalification requests.
    2. Prequalification. A prequalification request is a request by a 
prospective loan applicant (other than a request for preapproval) for a 
preliminary determination on whether the prospective applicant would 
likely qualify for credit under an institution's standards, or for a 
determination on the amount of credit for which the prospective 
applicant would likely qualify. Some institutions evaluate 
prequalification requests through a procedure that is separate from the 
institution's normal loan application process; others use the same 
process. In either case, Regulation C does not require an institution to 
report prequalification requests on the HMDA/LAR, even though these 
requests may constitute applications under Regulation B for purposes of 
adverse action notices.

[[Page 159]]

    3. Requests for preapproval. To be a covered preapproval program, 
the written commitment issued under the program must result from a full 
review of the creditworthiness of the applicant, including such 
verification of income, resources and other matters as is typically done 
by the institution as part of its normal credit evaluation program. In 
addition to conditions involving the identification of a suitable 
property and verification that no material change has occurred in the 
applicant's financial condition or creditworthiness, the written 
commitment may be subject only to other conditions (unrelated to the 
financial condition or creditworthiness of the applicant) that the 
lender ordinarily attaches to a traditional home mortgage application 
approval. These conditions are limited to conditions such as requiring 
an acceptable title insurance binder or a certificate indicating clear 
termite inspection, and, in the case where the applicant plans to use 
the proceeds from the sale of the applicant's present home to purchase a 
new home, a settlement statement showing adequate proceeds from the sale 
of the present home.
    Branch office.
    1. Credit union. For purposes of Regulation C, a ``branch'' of a 
credit union is any office where member accounts are established or 
loans are made, whether or not the office has been approved as a branch 
by a Federal or state agency. (See 12 U.S.C. 1752.)
    2. Depository institution. A branch of a depository institution does 
not include a loan-production office, the office of an affiliate, or the 
office of a third party such as a loan broker. (But see Appendix A, 
paragraph I.C.6, which requires certain depository institutions to 
report property location even for properties located outside those MSAs 
or Metropolitan Divisions in which the institution has a home or branch 
office.)
    3. Nondepository institution. For a nondepository institution, 
``branch office'' does not include the office of an affiliate or other 
third party such as a loan broker. (But note that certain nondepository 
institutions must report property location even in MSAs or Metropolitan 
Divisions where they do not have a physical location.)
    Dwelling.
    1. Coverage. The definition of ``dwelling'' is not limited to the 
principal or other residence of the applicant or borrower, and thus 
includes vacation or second homes and rental properties. A dwelling also 
includes a multifamily structure such as an apartment building.
    2. Exclusions. Recreational vehicles such as boats or campers are 
not dwellings for purposes of HMDA. Also excluded are transitory 
residences such as hotels, hospitals, and college dormitories, whose 
occupants have principal residences elsewhere.
    Financial institution.
    1. General. An institution that met the test for coverage under HMDA 
in year 1, and then ceases to meet the test (for example, because its 
assets fall below the threshold on December 31 of year 2) stops 
collecting HMDA data beginning with year 3. Similarly, an institution 
that did not meet the coverage test for a given year, and then meets the 
test in the succeeding year, begins collecting HMDA data in the calendar 
year following the year in which it meets the test for coverage. For 
example, a for-profit mortgage lending institution (other than a bank, 
savings association, or credit union) that, in year 1, falls below the 
thresholds specified in the definition of Financial institution in Sec. 
1003.2, but meets one of them in year 2, need not collect data in year 
2, but begins collecting data in year 3.
    2. Adjustment of exemption threshold for depository institutions. 
For data collection in 2011, the asset-size exemption threshold is $40 
million. Depository institutions with assets at or below $40 million as 
of December 31, 2010 are exempt from collecting data for 2011.
    3. Coverage after a merger. Several scenarios of data-collection 
responsibilities for the calendar year of a merger are described below. 
Under all the scenarios, if the merger results in a covered institution, 
that institution must begin data collection January 1 of the following 
calendar year.
    i. Two institutions are not covered by Regulation C because of asset 
size. The institutions merge. No data collection is required for the 
year of the merger (even if the merger results in a covered 
institution).
    ii. A covered institution and an exempt institution merge. The 
covered institution is the surviving institution. For the year of the 
merger, data collection is required for the covered institution's 
transactions. Data collection is optional for transactions handled in 
offices of the previously exempt institution.
    iii. A covered institution and an exempt institution merge. The 
exempt institution is the surviving institution, or a new institution is 
formed. Data collection is required for transactions of the covered 
institution that take place prior to the merger. Data collection is 
optional for transactions taking place after the merger date.
    iv. Two covered institutions merge. Data collection is required for 
the entire year. The surviving or resulting institution files either a 
consolidated submission or separate submissions for that year.
    4. Originations. HMDA coverage depends in part on whether an 
institution has originated home purchase loans. To determine whether 
activities with respect to a particular loan constitute an origination, 
institutions should consult, among other parts of the staff commentary, 
the discussion of the broker rule under Sec. Sec. 1003.1(c) and 
1003.4(a).

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    5. Branches of foreign banks--treated as banks. A Federal branch or 
a state-licensed insured branch of a foreign bank is a ``bank'' under 
section 3(a)(1) of the Federal Deposit Insurance Act (12 U.S.C. 
1813(a)), and is covered by HMDA if it meets the tests for a depository 
institution found in Sec. 1003.2 of Regulation C.
    6. Branches and offices of foreign banks--treated as for-profit 
mortgage lending institutions. Federal agencies, state-licensed 
agencies, state-licensed uninsured branches of foreign banks, commercial 
lending companies owned or controlled by foreign banks, and entities 
operating under section 25 or 25A of the Federal Reserve Act, 12 U.S.C. 
601 and 611 (Edge Act and agreement corporations) are not ``banks'' 
under the Federal Deposit Insurance Act. These entities are nonetheless 
covered by HMDA if they meet the tests for a for-profit nondepository 
mortgage lending institution found in Sec. 1003.2 of Regulation C.
    Home improvement loan.
    1. Classification requirement for loans not secured by a lien on a 
dwelling. An institution has ``classified'' a loan that is not secured 
by a lien on a dwelling as a home improvement loan if it has entered the 
loan on its books as a home improvement loan, or has otherwise coded or 
identified the loan as a home improvement loan. For example, an 
institution that has booked a loan or reported it on a ``call report'' 
as a home improvement loan has classified it as a home improvement loan. 
An institution may also classify loans as home improvement loans in 
other ways (for example, by color-coding loan files).
    2. Improvements to real property. Home improvements include 
improvements both to a dwelling and to the real property on which the 
dwelling is located (for example, installation of a swimming pool, 
construction of a garage, or landscaping).
    3. Commercial and other loans. A home improvement loan may include a 
loan originated outside an institution's residential mortgage lending 
division (such as a loan to improve an apartment building made through 
the commercial loan department).
    4. Mixed-use property. A loan to improve property used for 
residential and commercial purposes (for example, a building containing 
apartment units and retail space) is a home improvement loan if the loan 
proceeds are used primarily to improve the residential portion of the 
property. If the loan proceeds are used to improve the entire property 
(for example, to replace the heating system), the loan is a home 
improvement loan if the property itself is primarily residential. An 
institution may use any reasonable standard to determine the primary use 
of the property, such as by square footage or by the income generated. 
An institution may select the standard to apply on a case-by-case basis. 
If the loan is unsecured, to report the loan as a home improvement loan 
the institution must also have classified it as such.
    5. Multiple-category loans. If a loan is a home improvement loan as 
well as a refinancing, an institution reports the loan as a home 
improvement loan.
    Home purchase loan.
    1. Multiple properties. A home purchase loan includes a loan secured 
by one dwelling and used to purchase another dwelling.
    2. Mixed-use property. A dwelling-secured loan to purchase property 
used primarily for residential purposes (for example, an apartment 
building containing a convenience store) is a home purchase loan. An 
institution may use any reasonable standard to determine the primary use 
of the property, such as by square footage or by the income generated. 
An institution may select the standard to apply on a case-by-case basis.
    3. Farm loan. A loan to purchase property used primarily for 
agricultural purposes is not a home purchase loan even if the property 
includes a dwelling. An institution may use any reasonable standard to 
determine the primary use of the property, such as by reference to the 
exemption from Regulation X (Real Estate Settlement Procedures, 12 CFR 
1024.5(b)(1)) for a loan on property of 25 acres or more. An institution 
may select the standard to apply on a case-by-case basis.
    4. Commercial and other loans. A home purchase loan may include a 
loan originated outside an institution's residential mortgage lending 
division (such as a loan for the purchase of an apartment building made 
through the commercial loan department).
    5. Construction and permanent financing. A home purchase loan 
includes both a combined construction/permanent loan and the permanent 
financing that replaces a construction-only loan. It does not include a 
construction-only loan, which is considered ``temporary financing'' 
under Regulation C and is not reported.
    6. Second mortgages that finance the downpayments on first 
mortgages. If an institution making a first mortgage loan to a home 
purchaser also makes a second mortgage loan to the same purchaser to 
finance part or all of the home purchaser's downpayment, the institution 
reports each loan separately as a home purchase loan.
    7. Multiple-category loans. If a loan is a home purchase loan as 
well as a home improvement loan, or a refinancing, an institution 
reports the loan as a home purchase loan.
    Manufactured home.
    1. Definition of a manufactured home. The definition in Sec. 1003.2 
refers to the Federal building code for factory-built housing 
established by the Department of Housing and Urban Development (HUD). 
The HUD code requires generally that housing be essentially ready for 
occupancy upon leaving the

[[Page 161]]

factory and being transported to a building site. Modular homes that 
meet all of the HUD code standards are included in the definition 
because they are ready for occupancy upon leaving the factory. Other 
factory-built homes, such as panelized and pre-cut homes, generally do 
not meet the HUD code because they require a significant amount of 
construction on site before they are ready for occupancy. Loans and 
applications relating to manufactured homes that do not meet the HUD 
code should not be identified as manufactured housing under HMDA.
    Metropolitan Statistical Areas and Metropolitan Divisions.
    1. Use of terms ``Metropolitan Statistical Area'' and ``Metropolitan 
Division.'' The U.S. Office of Management and Budget defines 
Metropolitan Statistical Areas and Metropolitan Divisions to provide 
nationally consistent definitions for collecting, tabulating, and 
publishing Federal statistics for a set of geographic areas. OMB divides 
every Metropolitan Statistical Area (MSA) with a population of 2.5 
million or more into Metropolitan Divisions (MDs); MSAs with populations 
under 2.5 million population are not so divided. 67 FR 82228 (December 
27, 2000). For all purposes under Regulation C, if an MSA is divided by 
OMB into MDs, the appropriate geographic unit to be used is the MD; if 
an MSA is not so divided by OMB into MDs, the appropriate geographic 
unit to be used is the MSA.

                Section 1003.4--Compilation of Loan Data

    4(a) Data format and itemization.
    1. Reporting requirements. i. An institution reports data on loans 
that it originated and loans that it purchased during the calendar year 
described in the report. An institution reports these data even if the 
loans were subsequently sold by the institution.
    ii. An institution reports the data for loan applications that did 
not result in originations--for example, applications that the 
institution denied or that the applicant withdrew during the calendar 
year covered by the report.
    iii. In the case of brokered loan applications or applications 
forwarded through a correspondent, the institution reports as 
originations the loans that it approved and subsequently acquired per a 
pre-closing arrangement (whether or not they closed in the institution's 
name). Additionally, the institution reports the data for all 
applications that did not result in originations--for example, 
applications that the institution denied or that the applicant withdrew 
during the calendar year covered by the report (whether or not they 
would have closed in the institution's name). For all of these loans and 
applications, the institution reports the required data regarding the 
borrower's or applicant's ethnicity, race, sex, and income.
    iv. Loan originations are to be reported only once. If the 
institution is the loan broker or correspondent, it does not report as 
originations the loans that it forwarded to another lender for approval 
prior to closing, and that were approved and subsequently acquired by 
that lender (whether or not they closed in the institution's name).
    v. An institution reports applications that were received in the 
previous calendar year but were acted upon during the calendar year 
covered by the current register.
    vi. A financial institution submits all required data to the 
appropriate Federal agency in one package, with the prescribed 
transmittal sheet. An officer of the institution certifies to the 
accuracy of the data.
    vii. The transmittal sheet states the total number of line entries 
contained in the accompanying data transmission.
    2. Updating--agency requirements. Certain state or Federal 
regulations, such as the Federal Deposit Insurance Corporation's 
regulations, may require an institution to update its data more 
frequently than is required under Regulation C.
    3. Form of quarterly updating. An institution may maintain the 
quarterly updates of the HMDA/LAR in electronic or any other format, 
provided the institution can make the information available to its 
regulatory agency in a timely manner upon request.
    Paragraph 4(a)(1).
    1. Application date--consistency. In reporting the date of 
application, an institution reports the date the application was 
received or the date shown on the application. Although an institution 
need not choose the same approach for its entire HMDA submission, it 
should be generally consistent (such as by routinely using one approach 
within a particular division of the institution or for a category of 
loans).
    2. Application date--application forwarded by a broker. For an 
application forwarded by a broker, an institution reports the date the 
application was received by the broker, the date the application was 
received by the institution, or the date shown on the application. 
Although an institution need not choose the same approach for its entire 
HMDA submission, it should be generally consistent (such as by routinely 
using one approach within a particular division of the institution or 
for a category of loans).
    3. Application date--reinstated application. If, within the same 
calendar year, an applicant asks an institution to reinstate a 
counteroffer that the applicant previously did not accept (or asks the 
institution to reconsider an application that was denied, withdrawn, or 
closed for incompleteness), the institution may treat that request as 
the continuation of the earlier transaction or as a new transaction. If 
the institution treats

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the request for reinstatement or reconsideration as a new transaction, 
it reports the date of the request as the application date.
    4. Application or loan number. An institution must ensure that each 
identifying number is unique within the institution. If an institution's 
register contains data for branch offices, for example, the institution 
could use a letter or a numerical code to identify the loans or 
applications of different branches, or could assign a certain series of 
numbers to particular branches to avoid duplicate numbers. Institutions 
are strongly encouraged not to use the applicant's or borrower's name or 
social security number, for privacy reasons.
    5. Application--year action taken. An institution must report an 
application in the calendar year in which the institution takes final 
action on the application.
    Paragraph 4(a)(3).
    1. Purpose--statement of applicant. An institution may rely on the 
oral or written statement of an applicant regarding the proposed use of 
loan proceeds. For example, a lender could use a check-box, or a purpose 
line, on a loan application to determine whether or not the applicant 
intends to use loan proceeds for home improvement purposes.
    2. Purpose--multiple-purpose loan. If a loan is a home purchase loan 
as well as a home improvement loan, or a refinancing, an institution 
reports the loan as a home purchase loan. If a loan is a home 
improvement loan as well as a refinancing, an institution reports the 
loan as a home improvement loan.
    Paragraph 4(a)(6).
    1. Occupancy--multiple properties. If a loan relates to multiple 
properties, the institution reports the owner occupancy status of the 
property for which property location is being reported. (See the 
comments to paragraph 4(a)(9)).
    Paragraph 4(a)(7).
    1. Loan amount--counteroffer. If an applicant accepts a counteroffer 
for an amount different from the amount initially requested, the 
institution reports the loan amount granted. If an applicant does not 
accept a counteroffer or fails to respond, the institution reports the 
loan amount initially requested.
    2. Loan amount--multiple-purpose loan. Except in the case of a home-
equity line of credit, an institution reports the entire amount of the 
loan, even if only a part of the proceeds is intended for home purchase 
or home improvement.
    3. Loan amount--home-equity line. An institution that has chosen to 
report home-equity lines of credit reports only the part that is 
intended for home-improvement or home-purchase purposes.
    4. Loan amount--assumption. An institution that enters into a 
written agreement accepting a new party as the obligor on a loan reports 
the amount of the outstanding principal on the assumption as the loan 
amount.
    Paragraph 4(a)(8).
    1. Action taken--counteroffers. If an institution makes a 
counteroffer to lend on terms different from the applicant's initial 
request (for example, for a shorter loan maturity or in a different 
amount) and the applicant does not accept the counteroffer or fails to 
respond, the institution reports the action taken as a denial on the 
original terms requested by the applicant.
    2. Action taken--rescinded transactions. If a borrower rescinds a 
transaction after closing, the institution may report the transaction 
either as an origination or as an application that was approved but not 
accepted.
    3. Action taken--purchased loans. An institution reports the loans 
that it purchased during the calendar year, and does not report the 
loans that it declined to purchase.
    4. Action taken--conditional approvals. If an institution issues a 
loan approval subject to the applicant's meeting underwriting conditions 
(other than customary loan commitment or loan-closing conditions, such 
as a clear-title requirement or an acceptable property survey) and the 
applicant does not meet them, the institution reports the action taken 
as a denial.
    5. Action taken date--approved but not accepted. For a loan approved 
by an institution but not accepted by the applicant, the institution 
reports any reasonable date, such as the approval date, the deadline for 
accepting the offer, or the date the file was closed. Although an 
institution need not choose the same approach for its entire HMDA 
submission, it should be generally consistent (such as by routinely 
using one approach within a particular division of the institution or 
for a category of loans).
    6. Action taken date--originations. For loan originations, an 
institution generally reports the settlement or closing date. For loan 
originations that an institution acquires through a broker, the 
institution reports either the settlement or closing date, or the date 
the institution acquired the loan from the broker. If the disbursement 
of funds takes place on a date later than the settlement or closing 
date, the institution may use the date of disbursement. For a 
construction/permanent loan, the institution reports either the 
settlement or closing date, or the date the loan converts to the 
permanent financing. Although an institution need not choose the same 
approach for its entire HMDA submission, it should be generally 
consistent (such as by routinely using one approach within a particular 
division of the institution or for a category of loans). Notwithstanding 
this flexibility regarding the use of the closing date in connection 
with reporting the date action was taken, the year in which an 
origination goes to closing is the

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year in which the institution must report the origination.
    7. Action taken--pending applications. An institution does not 
report any loan application still pending at the end of the calendar 
year; it reports that application on its register for the year in which 
final action is taken.
    Paragraph 4(a)(9).
    1. Property location--multiple properties (home improvement/
refinance of home improvement). For a home improvement loan, an 
institution reports the property being improved. If more than one 
property is being improved, the institution reports the location of one 
of the properties or reports the loan using multiple entries on its 
HMDA/LAR (with unique identifiers) and allocating the loan amount among 
the properties.
    2. Property location--multiple properties (home purchase/refinance 
of home purchase). For a home purchase loan, an institution reports the 
property taken as security. If an institution takes more than one 
property as security, the institution reports the location of the 
property being purchased if there is just one. If the loan is to 
purchase multiple properties and is secured by multiple properties, the 
institution reports the location of one of the properties or reports the 
loan using multiple entries on its HMDA/LAR (with unique identifiers) 
and allocating the loan amount among the properties.
    3. Property location--loans purchased from another institution. The 
requirement to report the property location by census tract in an MSA or 
Metropolitan Division where the institution has a home or branch office 
applies not only to loan applications and originations but also to loans 
purchased from another institution. This includes loans purchased from 
an institution that did not have a home or branch office in that MSA or 
Metropolitan Division and did not collect the property-location 
information.
    4. Property location--mobile or manufactured home. If information 
about the potential site of a mobile or manufactured home is not 
available, an institution reports using the Code for ``not applicable.''
    Paragraph 4(a)(10).
    1. Applicant data--completion by applicant. An institution reports 
the monitoring information as provided by the applicant. For example, if 
an applicant checks the ``Asian'' box the institution reports using the 
``Asian'' Code.
    2. Applicant data--completion by lender. If an applicant fails to 
provide the requested information for an application taken in person, 
the institution reports the data on the basis of visual observation or 
surname.
    3. Applicant data--application completed in person. When an 
applicant meets in person with a lender to complete an application that 
was begun by mail, internet, or telephone, the institution must request 
the monitoring information. If the meeting occurs after the application 
process is complete, for example, at closing, the institution is not 
required to obtain monitoring information.
    4. Applicant data--joint applicant. A joint applicant may enter the 
government monitoring information on behalf of an absent joint 
applicant. If the information is not provided, the institution reports 
using the Code for ``information not provided by applicant in mail, 
internet, or telephone application.''
    5. Applicant data--video and other electronic-application processes. 
An institution that accepts applications through electronic media with a 
video component treats the applications as taken in person and collects 
the information about the ethnicity, race, and sex of applicants. An 
institution that accepts applications through electronic media without a 
video component (for example, the internet or facsimile) treats the 
applications as accepted by mail.
    6. Income data--income relied on. An institution reports the gross 
annual income relied on in evaluating the creditworthiness of 
applicants. For example, if an institution relies on an applicant's 
salary to compute a debt-to-income ratio but also relies on the 
applicant's annual bonus to evaluate creditworthiness, the institution 
reports the salary and the bonus to the extent relied upon. Similarly, 
if an institution relies on the income of a cosigner to evaluate 
creditworthiness, the institution includes this income to the extent 
relied upon. But an institution does not include the income of a 
guarantor who is only secondarily liable.
    7. Income data--co-applicant. If two persons jointly apply for a 
loan and both list income on the application, but the institution relies 
only on the income of one applicant in computing ratios and in 
evaluating creditworthiness, the institution reports only the income 
relied on.
    8. Income data--loan to employee. An institution may report ``NA'' 
in the income field for loans to its employees to protect their privacy, 
even though the institution relied on their income in making its credit 
decisions.
    Paragraph 4(a)(11).
    1. Type of purchaser--loan-participation interests sold to more than 
one entity. An institution that originates a loan, and then sells it to 
more than one entity, reports the ``type of purchaser'' based on the 
entity purchasing the greatest interest, if any. If an institution 
retains a majority interest, it does not report the sale.
    2. Type of purchaser--swapped loans. Loans ``swapped'' for mortgage-
backed securities are to be treated as sales; the purchaser is the type 
of entity receiving the loans that are swapped.
    Paragraph 4(a)(12)(ii).
    1. Average prime offer rate. Average prime offer rates are annual 
percentage rates derived from average interest rates, points, and

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other loan pricing terms offered to borrowers by a representative sample 
of lenders for mortgage loans that have low-risk pricing 
characteristics. Other pricing terms include commonly used indices, 
margins, and initial fixed-rate periods for variable-rate transactions. 
Relevant pricing characteristics include a consumer's credit history and 
transaction characteristics such as the loan-to-value ratio, owner-
occupant status, and purpose of the transaction. To obtain average prime 
offer rates, the Bureau uses a survey of lenders that both meets the 
criteria of Sec. 1003.4(a)(12)(ii) and provides pricing terms for at 
least two types of variable-rate transactions and at least two types of 
non-variable-rate transactions. An example of such a survey is the 
Freddie Mac Primary Mortgage Market Survey[supreg].
    2. Comparable transaction. The rate spread reporting requirement 
applies to a reportable loan with an annual percentage rate that exceeds 
by the specified margin (or more) the average prime offer rate for a 
comparable transaction as of the date the interest rate is set. The 
tables of average prime offer rates published by the Bureau (see comment 
4(a)(12)(ii)-3) indicate how to identify the comparable transaction.
    3. Bureau tables. The Bureau publishes on the FFIEC's Web site 
(http://www.ffiec.gov/hmda), in table form, average prime offer rates 
for a wide variety of transaction types. The Bureau calculates an annual 
percentage rate, consistent with Regulation Z (see 12 CFR 1026.22 and 
Part 1026, Appendix J), for each transaction type for which pricing 
terms are available from the survey described in comment 4(a)(12)(ii)-1. 
The Bureau estimates annual percentage rates for other types of 
transactions for which direct survey data are not available based on the 
loan pricing terms available in the survey and other information. The 
Bureau publishes on the FFIEC's Web site the methodology it uses to 
arrive at these estimates.
    Paragraph 4(a)(14).
    1. Determining lien status for applications and loans originated. i. 
Lenders are required to report lien status for loans they originate and 
applications that do not result in originations. Lien status is 
determined by reference to the best information readily available to the 
lender at the time final action is taken and to the lender's own 
procedures. Thus, lenders may rely on the title search they routinely 
perform as part of their underwriting procedures--for example, for home 
purchase loans. Regulation C does not require lenders to perform title 
searches solely to comply with HMDA reporting requirements. Lenders may 
rely on other information that is readily available to them at the time 
final action is taken and that they reasonably believe is accurate, such 
as the applicant's statement on the application or the applicant's 
credit report. For example, where the applicant indicates on the 
application that there is a mortgage on the property or where the 
applicant's credit report shows that the applicant has a mortgage--and 
that mortgage is not going to be paid off as part of the transaction--
the lender may assume that the loan it originates is secured by a 
subordinate lien. If the same application did not result in an 
origination--for example, because the application is denied or 
withdrawn--the lender would report the application as an application for 
a subordinate-lien loan.
    ii. Lenders may also consider their established procedures when 
determining lien status for applications that do not result in 
originations. For example, a consumer applies to a lender to refinance a 
$100,000 first mortgage; the consumer also has a home equity line of 
credit for $20,000. If the lender's practice in such a case is to ensure 
that it will have first-lien position--through a subordination agreement 
with the holder of the mortgage on the home equity line--then the lender 
should report the application as an application for a first-lien loan.
    Paragraph 4(c)(3).
    1. An institution that opts to report home-equity lines reports the 
disposition of all applications, not just originations.
    4(d) Excluded data.
    1. Mergers, purchases in bulk, and branch acquisitions. If a covered 
institution acquires loans in bulk from another institution (for 
example, from the receiver for a failed institution) but no merger or 
acquisition of the institution, or acquisition of a branch, is involved, 
the institution reports the loans as purchased loans.

               Section 1003.5(a)--Disclosure and Reporting

    5(a) Reporting to agency.
    1. Submission of data. Institutions submit data to the appropriate 
Federal agencies in an automated, machine-readable form. The format must 
conform to that of the HMDA/LAR. An institution should contact the 
appropriate Federal agency for information regarding procedures and 
technical specifications for automated data submission; in some cases, 
agencies also make software available for automated data submission. The 
data are edited before submission, using the edits included in the 
agency-supplied software or equivalent edits in software available from 
vendors or developed in-house.
    2. Submission in paper form. Institutions that report twenty-five or 
fewer entries on their HMDA/LAR may collect and report the data in paper 
form. An institution that submits its register in non-automated form 
sends two copies that are typed or computer printed and must use the 
format of the HMDA/LAR (but need not use the form itself). Each page 
must be numbered along

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with the total number of pages (for example, ``Page 1 of 3'').
    3. Procedures for entering data. The required data are entered in 
the register for each loan origination, each application acted on, and 
each loan purchased during the calendar year. The institution should 
decide on the procedure it wants to follow--for example, whether to 
begin entering the required data, when an application is received, or to 
wait until final action is taken (such as when a loan goes to closing or 
an application is denied).
    4. Options for collection. An institution may collect data on 
separate registers at different branches, or on separate registers for 
different loan types (such as for home purchase or home improvement 
loans, or for loans on multifamily dwellings). Entries need not be 
grouped on the register by MSA or Metropolitan Division, or 
chronologically, or by census tract numbers, or in any other particular 
order.
    5. Change in appropriate Federal agency. If the appropriate Federal 
agency for a covered institution changes (as a consequence of a merger 
or a change in the institution's charter, for example), the institution 
must report data to the new appropriate Federal agency beginning with 
the year of the change.
    6. Subsidiaries. An institution is a subsidiary of a bank or savings 
association (for purposes of reporting HMDA data to the same agency as 
the parent) if the bank or savings association holds or controls an 
ownership interest that is greater than 50 percent of the institution.
    7. Transmittal sheet--additional data submissions. If an additional 
data submission becomes necessary (for example, because the institution 
discovers that data were omitted from the initial submission, or because 
revisions are called for), that submission must be accompanied by a 
transmittal sheet.
    8. Transmittal sheet--revisions or deletions. If a data submission 
involves revisions or deletions of previously submitted data, it must 
state the total of all line entries contained in that submission, 
including both those representing revisions or deletions of previously 
submitted entries, and those that are being resubmitted unchanged or are 
being submitted for the first time. Depository institutions must provide 
a list of the MSAs or Metropolitan Divisions in which they have home or 
branch offices.
    5(b) Public disclosure of statement.
    1. Business day. For purposes of Sec. 1003.5, a business day is any 
calendar day other than a Saturday, Sunday, or legal public holiday.
    2. Format. An institution may make the disclosure statement 
available in paper form or, if the person requesting the data agrees, in 
electronic form.
    5(c) Public disclosure of modified loan/application register.
    1. Format. An institution may make the modified register available 
in paper or electronic form. Although institutions are not required to 
make the modified register available in census tract order, they are 
strongly encouraged to do so in order to enhance its utility to users.
    5(e) Notice of availability.
    1. Poster--suggested text. An institution may use any text that 
meets the requirements of the regulation. Some of the Federal agencies 
that receive HMDA data provide HMDA posters that an institution can use 
to inform the public of the availability of its HMDA data, or the 
institution may create its own posters. If an institution prints its 
own, the following language is suggested but is not required:

                   Home Mortgage Disclosure Act Notice

    The HMDA data about our residential mortgage lending are available 
for review. The data show geographic distribution of loans and 
applications; ethnicity, race, sex, and income of applicants and 
borrowers; and information about loan approvals and denials. Inquire at 
this office regarding the locations where HMDA data may be inspected.
    2. Additional language for institutions making the disclosure 
statement available on request. An institution that posts a notice 
informing the public of the address to which a request should be sent 
could include the following sentence, for example, in its general 
notice: ``To receive a copy of these data send a written request to 
[address].''

                       Section 1003.6--Enforcement

    6(b) Bona fide errors.
    1. Bona fide error--information from third parties. An institution 
that obtains the property-location information for applications and 
loans from third parties (such as appraisers or vendors of ``geocoding'' 
services) is responsible for ensuring that the information reported on 
its HMDA/LAR is correct.



PART 1004_ALTERNATIVE MORTGAGE TRANSACTION PARITY (REGULATION D)--Table
of Contents



Sec.
1004.1 Authority, purpose, and scope.
1004.2 Definitions.
1004.3 Preemption of State law.
1004.4 Requirements for alternative mortgage transactions.

Appendix A to Part 1004--Official Commentary on Regulation D

    Authority: 12 U.S.C. 3802, 3803; 15 U.S.C. 1604, 1639b; Pub. L. No. 
111-203, 124 Stat. 1376.

    Source: 76 FR 44242, July 22, 2011, unless otherwise noted.

[[Page 166]]



Sec. 1004.1  Authority, purpose, and scope.

    (a) Authority. This regulation, known as Regulation D, is issued by 
the Bureau of Consumer Financial Protection to implement the Alternative 
Mortgage Transaction Parity Act, 12 U.S.C. 3801 et seq., as amended by 
title X, Section 1083 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Pub. L. 111-203, 124 Stat. 1376). Section 1004.4 is 
issued pursuant to the Alternative Mortgage Transaction Parity Act (as 
amended) and the Truth in Lending Act, 15 U.S.C. 1601 et seq.
    (b) Purpose. Consistent with the Alternative Mortgage Transaction 
Parity Act, the Truth in Lending Act, and the Dodd-Frank Wall Street 
Reform and Consumer Protection Act, the purpose of this regulation is to 
balance access to responsible credit and enhanced parity between State 
and federal housing creditors regarding the making, purchase, and 
enforcement of alternative mortgage transactions with consumer 
protection and the interests of the States in regulating mortgage 
transactions generally.
    (c) Scope. This regulation applies to an alternative mortgage 
transaction if the creditor received an application for that transaction 
on or after July 22, 2011. This regulation does not apply to a 
transaction if the creditor received the application for that 
transaction before July 22, 2011.



Sec. 1004.2  Definitions.

    For purposes of this part:
    Alternative mortgage transaction means a loan, credit sale, or 
account:
    (1) That is secured by an interest in a residential structure that 
contains one to four units, whether or not that structure is attached to 
real property, including an individual condominium unit, cooperative 
unit, mobile home, or trailer, if it is used as a residence;
    (2) That is made primarily for personal, family, or household 
purposes; and
    (3) In which the interest rate or finance charge may be adjusted or 
renegotiated.
    Creditor shall have the same meaning as in 12 CFR 226.2.
    Housing creditor means:
    (1) A depository institution, as defined in section 501(a)(2) of the 
Depository Institutions Deregulation and Monetary Control Act of 1980;
    (2) A lender approved by the Secretary of Housing and Urban 
Development for participation in any mortgage insurance program under 
the National Housing Act;
    (3) Any person who regularly makes loans, credit sales, or advances 
on an account secured by an interest in a residential structure that 
contains one to four units, whether or not the structure is attached to 
real property, including an individual condominium unit, cooperative 
unit, mobile home, or trailer, if it is used as a residence; and
    (4) Any transferee of a party listed in paragraph (c)(1), (2), or 
(3) of this section.
    State means any State of the United States of America, the District 
of Columbia, Puerto Rico, the Virgin Islands, the Northern Mariana 
Islands, American Samoa, Guam, and any other territory or possession of 
the United States.
    State law means a State constitution, statute, or regulation or any 
provision thereof.



Sec. 1004.3  Preemption of State law.

    Pursuant to 12 U.S.C. 3803, a State-chartered or -licensed housing 
creditor may make, purchase, and enforce alternative mortgage 
transactions in accordance with Sec. 1004.4(a) through (c) of this part 
(as applicable), notwithstanding any provision of State law that 
restricts the ability of the housing creditor to adjust or renegotiate 
an interest rate or finance charge with respect to the transaction or to 
change the amount of interest or finance charges included in a regular 
periodic payment as a result of such an adjustment or renegotiation.



Sec. 1004.4  Requirements for alternative mortgage transactions.

    (a) Mortgages with adjustable rates or finance charges and home 
equity lines of credit. A creditor that makes an alternative mortgage 
transaction with an adjustable rate or finance charge may only increase 
the interest rate or finance charge as follows:

[[Page 167]]

    (1) If the transaction is subject to 12 CFR 226.5b, the creditor 
must comply with 12 CFR 226.5b(f)(1).
    (2) For all other transactions, the creditor must use either:
    (i) An index to which changes in the interest rate are tied that is 
readily available to and verifiable by the borrower and beyond the 
control of the creditor; or
    (ii) A formula or schedule identifying the amount that the interest 
rate or finance charge may increase and the times at which, or 
circumstances under which, a change may be made.
    (b) Renegotiable rates for renewable balloon-payment mortgages. A 
creditor that makes an alternative mortgage transaction with payments 
based on an amortization period and a large final payment due after a 
shorter term may negotiate an increase or decrease in the interest rate 
when the transaction is renewed only if the creditor makes a written 
commitment to renew the transaction at specified intervals throughout 
the amortization period. However, the creditor is not required to renew 
the transaction if:
    (1) Any action or inaction by the consumer materially and adversely 
affects the creditor's security for the transaction or any right of the 
creditor in such security;
    (2) There is a material failure by the consumer to meet the 
repayment terms of the transaction;
    (3) There is fraud or a willful or knowing material 
misrepresentation by the consumer in connection with the transaction; or
    (4) Federal law dealing with credit extended by a depository 
institution to its executive officers specifically requires that as a 
condition of the extension the credit shall become due and payable on 
demand, provided that the creditor includes such a provision in the 
initial agreement.
    (c) Requirements for high-cost and higher-priced mortgage loans. (1) 
If an alternative mortgage transaction is subject to 12 CFR 226.32, the 
creditor must comply with 12 CFR 226.32 and 12 CFR 226.34.
    (2) If an alternative mortgage transaction is subject to 12 CFR 
226.35, the creditor must comply with 12 CFR 226.35.
    (d) Other applicable law. Notwithstanding paragraphs (a) through (c) 
of this section, a housing creditor that is not making an alternative 
mortgage transaction pursuant to Sec. 1004.3 of this part may make that 
transaction consistent with applicable State or Federal law other than 
this section.
    (e) Reductions in interest rate or finance charge. Nothing in this 
section prohibits a creditor from decreasing the interest rate or 
finance charge on an alternative mortgage transaction.



    Sec. Appendix A to Part 1004--Official Commentary on Regulation D

               Sec. 1004.1 Authority, Purpose, and Scope

                               1(c) Scope.

    1. Application received before July 22, 2011. This Part does not 
apply to a transaction if the creditor received the application for that 
transaction before July 22, 2011, even if the transaction was 
consummated or completed on or after July 22, 2011. Whether 12 U.S.C. 
3803(c) preempts State law with respect to such a transaction depends on 
whether: (1) The transaction was an alternative mortgage transaction as 
defined by the version of 12 U.S.C. 3802(1) in effect at the time of 
application; and (2) the State housing creditor complied with applicable 
federal regulations issued by the Office of the Comptroller of the 
Currency, the National Credit Union Administration, the Office of Thrift 
Supervision, or the Federal Home Loan Bank Board in effect at the time 
of application.
    2. Subsequent modifications and other actions. If applicable 
regulations under 12 U.S.C. 3803(c) (including this Part) preempted 
State law with respect to an alternative mortgage transaction at the 
time the application was received, the following actions with respect to 
that transaction are entitled to the same degree of preemption under 
such regulations:
    i. The subsequent consummation, completion, purchase, or enforcement 
of the transaction by a housing creditor.
    ii. The subsequent modification, renewal, or extension of the 
transaction. However, if such a transaction is satisfied and replaced by 
another transaction, the second transaction must independently meet the 
requirements for preemption in effect at the time the application for 
the second transaction was received.

                        Sec. 1004.2 Definitions

                  2(a) Alternative Mortgage Transaction

    1. Alternative mortgage transaction. For purposes of this Part, an 
alternative mortgage transaction that meets the definition in Sec. 
1004.2(a) includes any consumer credit

[[Page 168]]

transaction that is secured by a mortgage, deed of trust, or other 
equivalent consensual security interest in a dwelling or in residential 
real property that includes a dwelling. The dwelling need not be the 
primary dwelling of the consumer. Home equity lines of credit and 
subordinate lien mortgages are alternative mortgage transactions for 
purposes of this Part to the extent they meet the definition in Sec. 
1004.2(a).
    2. Examples of alternative mortgage transactions. Examples of 
alternative mortgage transactions include:
    i. Transactions in which the interest rate changes in accordance 
with fluctuations in an index.
    ii. Transactions in which the interest rate or finance charge may be 
increased or decreased after a specified period of time or under 
specified circumstances.
    iii. Balloon transactions in which payments are based on an 
amortization schedule and a large final payment is due after a shorter 
term, where the creditor makes a commitment to renew the transaction at 
specified intervals throughout the amortization period, but the interest 
rate may be renegotiated at renewal. For example, a fixed-rate mortgage 
loan with a 30-year amortization period but a balloon payment due five 
years after consummation is an alternative mortgage transaction under 
Sec. 1004.2(a) if the creditor commits to renew the mortgage at five-
year intervals for the entire 30-year amortization period.
    iv. Transactions in which the creditor and the consumer agree to 
share some or all of the appreciation in the value of the property 
(shared equity/shared appreciation).
    However, this Part preempts State law only to the extent provided in 
Sec. 1004.3 and only to the extent that the requirements of Sec. 
1004.4(a) through (c) (as applicable) are met.
    3. Examples of transactions that are not alternative mortgage 
transactions. The following are examples of transactions that are not 
alternative mortgage transactions:
    i. Transactions with a fixed interest rate where one or more of the 
regular periodic payments may be applied solely to accrued interest and 
not to loan principal (an interest-only feature).
    ii. Balloon transactions with a fixed interest rate where payments 
are based on an amortization schedule and a large final payment is due 
after a shorter term, where the creditor does not make a commitment to 
renew the transaction at specified intervals throughout the amortization 
period.
    iii. Transactions with a fixed interest rate where one or more of 
the regular periodic payments may result in an increase in the principal 
balance (a negative amortization feature).

                              2(b) Creditor

    1. Creditor. As defined in 12 CFR 226.2, ``creditor'' includes 
federally and State-chartered banks, thrifts, and credit unions, as well 
as non-depository institutions, such as State-licensed lenders. The 
Official Staff Commentary to 12 CFR 226.2 contains additional guidance 
on the definition of the term ``creditor.'' See 12 CFR 226.2, Supp. I.

                  Sec. 1004.3 Preemption of State Law

    1. Scope of State laws. Regardless of whether a State law applies 
solely to alternative mortgage transactions or applies to both 
alternative mortgage transactions and other mortgage or consumer credit 
transactions, that law is preempted by Sec. 1004.3 only to the extent 
that it restricts the ability of a State-chartered or -licensed housing 
creditor to adjust or renegotiate an interest rate or finance charge 
with respect to an alternative mortgage transaction or to change the 
amount of interest or finance charges included in a regular periodic 
payment as a result of such an adjustment or renegotiation.
    2. Examples of State laws that are preempted. The following are 
examples of State laws that are preempted by Sec. 1004.3:
    i. Restrictions on the adjustment or renegotiation of an interest 
rate or finance charge, including restrictions on the circumstances 
under which a rate or charge may be adjusted, the method by which a rate 
or charge may be adjusted, and the amount of the adjustment to the rate 
or charge. For example, if a provision of State law prohibits creditors 
from increasing an adjustable rate more than two percentage points or 
from increasing an adjustable rate more than once during a year, that 
provision is preempted by Sec. 1004.3 with respect to alternative 
mortgage transactions that comply with Sec. 1004.4(a) through (c), as 
applicable. Similarly, if a provision of State law prohibits housing 
creditors from renewing balloon transactions that meet the definition of 
an alternative mortgage transaction in Sec. 1004.2(a) on different 
terms, that provision is preempted by Sec. 1004.3 only to the extent 
that it restricts a state housing creditor's ability to adjust or 
renegotiate the interest rate or finance charge at renewal. See also 
comment 1004.3-3.i.
    ii. Restrictions on the ability of a housing creditor to change the 
amount of interest or finance charges included in regular periodic 
payments as a result of the adjustment or renegotiation of an interest 
rate or finance charge. For example, if a provision of State law 
prohibits housing creditors from increasing payments or limits the 
amount of such increases with respect to both alternative mortgage 
transactions and other mortgage or consumer credit transactions, that 
provision is preempted by Sec. 1004.3 to the extent that it restricts a 
housing creditor's ability

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to adjust payments as a result of the adjustment or renegotiation of an 
interest rate on an alternative mortgage transaction. Other restrictions 
on changes to payments are not preempted, including restrictions on 
transactions in which one or more of the regular periodic payments may 
result in an increase in the principal balance (a negative amortization 
feature) or may be applied solely to accrued interest and not to loan 
principal (an interest-only feature).
    iii. Restrictions on the creditor and the consumer sharing some or 
all of the appreciation in the value of the property (shared equity/
shared appreciation).
    iv. Underwriting requirements that address the adjustment or 
renegotiation of interest rates or finance charges. For example, if a 
provision of State law requires housing creditors to underwrite based on 
the maximum contractual rate, that provision is preempted by Sec. 
1004.3 with respect to alternative mortgage transactions, regardless of 
whether the provision applies solely to alternative mortgage 
transactions or to both alternative mortgage transactions and other 
mortgage or consumer credit transactions.
    3. Examples of State laws that are not preempted. The following are 
examples of State laws that are not preempted by Sec. 1004.3 regardless 
of whether the provision applies solely to alternative mortgage 
transactions or to both alternative mortgage transactions and other 
mortgage or consumer credit transactions:
    i. Restrictions on prepayment penalties or late charges (including 
an increase in an interest rate or finance charge as a result of a late 
payment).
    ii. Restrictions on transactions in which one or more of the regular 
periodic payments may result in an increase in the principal balance (a 
negative amortization feature) or may be applied solely to accrued 
interest and not to loan principal (an interest-only feature).
    iii. Requirements that disclosures be provided.

     Sec. 1004.4 Requirements for Alternative Mortgage Transactions

4(a) Mortgages With Adjustable or Renegotiable Rates or Finance Charges 
                     and Home Equity Lines of Credit

    1. Index values. A creditor may use any measure of index values that 
meets the requirements in Sec. 1004.4(a)(2)(i). For example, the index 
may be either single values as of a specific date or an average of 
values calculated over a specified period.
    2. Index beyond creditor's control. A creditor may increase an 
adjustable interest rate pursuant to Sec. 1004.4(a)(2)(i) only if the 
increase is based on an index that is beyond the creditor's control. For 
purposes of Sec. 1004.4(a)(2)(i), an index is not beyond the creditor's 
control if the index is the creditor's own prime rate or cost of funds. 
A creditor is permitted, however, to use a published prime rate, such as 
the prime rate published in the Wall Street Journal, even if the 
creditor's own prime rate is one of several rates used to establish the 
published rate.
    3. Publicly available. For purposes of Sec. 1004.4(a)(2)(i), the 
index must be available to the public. A publicly available index need 
not be published in a newspaper, but it must be one the consumer can 
independently obtain (by telephone, for example) and use to verify the 
annual percentage rate applied to the alternative mortgage transaction.

    4(c) Requirements for High-Cost and Higher-Priced Mortgage Loans

    1. Prepayment penalties. If applicable, creditors must comply with 
12 CFR 226.32, including 12 CFR 226.32(d)(6) and (d)(7) which provide 
limitations on prepayment penalties. Similarly, if applicable, creditors 
must comply with 12 CFR 226.35, including 12 CFR 226.35(b)(2), which 
also provides limitations on prepayment penalties. However, under Sec. 
1004.3, State laws regarding prepayment penalties are not preempted. See 
comment 1004.3-3.i. Accordingly, creditors must also comply with any 
State laws regarding prepayment penalties unless an independent basis 
for preemption exists, such as because the State law is inconsistent 
with the requirements of Regulation Z, 12 CFR Part 226. See 12 CFR 
226.28.

                        4(d) Other Applicable Law

    1. Other applicable law. Section 1004.4(d) permits state housing 
creditors that do not seek preemption under Sec. 1004.3 and federal 
housing creditors to make alternative mortgage transactions consistent 
with applicable State or federal law other than Sec. 1004.4(a) through 
(c). However, Sec. 1004.4(d) does not exempt those housing creditors 
from complying with the provisions of federal law that are incorporated 
by reference in Sec. 1004.4 and are otherwise applicable to the 
creditor. Specifically, nothing in Sec. 1004.4(d) exempts a housing 
creditor from complying with 12 CFR 226.5b, 226.32, 226.34, or 226.35.



PART 1005_ELECTRONIC FUND TRANSFERS (REGULATION E)--Table of Contents



Sec.
1005.1 Authority and purpose.
1005.2 Definitions.
1005.3 Coverage.
1005.4 General disclosure requirements; jointly offered services.
1005.5 Issuance of access devices.
1005.6 Liability of consumer for unauthorized transfers.
1005.7 Initial disclosures.

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1005.8 Change in terms notice; error resolution notice.
1005.9 Receipts at electronic terminals; periodic statements.
1005.10 Preauthorized transfers.
1005.11 Procedures for resolving errors.
1005.12 Relation to other laws.
1005.13 Administrative enforcement; record retention.
1005.14 Electronic fund transfer service provider not holding consumer's 
          account.
1005.15 Electronic fund transfer of government benefits.
1005.16 Disclosures at automated teller machines.
1005.17 Requirements for overdraft services.
1005.18 Requirements for financial institutions offering payroll card 
          accounts.
1005.20 Requirements for gift cards and gift certificates.

Appendix A to Part 1005--Model Disclosure Clauses and Forms
Appendix B to Part 1005 [Reserved]
Appendix C to Part 1005--Issuance of Official Interpretations
Supplement I to Part 1005--Official Interpretations

    Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1693b.

    Source: 76 FR 81023, Dec. 27, 2011, unless otherwise noted.



Sec. 1005.1  Authority and purpose.

    (a) Authority. The regulation in this part, known as Regulation E, 
is issued by the Bureau of Consumer Financial Protection (Bureau) 
pursuant to the Electronic Fund Transfer Act (15 U.S.C. 1693 et seq.). 
The information-collection requirements have been approved by the Office 
of Management and Budget under 44 U.S.C. 3501 et seq. and have been 
assigned OMB No. 3170-0014.
    (b) Purpose. This part carries out the purposes of the Electronic 
Fund Transfer Act, which establishes the basic rights, liabilities, and 
responsibilities of consumers who use electronic fund transfer services 
and of financial institutions that offer these services. The primary 
objective of the Act and this part is the protection of individual 
consumers engaging in electronic fund transfers.



Sec. 1005.2  Definitions.

    For purposes of this part, the following definitions apply:
    (a)(1) ``Access device'' means a card, code, or other means of 
access to a consumer's account, or any combination thereof, that may be 
used by the consumer to initiate electronic fund transfers.
    (2) An access device becomes an ``accepted access device'' when the 
consumer:
    (i) Requests and receives, or signs, or uses (or authorizes another 
to use) the access device to transfer money between accounts or to 
obtain money, property, or services;
    (ii) Requests validation of an access device issued on an 
unsolicited basis; or
    (iii) Receives an access device in renewal of, or in substitution 
for, an accepted access device from either the financial institution 
that initially issued the device or a successor.
    (b)(1) ``Account'' means a demand deposit (checking), savings, or 
other consumer asset account (other than an occasional or incidental 
credit balance in a credit plan) held directly or indirectly by a 
financial institution and established primarily for personal, family, or 
household purposes.
    (2) The term includes a ``payroll card account'' which is an account 
that is directly or indirectly established through an employer and to 
which electronic fund transfers of the consumer's wages, salary, or 
other employee compensation (such as commissions), are made on a 
recurring basis, whether the account is operated or managed by the 
employer, a third-party payroll processor, a depository institution or 
any other person. For rules governing payroll card accounts, see Sec. 
1005.18.
    (3) The term does not include an account held by a financial 
institution under a bona fide trust agreement.
    (c) ``Act'' means the Electronic Fund Transfer Act (Title IX of the 
Consumer Credit Protection Act, 15 U.S.C. 1693 et seq.).
    (d) ``Business day'' means any day on which the offices of the 
consumer's financial institution are open to the public for carrying on 
substantially all business functions.
    (e) ``Consumer'' means a natural person.
    (f) ``Credit'' means the right granted by a financial institution to 
a consumer to defer payment of debt, incur debt and defer its payment, 
or purchase

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property or services and defer payment therefor.
    (g) ``Electronic fund transfer'' is defined in Sec. 1005.3.
    (h) ``Electronic terminal'' means an electronic device, other than a 
telephone operated by a consumer, through which a consumer may initiate 
an electronic fund transfer. The term includes, but is not limited to, 
point-of-sale terminals, automated teller machines (ATMs), and cash 
dispensing machines.
    (i) ``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, 
other than a person excluded from coverage of this part by section 1029 
of the Consumer Financial Protection Act of 2010, Title X of the Dodd-
Frank Wall Street Reform and Consumer Protection Act, Public Law 111-
203, 124 Stat. 1376.
    (j) ``Person'' means a natural person or an organization, including 
a corporation, government agency, estate, trust, partnership, 
proprietorship, cooperative, or association.
    (k) ``Preauthorized electronic fund transfer'' means an electronic 
fund transfer authorized in advance to recur at substantially regular 
intervals.
    (l) ``State'' means any state, territory, or possession of the 
United States; the District of Columbia; the Commonwealth of Puerto 
Rico; or any political subdivision of the thereof in this paragraph (l).
    (m) ``Unauthorized electronic fund transfer'' means an electronic 
fund transfer from a consumer's account initiated by a person other than 
the consumer without actual authority to initiate the transfer and from 
which the consumer receives no benefit. The term does not include an 
electronic fund transfer initiated:
    (1) By a person who was furnished the access device to the 
consumer's account by the consumer, unless the consumer has notified the 
financial institution that transfers by that person are no longer 
authorized;
    (2) With fraudulent intent by the consumer or any person acting in 
concert with the consumer; or
    (3) By the financial institution or its employee.



Sec. 1005.3  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 Sec. Sec. 1005.3(b)(2) and (3), 1005.10(b), (d), and (e), 
1005.13, and 1005.20 this part applies to any person, other than a 
person excluded from coverage of this part by section 1029 of the 
Consumer Financial Protection Act of 2010, Title X of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 
Stat. 1376.
    (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 initiating an electronic fund transfer using the 
consumer's check as a source of information for the transfer must 
provide a notice that the transaction will or may be processed as an 
electronic fund transfer, and obtain a consumer's authorization for each 
transfer. A consumer authorizes a one-time electronic

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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 underlying transaction. For 
point-of-sale transfers, the notice must be posted in a prominent and 
conspicuous location, and a copy thereof, or a substantially similar 
notice, must be provided to the consumer at the time of the transaction.
    (iii) 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 returned item fees via electronic fund transfer --
(i) General. The person initiating an electronic fund transfer to 
collect a fee for the return of an electronic fund transfer or a check 
that is unpaid, including due to insufficient or uncollected funds in 
the consumer's account, must obtain the consumer's authorization for 
each transfer. A consumer authorizes a one-time electronic fund transfer 
from his or her account to pay the fee for the returned item or transfer 
if the person collecting the fee provides notice to the consumer stating 
that the person may electronically collect the fee, and the consumer 
goes forward with the underlying transaction. The notice must state that 
the fee will be collected by means of an electronic fund transfer from 
the consumer's account if the payment is returned unpaid and must 
disclose the dollar amount of the fee. If the fee may vary due to the 
amount of the transaction or due to other factors, then, except as 
otherwise provided in paragraph (b)(3)(ii) of this section, the person 
collecting the fee may disclose, in place of the dollar amount of the 
fee, an explanation of how the fee will be determined.
    (ii) Point-of-sale transactions. If a fee for an electronic fund 
transfer or check returned unpaid may be collected electronically in 
connection with a point-of-sale transaction, the person initiating an 
electronic fund transfer to collect the fee must post the notice 
described in paragraph (b)(3)(i) of this section in a prominent and 
conspicuous location. The person also must either provide the consumer 
with a copy of the posted notice (or a substantially similar notice) at 
the time of the transaction, or mail the copy (or a substantially 
similar notice) to the consumer's address as soon as reasonably 
practicable after the person initiates the electronic fund transfer to 
collect the fee. If the amount of the fee may vary due to the amount of 
the transaction or due to other factors, the posted notice may explain 
how the fee will be determined, but the notice provided to the consumer 
must state the dollar amount of the fee if the amount can be calculated 
at the time the notice is provided or mailed to the consumer.
    (c) Exclusions from coverage. The term ``electronic fund transfer'' 
does not include:
    (1) Checks. Any transfer of funds originated by check, draft, or 
similar paper instrument; or any payment made by check, draft, or 
similar paper instrument at an electronic terminal.
    (2) Check guarantee or authorization. Any transfer of funds that 
guarantees payment or authorizes acceptance of a check, draft, or 
similar paper instrument but that does not directly result in a debit or 
credit to a consumer's account.
    (3) Wire or other similar transfers. Any transfer of funds through 
Fedwire or through a similar wire transfer system that is used primarily 
for transfers between financial institutions or between businesses.
    (4) Securities and commodities transfers. Any transfer of funds the 
primary purpose of which is the purchase or sale of a security or 
commodity, if the security or commodity is:
    (i) Regulated by the Securities and Exchange Commission or the 
Commodity Futures Trading Commission;
    (ii) Purchased or sold through a broker-dealer regulated by the 
Securities and Exchange Commission or through a futures commission 
merchant regulated by the Commodity Futures Trading Commission; or
    (iii) Held in book-entry form by a Federal Reserve Bank or Federal 
agency.
    (5) Automatic transfers by account-holding institution. Any transfer 
of funds under an agreement between a

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consumer and a financial institution which provides that the institution 
will initiate individual transfers without a specific request from the 
consumer:
    (i) Between a consumer's accounts within the financial institution;
    (ii) From a consumer's account to an account of a member of the 
consumer's family held in the same financial institution; or
    (iii) Between a consumer's account and an account of the financial 
institution, except that these transfers remain subject to Sec. 
1005.10(e) regarding compulsory use and sections 916 and 917 of the Act 
regarding civil and criminal liability.
    (6) Telephone-initiated transfers. Any transfer of funds that:
    (i) Is initiated by a telephone communication between a consumer and 
a financial institution making the transfer; and
    (ii) Does not take place under a telephone bill-payment or other 
written plan in which periodic or recurring transfers are contemplated.
    (7) Small institutions. Any preauthorized transfer to or from an 
account if the assets of the account-holding financial institution were 
$100 million or less on the preceding December 31. If assets of the 
account-holding institution subsequently exceed $100 million, the 
institution's exemption for preauthorized transfers terminates one year 
from the end of the calendar year in which the assets exceed $100 
million. Preauthorized transfers exempt under this paragraph (c)(7) 
remain subject to Sec. 1005.10(e) regarding compulsory use and sections 
916 and 917 of the Act regarding civil and criminal liability.



Sec. 1005.4  General disclosure requirements; jointly offered services.

    (a)(1) Form of disclosures. Disclosures required under this part 
shall be clear and readily understandable, in writing, and in a form the 
consumer may keep, except as otherwise provided in this part. The 
disclosures required by this part may be provided to the consumer in 
electronic form, subject to compliance with the consumer-consent and 
other applicable provisions of the Electronic Signatures in Global and 
National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). A financial 
institution may use commonly accepted or readily understandable 
abbreviations in complying with the disclosure requirements of this 
part.
    (2) Foreign language disclosures. Disclosures required under this 
part may be made in a language other than English, provided that the 
disclosures are made available in English upon the consumer's request.
    (b) Additional information; disclosures required by other laws. A 
financial institution may include additional information and may combine 
disclosures required by other laws (such as the Truth in Lending Act (15 
U.S.C. 1601 et seq.) or the Truth in Savings Act (12 U.S.C. 4301 et 
seq.) with the disclosures required by this part.
    (c) Multiple accounts and account holders--(1) Multiple accounts. A 
financial institution may combine the required disclosures into a single 
statement for a consumer who holds more than one account at the 
institution.
    (2) Multiple account holders. For joint accounts held by two or more 
consumers, a financial institution need provide only one set of the 
required disclosures and may provide them to any of the account holders.
    (d) Services offered jointly. Financial institutions that provide 
electronic fund transfer services jointly may contract among themselves 
to comply with the requirements that this part imposes on any or all of 
them. An institution need make only the disclosures required by 
Sec. Sec. 1005.7 and 1005.8 that are within its knowledge and within 
the purview of its relationship with the consumer for whom it holds an 
account.



Sec. 1005.5  Issuance of access devices.

    (a) Solicited issuance. Except as provided in paragraph (b) of this 
section, a financial institution may issue an access device to a 
consumer only:
    (1) In response to an oral or written request for the device; or
    (2) As a renewal of, or in substitution for, an accepted access 
device whether issued by the institution or a successor.
    (b) Unsolicited issuance. A financial institution may distribute an 
access

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device to a consumer on an unsolicited basis if the access device is:
    (1) Not validated, meaning that the institution has not yet 
performed all the procedures that would enable a consumer to initiate an 
electronic fund transfer using the access device;
    (2) Accompanied by a clear explanation that the access device is not 
validated and how the consumer may dispose of it if validation is not 
desired;
    (3) Accompanied by the disclosures required by Sec. 1005.7, of the 
consumer's rights and liabilities that will apply if the access device 
is validated; and
    (4) Validated only in response to the consumer's oral or written 
request for validation, after the institution has verified the 
consumer's identity by a reasonable means.



Sec. 1005.6  Liability of consumer for unauthorized transfers.

    (a) Conditions for liability. A consumer may be held liable, within 
the limitations described in paragraph (b) of this section, for an 
unauthorized electronic fund transfer involving the consumer's account 
only if the financial institution has provided the disclosures required 
by Sec. 1005.7(b)(1), (2), and (3). If the unauthorized transfer 
involved an access device, it must be an accepted access device and the 
financial institution must have provided a means to identify the 
consumer to whom it was issued.
    (b) Limitations on amount of liability. A consumer's liability for 
an unauthorized electronic fund transfer or a series of related 
unauthorized transfers shall be determined as follows:
    (1) Timely notice given. If the consumer notifies the financial 
institution within two business days after learning of the loss or theft 
of the access device, the consumer's liability shall not exceed the 
lesser of $50 or the amount of unauthorized transfers that occur before 
notice to the financial institution.
    (2) Timely notice not given. If the consumer fails to notify the 
financial institution within two business days after learning of the 
loss or theft of the access device, the consumer's liability shall not 
exceed the lesser of $500 or the sum of:
    (i) $50 or the amount of unauthorized transfers that occur within 
the two business days, whichever is less; and
    (ii) The amount of unauthorized transfers that occur after the close 
of two business days and before notice to the institution, provided the 
institution establishes that these transfers would not have occurred had 
the consumer notified the institution within that two-day period.
    (3) Periodic statement; timely notice not given. A consumer must 
report an unauthorized electronic fund transfer that appears on a 
periodic statement within 60 days of the financial institution's 
transmittal of the statement to avoid liability for subsequent 
transfers. If the consumer fails to do so, the consumer's liability 
shall not exceed the amount of the unauthorized transfers that occur 
after the close of the 60 days and before notice to the institution, and 
that the institution establishes would not have occurred had the 
consumer notified the institution within the 60-day period. When an 
access device is involved in the unauthorized transfer, the consumer may 
be liable for other amounts set forth in paragraphs (b)(1) or (b)(2) of 
this section, as applicable.
    (4) Extension of time limits. If the consumer's delay in notifying 
the financial institution was due to extenuating circumstances, the 
institution shall extend the times specified above to a reasonable 
period.
    (5) Notice to financial institution. (i) Notice to a financial 
institution is given when a consumer takes steps reasonably necessary to 
provide the institution with the pertinent information, whether or not a 
particular employee or agent of the institution actually receives the 
information.
    (ii) The consumer may notify the institution in person, by 
telephone, or in writing.
    (iii) Written notice is considered given at the time the consumer 
mails the notice or delivers it for transmission to the institution by 
any other usual means. Notice may be considered constructively given 
when the institution becomes aware of circumstances leading to the 
reasonable belief that an unauthorized transfer to or from the

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consumer's account has been or may be made.
    (6) Liability under state law or agreement. If state law or an 
agreement between the consumer and the financial institution imposes 
less liability than is provided by this section, the consumer's 
liability shall not exceed the amount imposed under the state law or 
agreement.



Sec. 1005.7  Initial disclosures.

    (a) Timing of disclosures. A financial institution shall make the 
disclosures required by this section at the time a consumer contracts 
for an electronic fund transfer service or before the first electronic 
fund transfer is made involving the consumer's account.
    (b) Content of disclosures. A financial institution shall provide 
the following disclosures, as applicable:
    (1) Liability of consumer. A summary of the consumer's liability, 
under Sec. 1005.6 or under state or other applicable law or agreement, 
for unauthorized electronic fund transfers.
    (2) Telephone number and address. The telephone number and address 
of the person or office to be notified when the consumer believes that 
an unauthorized electronic fund transfer has been or may be made.
    (3) Business days. The financial institution's business days.
    (4) Types of transfers; limitations. The type of electronic fund 
transfers that the consumer may make and any limitations on the 
frequency and dollar amount of transfers. Details of the limitations 
need not be disclosed if confidentiality is essential to maintain the 
security of the electronic fund transfer system.
    (5) Fees. Any fees imposed by the financial institution for 
electronic fund transfers or for the right to make transfers.
    (6) Documentation. A summary of the consumer's right to receipts and 
periodic statements, as provided in Sec. 1005.9 of this part, and 
notices regarding preauthorized transfers as provided in Sec. 
1005.10(a) and (d).
    (7) Stop payment. A summary of the consumer's right to stop payment 
of a preauthorized electronic fund transfer and the procedure for 
placing a stop-payment order, as provided in Sec. 1005.10(c).
    (8) Liability of institution. A summary of the financial 
institution's liability to the consumer under section 910 of the Act for 
failure to make or to stop certain transfers.
    (9) Confidentiality. The circumstances under which, in the ordinary 
course of business, the financial institution may provide information 
concerning the consumer's account to third parties.
    (10) Error resolution. A notice that is substantially similar to 
Model Form A-3 as set out in appendix A of this part concerning error 
resolution.
    (11) ATM fees. A notice that a fee may be imposed by an automated 
teller machine operator as defined in Sec. 1005.16(a)(1), when the 
consumer initiates an electronic fund transfer or makes a balance 
inquiry, and by any network used to complete the transaction.
    (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.



Sec. 1005.8  Change in terms notice; error resolution notice.

    (a) Change in terms notice--(1) Prior notice required. A financial 
institution shall mail or deliver a written notice to the consumer, at 
least 21 days before the effective date, of any change in a term or 
condition required to be disclosed under Sec. 1005.7(b) of this part if 
the change would result in:
    (i) Increased fees for the consumer;
    (ii) Increased liability for the consumer;
    (iii) Fewer types of available electronic fund transfers; or
    (iv) Stricter limitations on the frequency or dollar amount of 
transfers.
    (2) Prior notice exception. A financial institution need not give 
prior notice if an immediate change in terms or conditions is necessary 
to maintain or restore the security of an account or an electronic fund 
transfer system. If the institution makes such a change permanent and 
disclosure would not jeopardize the security of the account or system, 
the institution shall notify the

[[Page 176]]

consumer in writing on or with the next regularly scheduled periodic 
statement or within 30 days of making the change permanent.
    (b) Error resolution notice. For accounts to or from which 
electronic fund transfers can be made, a financial institution shall 
mail or deliver to the consumer, at least once each calendar year, an 
error resolution notice substantially similar to the model form set 
forth in appendix A of this part (Model Form A-3). Alternatively, an 
institution may include an abbreviated notice substantially similar to 
the model form error resolution notice set forth in appendix A of this 
part (Model Form A-3), on or with each periodic statement required by 
Sec. 1005.9(b).



Sec. 1005.9  Receipts at electronic terminals; periodic statements.

    (a) Receipts at electronic terminals--General. Except as provided in 
paragraph (e) of this section, a financial institution shall make a 
receipt available to a consumer at the time the consumer initiates an 
electronic fund transfer at an electronic terminal. The receipt shall 
set forth the following information, as applicable:
    (1) Amount. The amount of the transfer. A transaction fee may be 
included in this amount, provided the amount of the fee is disclosed on 
the receipt and displayed on or at the terminal.
    (2) Date. The date the consumer initiates the transfer.
    (3) Type. The type of transfer and the type of the consumer's 
account(s) to or from which funds are transferred. The type of account 
may be omitted if the access device used is able to access only one 
account at that terminal.
    (4) Identification. A number or code that identifies the consumer's 
account or accounts, or the access device used to initiate the transfer. 
The number or code need not exceed four digits or letters to comply with 
the requirements of this paragraph (a)(4).
    (5) Terminal location. The location of the terminal where the 
transfer is initiated, or an identification such as a code or terminal 
number. Except in limited circumstances where all terminals are located 
in the same city or state, if the location is disclosed, it shall 
include the city and state or foreign country and one of the following:
    (i) The street address; or
    (ii) A generally accepted name for the specific location; or
    (iii) The name of the owner or operator of the terminal if other 
than the account-holding institution.
    (6) Third party transfer. The name of any third party to or from 
whom funds are transferred.
    (b) Periodic statements. For an account to or from which electronic 
fund transfers can be made, a financial institution shall send a 
periodic statement for each monthly cycle in which an electronic fund 
transfer has occurred; and shall send a periodic statement at least 
quarterly if no transfer has occurred. The statement shall set forth the 
following information, as applicable:
    (1) Transaction information. For each electronic fund transfer 
occurring during the cycle:
    (i) The amount of the transfer;
    (ii) The date the transfer was credited or debited to the consumer's 
account;
    (iii) The type of transfer and type of account to or from which 
funds were transferred;
    (iv) For a transfer initiated by the consumer at an electronic 
terminal (except for a deposit of cash or a check, draft, or similar 
paper instrument), the terminal location described in paragraph (a)(5) 
of this section; and
    (v) The name of any third party to or from whom funds were 
transferred.
    (2) Account number. The number of the account.
    (3) Fees. The amount of any fees assessed against the account during 
the statement period for electronic fund transfers, the right to make 
transfers, or account maintenance.
    (4) Account balances. The balance in the account at the beginning 
and at the close of the statement period.
    (5) Address and telephone number for inquiries. The address and 
telephone number to be used for inquiries or notice of errors, preceded 
by ``Direct inquiries to'' or similar language. The address and 
telephone number provided on an error resolution notice under Sec. 
1005.8(b) given on or with the statement satisfies this requirement.

[[Page 177]]

    (6) Telephone number for preauthorized transfers. A telephone number 
the consumer may call to ascertain whether preauthorized transfers to 
the consumer's account have occurred, if the financial institution uses 
the telephone-notice option under Sec. 1005.10(a)(1)(iii).
    (c) Exceptions to the periodic statement requirement for certain 
accounts--(1) Preauthorized transfers to accounts. For accounts that may 
be accessed only by preauthorized transfers to the account the following 
rules apply:
    (i) Passbook accounts. For passbook accounts, the financial 
institution need not provide a periodic statement if the institution 
updates the passbook upon presentation or enters on a separate document 
the amount and date of each electronic fund transfer since the passbook 
was last presented.
    (ii) Other accounts. For accounts other than passbook accounts, the 
financial institution must send a periodic statement at least quarterly.
    (2) Intra-institutional transfers. For an electronic fund transfer 
initiated by the consumer between two accounts of the consumer in the 
same institution, documenting the transfer on a periodic statement for 
one of the two accounts satisfies the periodic statement requirement.
    (3) Relationship between paragraphs (c)(1) and (2) of this section. 
An account that is accessed by preauthorized transfers to the account 
described in paragraph (c)(1) of this section and by intra-institutional 
transfers described in paragraph (c)(2) of this section, but by no other 
type of electronic fund transfers, qualifies for the exceptions provided 
by paragraph (c)(1) of this section.
    (d) Documentation for foreign-initiated transfers. The failure by a 
financial institution to provide a terminal receipt for an electronic 
fund transfer or to document the transfer on a periodic statement does 
not violate this part if:
    (1) The transfer is not initiated within a state; and
    (2) The financial institution treats an inquiry for clarification or 
documentation as a notice of error in accordance with Sec. 1005.11.
    (e) Exception for receipts in small-value transfers. A financial 
institution is not subject to the requirement to make available a 
receipt under paragraph (a) of this section if the amount of the 
transfer is $15 or less.



Sec. 1005.10  Preauthorized transfers.

    (a) Preauthorized transfers to consumer's account--(1) Notice by 
financial institution. When a person initiates preauthorized electronic 
fund transfers to a consumer's account at least once every 60 days, the 
account-holding financial institution shall provide notice to the 
consumer by:
    (i) Positive notice. Providing oral or written notice of the 
transfer within two business days after the transfer occurs; or
    (ii) Negative notice. Providing oral or written notice, within two 
business days after the date on which the transfer was scheduled to 
occur, that the transfer did not occur; or
    (iii) Readily-available telephone line. Providing a readily 
available telephone line that the consumer may call to determine whether 
the transfer occurred and disclosing the telephone number on the initial 
disclosure of account terms and on each periodic statement.
    (2) Notice by payor. A financial institution need not provide notice 
of a transfer if the payor gives the consumer positive notice that the 
transfer has been initiated.
    (3) Crediting. A financial institution that receives a preauthorized 
transfer of the type described in paragraph (a)(1) of this section shall 
credit the amount of the transfer as of the date the funds for the 
transfer are received.
    (b) Written authorization for preauthorized transfers from 
consumer's account. Preauthorized electronic fund transfers from a 
consumer's account may be authorized only by a writing signed or 
similarly authenticated by the consumer. The person that obtains the 
authorization shall provide a copy to the consumer.
    (c) Consumer's right to stop payment--(1) Notice. A consumer may 
stop payment of a preauthorized electronic fund transfer from the 
consumer's account by notifying the financial institution orally or in 
writing at least three business days before the scheduled date of the 
transfer.

[[Page 178]]

    (2) Written confirmation. The financial institution may require the 
consumer to give written confirmation of a stop-payment order within 14 
days of an oral notification. An institution that requires written 
confirmation shall inform the consumer of the requirement and provide 
the address where confirmation must be sent when the consumer gives the 
oral notification. An oral stop-payment order ceases to be binding after 
14 days if the consumer fails to provide the required written 
confirmation.
    (d) Notice of transfers varying in amount--(1) Notice. When a 
preauthorized electronic fund transfer from the consumer's account will 
vary in amount from the previous transfer under the same authorization 
or from the preauthorized amount, the designated payee or the financial 
institution shall send the consumer written notice of the amount and 
date of the transfer at least 10 days before the scheduled date of 
transfer.
    (2) Range. The designated payee or the institution shall inform the 
consumer of the right to receive notice of all varying transfers, but 
may 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.
    (e) Compulsory use--(1) Credit. No financial institution or other 
person may condition an extension of credit to a consumer on the 
consumer's repayment by preauthorized electronic fund transfers, except 
for credit extended under an overdraft credit plan or extended to 
maintain a specified minimum balance in the consumer's account.
    (2) Employment or government benefit. No financial institution or 
other person may require a consumer to establish an account for receipt 
of electronic fund transfers with a particular institution as a 
condition of employment or receipt of a government benefit.



Sec. 1005.11  Procedures for resolving errors.

    (a) Definition of error--(1) Types of transfers or inquiries 
covered. The term ``error'' means:
    (i) An unauthorized electronic fund transfer;
    (ii) An incorrect electronic fund transfer to or from the consumer's 
account;
    (iii) The omission of an electronic fund transfer from a periodic 
statement;
    (iv) A computational or bookkeeping error made by the financial 
institution relating to an electronic fund transfer;
    (v) The consumer's receipt of an incorrect amount of money from an 
electronic terminal;
    (vi) An electronic fund transfer not identified in accordance with 
Sec. 1005.9 or Sec. 1005.10(a); or
    (vii) The consumer's request for documentation required by Sec. 
1005.9 or Sec. 1005.10(a) or for additional information or 
clarification concerning an electronic fund transfer, including a 
request the consumer makes to determine whether an error exists under 
paragraphs (a)(1)(i) through (vi) of this section.
    (2) Types of inquiries not covered. The term ``error'' does not 
include:
    (i) A routine inquiry about the consumer's account balance;
    (ii) A request for information for tax or other recordkeeping 
purposes; or
    (iii) A request for duplicate copies of documentation.
    (b) Notice of error from consumer--(1) Timing; contents. A financial 
institution shall comply with the requirements of this section with 
respect to any oral or written notice of error from the consumer that:
    (i) Is received by the institution no later than 60 days after the 
institution sends the periodic statement or provides the passbook 
documentation, required by Sec. 1005.9, on which the alleged error is 
first reflected;
    (ii) Enables the institution to identify the consumer's name and 
account number; and
    (iii) Indicates why the consumer believes an error exists and 
includes to the extent possible the type, date, and amount of the error, 
except for requests described in paragraph (a)(1)(vii) of this section.
    (2) Written confirmation. A financial institution may require the 
consumer to give written confirmation of an error within 10 business 
days of an oral

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notice. An institution that requires written confirmation shall inform 
the consumer of the requirement and provide the address where 
confirmation must be sent when the consumer gives the oral notification.
    (3) Request for documentation or clarifications. When a notice of 
error is based on documentation or clarification that the consumer 
requested under paragraph (a)(1)(vii) of this section, the consumer's 
notice of error is timely if received by the financial institution no 
later than 60 days after the institution sends the information 
requested.
    (c) Time limits and extent of investigation--(1) Ten-day period. A 
financial institution shall investigate promptly and, except as 
otherwise provided in this paragraph (c), shall determine whether an 
error occurred within 10 business days of receiving a notice of error. 
The institution shall report the results to the consumer within three 
business days after completing its investigation. The institution shall 
correct the error within one business day after determining that an 
error occurred.
    (2) Forty-five day period. If the financial institution is unable to 
complete its investigation within 10 business days, the institution may 
take up to 45 days from receipt of a notice of error to investigate and 
determine whether an error occurred, provided the institution does the 
following:
    (i) Provisionally credits the consumer's account in the amount of 
the alleged error (including interest where applicable) within 10 
business days of receiving the error notice. If the financial 
institution has a reasonable basis for believing that an unauthorized 
electronic fund transfer has occurred and the institution has satisfied 
the requirements of Sec. 1005.6(a), the institution may withhold a 
maximum of $50 from the amount credited. An institution need not 
provisionally credit the consumer's account if:
    (A) The institution requires but does not receive written 
confirmation within 10 business days of an oral notice of error; or
    (B) The alleged error involves an account that is subject to 
Regulation T of the Board of Governors of the Federal Reserve System 
(Securities Credit by Brokers and Dealers, 12 CFR part 220);
    (ii) Informs the consumer, within two business days after the 
provisional crediting, of the amount and date of the provisional 
crediting and gives the consumer full use of the funds during the 
investigation;
    (iii) Corrects the error, if any, within one business day after 
determining that an error occurred; and
    (iv) Reports the results to the consumer within three business days 
after completing its investigation (including, if applicable, notice 
that a provisional credit has been made final).
    (3) Extension of time periods. The time periods in paragraphs (c)(1) 
and (c)(2) of this section are extended as follows:
    (i) The applicable time is 20 business days in place of 10 business 
days under paragraphs (c)(1) and (2) of this section if the notice of 
error involves an electronic fund transfer to or from the account within 
30 days after the first deposit to the account was made.
    (ii) The applicable time is 90 days in place of 45 days under 
paragraph (c)(2) of this section, for completing an investigation, if a 
notice of error involves an electronic fund transfer that:
    (A) Was not initiated within a state;
    (B) Resulted from a point-of-sale debit card transaction; or
    (C) Occurred within 30 days after the first deposit to the account 
was made.
    (4) Investigation. With the exception of transfers covered by Sec. 
1005.14 of this part, a financial institution's review of its own 
records regarding an alleged error satisfies the requirements of this 
section if:
    (i) The alleged error concerns a transfer to or from a third party; 
and
    (ii) There is no agreement between the institution and the third 
party for the type of electronic fund transfer involved.
    (d) Procedures if financial institution determines no error or 
different error occurred. In addition to following the procedures 
specified in paragraph (c) of this section, the financial institution 
shall follow the procedures set forth in this paragraph (d) if it 
determines that no error occurred or that an error occurred in a manner 
or amount different from that described by the consumer:

[[Page 180]]

    (1) Written explanation. The institution's report of the results of 
its investigation shall include a written explanation of the 
institution's findings and shall note the consumer's right to request 
the documents that the institution relied on in making its 
determination. Upon request, the institution shall promptly provide 
copies of the documents.
    (2) Debiting provisional credit. Upon debiting a provisionally 
credited amount, the financial institution shall:
    (i) Notify the consumer of the date and amount of the debiting;
    (ii) Notify the consumer that the institution will honor checks, 
drafts, or similar instruments payable to third parties and 
preauthorized transfers from the consumer's account (without charge to 
the consumer as a result of an overdraft) for five business days after 
the notification. The institution shall honor items as specified in the 
notice, but need honor only items that it would have paid if the 
provisionally credited funds had not been debited.
    (e) Reassertion of error. A financial institution that has fully 
complied with the error resolution requirements has no further 
responsibilities under this section should the consumer later reassert 
the same error, except in the case of an error asserted by the consumer 
following receipt of information provided under paragraph (a)(1)(vii) of 
this section.



Sec. 1005.12  Relation to other laws.

    (a) Relation to Truth in Lending. (1) The Electronic Fund Transfer 
Act and this part govern:
    (i) The addition to an accepted credit card, as defined in 
Regulation Z (12 CFR 1026.12, comment 12-2), of the capability to 
initiate electronic fund transfers;
    (ii) The issuance of an access device that permits credit extensions 
(under a preexisting agreement between a consumer and a financial 
institution) only when the consumer's account is overdrawn or to 
maintain a specified minimum balance in the consumer's account, or under 
an overdraft service, as defined in Sec. 1005.17(a) of this part;
    (iii) The addition of an overdraft service, as defined in Sec. 
1005.17(a), to an accepted access device; and
    (iv) A consumer's liability for an unauthorized electronic fund 
transfer and the investigation of errors involving an extension of 
credit that occurs under an agreement between the consumer and a 
financial institution to extend credit when the consumer's account is 
overdrawn or to maintain a specified minimum balance in the consumer's 
account, or under an overdraft service, as defined in Sec. 1005.17(a).
    (2) The Truth in Lending Act and Regulation Z (12 CFR part 1026), 
which prohibit the unsolicited issuance of credit cards, govern:
    (i) The addition of a credit feature to an accepted access device; 
and
    (ii) Except as provided in paragraph (a)(1)(ii) of this section, the 
issuance of a credit card that is also an access device.
    (b) Preemption of inconsistent state laws--(1) Inconsistent 
requirements. The Bureau shall determine, upon its own motion or upon 
the request of a state, financial institution, or other interested 
party, whether the Act and this part preempt state law relating to 
electronic fund transfers, or dormancy, inactivity, or service fees, or 
expiration dates in the case of gift certificates, store gift cards, or 
general-use prepaid cards.
    (2) Standards for determination. State law is inconsistent with the 
requirements of the Act and this part if state law:
    (i) Requires or permits a practice or act prohibited by the Federal 
law;
    (ii) Provides for consumer liability for unauthorized electronic 
fund transfers that exceeds the limits imposed by the Federal law;
    (iii) Allows longer time periods than the Federal law for 
investigating and correcting alleged errors, or does not require the 
financial institution to credit the consumer's account during an error 
investigation in accordance with Sec. 1005.11(c)(2)(i) of this part; or
    (iv) Requires initial disclosures, periodic statements, or receipts 
that are different in content from those required by the Federal law 
except to the extent that the disclosures relate to consumer rights 
granted by the state law and not by the Federal law.
    (c) State exemptions--(1) General rule. Any state may apply for an 
exemption

[[Page 181]]

from the requirements of the Act or this part for any class of 
electronic fund transfers within the state. The Bureau shall grant an 
exemption if it determines that:
    (i) Under state law the class of electronic fund transfers is 
subject to requirements substantially similar to those imposed by the 
Federal law; and
    (ii) There is adequate provision for state enforcement.
    (2) Exception. To assure that the Federal and state courts continue 
to have concurrent jurisdiction, and to aid in implementing the Act:
    (i) No exemption shall extend to the civil liability provisions of 
section 916 of the Act; and
    (ii) When the Bureau grants an exemption, the state law requirements 
shall constitute the requirements of the Federal law for purposes of 
section 916 of the Act, except for state law requirements not imposed by 
the Federal law.



Sec. 1005.13  Administrative enforcement; record retention.

    (a) Enforcement by Federal agencies. Compliance with this part is 
enforced in accordance with section 918 of the Act.
    (b) Record retention. (1) Any person subject to the Act and this 
part shall retain evidence of compliance with the requirements imposed 
by the Act and this part for a period of not less than two years from 
the date disclosures are required to be made or action is required to be 
taken.
    (2) Any person subject to the Act and this part having actual notice 
that it is the subject of an investigation or an enforcement proceeding 
by its enforcement agency, or having been served with notice of an 
action filed under sections 910, 916, or 917(a) of the Act, shall retain 
the records that pertain to the investigation, action, or proceeding 
until final disposition of the matter unless an earlier time is allowed 
by court or agency order.



Sec. 1005.14  Electronic fund transfer service provider not holding
consumer's account.

    (a) Provider of electronic fund transfer service. A person that 
provides an electronic fund transfer service to a consumer but that does 
not hold the consumer's account is subject to all requirements of this 
part if the person:
    (1) Issues a debit card (or other access device) that the consumer 
can use to access the consumer's account held by a financial 
institution; and
    (2) Has no agreement with the account-holding institution regarding 
such access.
    (b) Compliance by service provider. In addition to the requirements 
generally applicable under this part, the service provider shall comply 
with the following special rules:
    (1) Disclosures and documentation. The service provider shall give 
the disclosures and documentation required by Sec. Sec. 1005.7, 1005.8, 
and 1005.9 of this part that are within the purview of its relationship 
with the consumer. The service provider need not furnish the periodic 
statement required by Sec. 1005.9(b) if the following conditions are 
met:
    (i) The debit card (or other access device) issued to the consumer 
bears the service provider's name and an address or telephone number for 
making inquiries or giving notice of error;
    (ii) The consumer receives a notice concerning use of the debit card 
that is substantially similar to the notice contained in appendix A of 
this part;
    (iii) The consumer receives, on or with the receipts required by 
Sec. 1005.9(a), the address and telephone number to be used for an 
inquiry, to give notice of an error, or to report the loss or theft of 
the debit card;
    (iv) The service provider transmits to the account-holding 
institution the information specified in Sec. 1005.9(b)(1), in the 
format prescribed by the automated clearinghouse (ACH) system used to 
clear the fund transfers;
    (v) The service provider extends the time period for notice of loss 
or theft of a debit card, set forth in Sec. 1005.6(b)(1) and (2), from 
two business days to four business days after the consumer learns of the 
loss or theft; and extends the time periods for reporting unauthorized 
transfers or errors, set forth in Sec. Sec. 1005.6(b)(3) and 
1005.11(b)(1)(i), from 60 days to 90 days following the transmittal of a 
periodic statement by the account-holding institution.
    (2) Error resolution. (i) The service provider shall extend by a 
reasonable

[[Page 182]]

time the period in which notice of an error must be received, specified 
in Sec. 1005.11(b)(1)(i), if a delay resulted from an initial attempt 
by the consumer to notify the account-holding institution.
    (ii) The service provider shall disclose to the consumer the date on 
which it initiates a transfer to effect a provisional credit in 
accordance with Sec. 1005.11(c)(2)(ii).
    (iii) If the service provider determines an error occurred, it shall 
transfer funds to or from the consumer's account, in the appropriate 
amount and within the applicable time period, in accordance with Sec. 
1005.11(c)(2)(i).
    (iv) If funds were provisionally credited and the service provider 
determines no error occurred, it may reverse the credit. The service 
provider shall notify the account-holding institution of the period 
during which the account-holding institution must honor debits to the 
account in accordance with Sec. 1005.11(d)(2)(ii). If an overdraft 
results, the service provider shall promptly reimburse the account-
holding institution in the amount of the overdraft.
    (c) Compliance by account-holding institution. The account-holding 
institution need not comply with the requirements of the Act and this 
part with respect to electronic fund transfers initiated through the 
service provider except as follows:
    (1) Documentation. The account-holding institution shall provide a 
periodic statement that describes each electronic fund transfer 
initiated by the consumer with the access device issued by the service 
provider. The account-holding institution has no liability for the 
failure to comply with this requirement if the service provider did not 
provide the necessary information; and
    (2) Error resolution. Upon request, the account-holding institution 
shall provide information or copies of documents needed by the service 
provider to investigate errors or to furnish copies of documents to the 
consumer. The account-holding institution shall also honor debits to the 
account in accordance with Sec. 1005.11(d)(2)(ii).



Sec. 1005.15  Electronic fund transfer of government benefits.

    (a) Government agency subject to regulation. (1) A government agency 
is deemed to be a financial institution for purposes of the Act and this 
part if directly or indirectly it issues an access device to a consumer 
for use in initiating an electronic fund transfer of government benefits 
from an account, other than needs-tested benefits in a program 
established under state or local law or administered by a state or local 
agency. The agency shall comply with all applicable requirements of the 
Act and this part, except as provided in this section.
    (2) For purposes of this section, the term ``account'' means an 
account established by a government agency for distributing government 
benefits to a consumer electronically, such as through automated teller 
machines or point-of-sale terminals, but does not include an account for 
distributing needs-tested benefits in a program established under state 
or local law or administered by a state or local agency.
    (b) Issuance of access devices. For purposes of this section, a 
consumer is deemed to request an access device when the consumer applies 
for government benefits that the agency disburses or will disburse by 
means of an electronic fund transfer. The agency shall verify the 
identity of the consumer receiving the device by reasonable means before 
the device is activated.
    (c) Alternative to periodic statement. A government agency need not 
furnish the periodic statement required by Sec. 1005.9(b) if the agency 
makes available to the consumer:
    (1) The consumer's account balance, through a readily available 
telephone line and at a terminal (such as by providing balance 
information at a balance-inquiry terminal or providing it, routinely or 
upon request, on a terminal receipt at the time of an electronic fund 
transfer); and
    (2) A written history of the consumer's account transactions that is 
provided promptly in response to an oral or written request and that 
covers at least 60 days preceding the date of a request by the consumer.
    (d) Modified requirements. A government agency that does not furnish 
periodic statements, in accordance with paragraph (c) of this section, 
shall

[[Page 183]]

comply with the following special rules:
    (1) Initial disclosures. The agency shall modify the disclosures 
under Sec. 1005.7(b) by disclosing:
    (i) Account balance. The means by which the consumer may obtain 
information concerning the account balance, including a telephone 
number. The agency provides a notice substantially similar to the notice 
contained in paragraph A-5 in appendix A of this part.
    (ii) Written account history. A summary of the consumer's right to 
receive a written account history upon request, in place of the periodic 
statement required by Sec. 1005.7(b)(6), and the telephone number to 
call to request an account history. This disclosure may be made by 
providing a notice substantially similar to the notice contained in 
paragraph A-5 in appendix A of this part.
    (iii) Error resolution. A notice concerning error resolution that is 
substantially similar to the notice contained in paragraph A-5 in 
appendix A of this part, in place of the notice required by Sec. 
1005.7(b)(10).
    (2) Annual error resolution notice. The agency shall provide an 
annual notice concerning error resolution that is substantially similar 
to the notice contained in paragraph A-5 in appendix A, in place of the 
notice required by Sec. 1005.8(b).
    (3) Limitations on liability. For purposes of Sec. 1005.6(b)(3), 
regarding a 60-day period for reporting any unauthorized transfer that 
appears on a periodic statement, the 60-day period shall begin with 
transmittal of a written account history or other account information 
provided to the consumer under paragraph (c) of this section.
    (4) Error resolution. The agency shall comply with the requirements 
of Sec. 1005.11 of this part in response to an oral or written notice 
of an error from the consumer that is received no later than 60 days 
after the consumer obtains the written account history or other account 
information, under paragraph (c) of this section, in which the error is 
first reflected.



Sec. 1005.16  Disclosures at automated teller machines.

    (a) Definition. ``Automated teller machine operator'' means any 
person that operates an automated teller machine at which a consumer 
initiates an electronic fund transfer 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.
    (b) General. An automated teller machine operator that imposes a fee 
on a consumer for initiating an electronic fund transfer or a balance 
inquiry shall:
    (1) Provide notice that a fee will be imposed for providing 
electronic fund transfer services or a balance inquiry; and
    (2) Disclose the amount of the fee.
    (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) of 
this section 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 (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.
    (d) Imposition of fee. An automated teller machine operator may 
impose a fee on a consumer for initiating an electronic fund transfer or 
a balance inquiry only if
    (1) The consumer is provided the notices required under paragraph 
(c) of this section, and
    (2) The consumer elects to continue the transaction or inquiry after 
receiving such notices.

[[Page 184]]



Sec. 1005.17  Requirements for overdraft services.

    (a) Definition. For purposes of this section, the term ``overdraft 
service'' means a service under which a financial institution assesses a 
fee or charge on a consumer's account held by the institution for paying 
a transaction (including a check or other item) when the consumer has 
insufficient or unavailable funds in the account. The term ``overdraft 
service'' does not include any payment of overdrafts pursuant to:
    (1) A line of credit subject to Regulation Z (12 CFR part 1026), 
including transfers from a credit card account, home equity line of 
credit, or overdraft line of credit;
    (2) A service that transfers funds from another account held 
individually or jointly by a consumer, such as a savings account; or
    (3) A line of credit or other transaction exempt from Regulation Z 
(12 CFR part 1026) pursuant to 12 CFR 1026.3(d).
    (b) Opt-in requirement--(1) General. Except as provided under 
paragraph (c) of this section, a financial institution holding a 
consumer's account shall not assess a fee or charge on a consumer's 
account for paying an ATM or one-time debit card transaction pursuant to 
the institution's overdraft service, unless the institution:
    (i) Provides the consumer with a notice in writing, or if the 
consumer agrees, electronically, segregated from all other information, 
describing the institution's overdraft service;
    (ii) Provides a reasonable opportunity for the consumer to 
affirmatively consent, or opt in, to the service for ATM and one-time 
debit card transactions;
    (iii) Obtains the consumer's affirmative consent, or opt-in, to the 
institution's payment of ATM or one-time debit card transactions; and
    (iv) Provides the consumer with confirmation of the consumer's 
consent in writing, or if the consumer agrees, electronically, which 
includes a statement informing the consumer of the right to revoke such 
consent.
    (2) Conditioning payment of other overdrafts on consumer's 
affirmative consent. A financial institution shall not:
    (i) Condition the payment of any overdrafts for checks, ACH 
transactions, and other types of transactions on the consumer 
affirmatively consenting to the institution's payment of ATM and one-
time debit card transactions pursuant to the institution's overdraft 
service; or
    (ii) Decline to pay checks, ACH transactions, and other types of 
transactions that overdraw the consumer's account because the consumer 
has not affirmatively consented to the institution's overdraft service 
for ATM and one-time debit card transactions.
    (3) Same account terms, conditions, and features. A financial 
institution shall provide to consumers who do not affirmatively consent 
to the institution's overdraft service for ATM and one-time debit card 
transactions the same account terms, conditions, and features that it 
provides to consumers who affirmatively consent, except for the 
overdraft service for ATM and one-time debit card transactions.
    (c) Timing--(1) Existing account holders. For accounts opened prior 
to July 1, 2010, the financial institution must not assess any fees or 
charges on a consumer's account on or after August 15, 2010, for paying 
an ATM or one-time debit card transaction pursuant to the overdraft 
service, unless the institution has complied with Sec. 1005.17(b)(1) 
and obtained the consumer's affirmative consent.
    (2) New account holders. For accounts opened on or after July 1, 
2010, the financial institution must comply with Sec. 1005.17(b)(1) and 
obtain the consumer's affirmative consent before the institution 
assesses any fee or charge on the consumer's account for paying an ATM 
or one-time debit card transaction pursuant to the institution's 
overdraft service.
    (d) Content and format. The notice required by paragraph (b)(1)(i) 
of this section shall be substantially similar to Model Form A-9 set 
forth in appendix A of this part, include all applicable items in this 
paragraph, and may not contain any information not specified in or 
otherwise permitted by this paragraph.

[[Page 185]]

    (1) Overdraft service. A brief description of the financial 
institution's overdraft service and the types of transactions for which 
a fee or charge for paying an overdraft may be imposed, including ATM 
and one-time debit card transactions.
    (2) Fees imposed. The dollar amount of any fees or charges assessed 
by the financial institution for paying an ATM or one-time debit card 
transaction pursuant to the institution's overdraft service, including 
any daily or other overdraft fees. If the amount of the fee is 
determined on the basis of the number of times the consumer has 
overdrawn the account, the amount of the overdraft, or other factors, 
the institution must disclose the maximum fee that may be imposed.
    (3) Limits on fees charged. The maximum number of overdraft fees or 
charges that may be assessed per day, or, if applicable, that there is 
no limit.
    (4) Disclosure of opt-in right. An explanation of the consumer's 
right to affirmatively consent to the financial institution's payment of 
overdrafts for ATM and one-time debit card transactions pursuant to the 
institution's overdraft service, including the methods by which the 
consumer may consent to the service; and
    (5) Alternative plans for covering overdrafts. If the institution 
offers a line of credit subject to Regulation Z (12 CFR part 1026) or a 
service that transfers funds from another account of the consumer held 
at the institution to cover overdrafts, the institution must state that 
fact. An institution may, but is not required to, list additional 
alternatives for the payment of overdrafts.
    (6) Permitted modifications and additional content. If applicable, 
the institution may modify the content required by Sec. 1005.17(d) to 
indicate that the consumer has the right to opt into, or opt out of, the 
payment of overdrafts under the institution's overdraft service for 
other types of transactions, such as checks, ACH transactions, or 
automatic bill payments; to provide a means for the consumer to exercise 
this choice; and to disclose the associated returned item fee and that 
additional merchant fees may apply. The institution may also disclose 
the consumer's right to revoke consent. For notices provided to 
consumers who have opened accounts prior to July 1, 2010, the financial 
institution may describe the institution's overdraft service with 
respect to ATM and one-time debit card transactions with a statement 
such as ``After August 15, 2010, we will not authorize and pay 
overdrafts for the following types of transactions unless you ask us to 
(see below).''
    (e) Joint relationships. If two or more consumers jointly hold an 
account, the financial institution shall treat the affirmative consent 
of any of the joint consumers as affirmative consent for that account. 
Similarly, the financial institution shall treat a revocation of 
affirmative consent by any of the joint consumers as revocation of 
consent for that account.
    (f) Continuing right to opt in or to revoke the opt-in. A consumer 
may affirmatively consent to the financial institution's overdraft 
service at any time in the manner described in the notice required by 
paragraph (b)(1)(i) of this section. A consumer may also revoke consent 
at any time in the manner made available to the consumer for providing 
consent. A financial institution must implement a consumer's revocation 
of consent as soon as reasonably practicable.
    (g) Duration and revocation of opt-in. A consumer's affirmative 
consent to the institution's overdraft service is effective until 
revoked by the consumer, or unless the financial institution terminates 
the service.



Sec. 1005.18  Requirements for financial institutions offering payroll 
card accounts.

    (a) Coverage. A financial institution shall comply with all 
applicable requirements of the Act and this part with respect to payroll 
card accounts except as provided in this section.
    (b) Alternative to periodic statements. (1) A financial institution 
need not furnish periodic statements required by Sec. 1005.9(b) if the 
institution makes available to the consumer:
    (i) The consumer's account balance, through a readily available 
telephone line;
    (ii) An electronic history of the consumer's account transactions, 
such as through a Web site, that covers at least

[[Page 186]]

60 days preceding the date the consumer electronically accesses the 
account; and
    (iii) A written history of the consumer's account transactions that 
is provided promptly in response to an oral or written request and that 
covers at least 60 days preceding the date the financial institution 
receives the consumer's request.
    (2) The history of account transactions provided under paragraphs 
(b)(1)(ii) and (iii) of this section must include the information set 
forth in Sec. 1005.9(b).
    (c) Modified requirements. A financial institution that provides 
information under paragraph (b) of this section, shall comply with the 
following:
    (1) Initial disclosures. The financial institution shall modify the 
disclosures under Sec. 1005.7(b) by disclosing:
    (i) Account information. A telephone number that the consumer may 
call to obtain the account balance, the means by which the consumer can 
obtain an electronic account history, such as the address of a Web site, 
and a summary of the consumer's right to receive a written account 
history upon request (in place of the summary of the right to receive a 
periodic statement required by Sec. 1005.7(b)(6)), including a 
telephone number to call to request a history. The disclosure required 
by this paragraph (c)(1)(i) may be made by providing a notice 
substantially similar to the notice contained in paragraph A-7(a) in 
appendix A of this part.
    (ii) Error resolution. A notice concerning error resolution that is 
substantially similar to the notice contained in paragraph A-7(b) in 
appendix A of this part, in place of the notice required by Sec. 
1005.7(b)(10).
    (2) Annual error resolution notice. The financial institution shall 
provide an annual notice concerning error resolution that is 
substantially similar to the notice contained in paragraph A-7(b) in 
appendix A of this part, in place of the notice required by Sec. 
1005.8(b). Alternatively, a financial institution may include on or with 
each electronic and written history provided in accordance with Sec. 
1005.18(b)(1), a notice substantially similar to the abbreviated notice 
for periodic statements contained in paragraph A-3(b) in appendix A of 
this part, modified as necessary to reflect the error resolution 
provisions set forth in this section.
    (3) Limitations on liability. (i) For purposes of Sec. 
1005.6(b)(3), the 60-day period for reporting any unauthorized transfer 
shall begin on the earlier of:
    (A) The date the consumer electronically accesses the consumer's 
account under paragraph (b)(1)(ii) of this section, provided that the 
electronic history made available to the consumer reflects the transfer; 
or
    (B) The date the financial institution sends a written history of 
the consumer's account transactions requested by the consumer under 
paragraph (b)(1)(iii) of this section in which the unauthorized transfer 
is first reflected.
    (ii) A financial institution may comply with paragraph (c)(3)(i) of 
this section by limiting the consumer's liability for an unauthorized 
transfer as provided under Sec. 1005.6(b)(3) for any transfer reported 
by the consumer within 120 days after the transfer was credited or 
debited to the consumer's account.
    (4) Error resolution. (i) The financial institution shall comply 
with the requirements of Sec. 1005.11 in response to an oral or written 
notice of an error from the consumer that is received by the earlier of:
    (A) Sixty days after the date the consumer electronically accesses 
the consumer's account under paragraph (b)(1)(ii) of this section, 
provided that the electronic history made available to the consumer 
reflects the alleged error; or
    (B) Sixty days after the date the financial institution sends a 
written history of the consumer's account transactions requested by the 
consumer under paragraph (b)(1)(iii) of this section in which the 
alleged error is first reflected.
    (ii) In lieu of following the procedures in paragraph (c)(4)(i) of 
this section, a financial institution complies with the requirements for 
resolving errors in Sec. 1005.11 if it investigates any oral or written 
notice of an error from the consumer that is received by the institution 
within 120 days after the transfer allegedly in error was credited or 
debited to the consumer's account.

[[Page 187]]



Sec. 1005.20  Requirements for gift cards and gift certificates.

    (a) Definitions. For purposes of this section, except as excluded 
under paragraph (b), the following definitions apply:
    (1) ``Gift certificate'' means a card, code, or other device that 
is:
    (i) Issued on a prepaid basis primarily for personal, family, or 
household purposes to a consumer in a specified amount that may not be 
increased or reloaded in exchange for payment; and
    (ii) Redeemable upon presentation at a single merchant or an 
affiliated group of merchants for goods or services.
    (2) ``Store gift card'' means a card, code, or other device that is:
    (i) Issued on a prepaid basis primarily for personal, family, or 
household purposes to a consumer in a specified amount, whether or not 
that amount may be increased or reloaded, in exchange for payment; and
    (ii) Redeemable upon presentation at a single merchant or an 
affiliated group of merchants for goods or services.
    (3) ``General-use prepaid card'' means a card, code, or other device 
that is:
    (i) Issued on a prepaid basis primarily for personal, family, or 
household purposes to a consumer in a specified amount, whether or not 
that amount may be increased or reloaded, in exchange for payment; and
    (ii) Redeemable upon presentation at multiple, unaffiliated 
merchants for goods or services, or usable at automated teller machines.
    (4) ``Loyalty, award, or promotional gift card'' means a card, code, 
or other device that:
    (i) Is issued on a prepaid basis primarily for personal, family, or 
household purposes to a consumer in connection with a loyalty, award, or 
promotional program;
    (ii) Is redeemable upon presentation at one or more merchants for 
goods or services, or usable at automated teller machines; and
    (iii) Sets forth the following disclosures, as applicable:
    (A) A statement indicating that the card, code, or other device is 
issued for loyalty, award, or promotional purposes, which must be 
included on the front of the card, code, or other device;
    (B) The expiration date for the underlying funds, which must be 
included on the front of the card, code, or other device;
    (C) The amount of any fees that may be imposed in connection with 
the card, code, or other device, and the conditions under which they may 
be imposed, which must be provided on or with the card, code, or other 
device; and
    (D) A toll-free telephone number and, if one is maintained, a Web 
site, that a consumer may use to obtain fee information, which must be 
included on the card, code, or other device.
    (5) Dormancy or inactivity fee. The terms ``dormancy fee'' and 
``inactivity fee'' mean a fee for non-use of or inactivity on a gift 
certificate, store gift card, or general-use prepaid card.
    (6) Service fee. The term ``service fee'' means a periodic fee for 
holding or use of a gift certificate, store gift card, or general-use 
prepaid card. A periodic fee includes any fee that may be imposed on a 
gift certificate, store gift card, or general-use prepaid card from time 
to time for holding or using the certificate or card.
    (7) Activity. The term ``activity'' means any action that results in 
an increase or decrease of the funds underlying a certificate or card, 
other than the imposition of a fee, or an adjustment due to an error or 
a reversal of a prior transaction.
    (b) Exclusions. The terms ``gift certificate,'' ``store gift card,'' 
and ``general-use prepaid card'', as defined in paragraph (a) of this 
section, do not include any card, code, or other device that is:
    (1) Useable solely for telephone services;
    (2) Reloadable and not marketed or labeled as a gift card or gift 
certificate. For purposes of this paragraph (b)(2), the term 
``reloadable'' includes a temporary non-reloadable card issued solely in 
connection with a reloadable card, code, or other device;
    (3) A loyalty, award, or promotional gift card;
    (4) Not marketed to the general public;
    (5) Issued in paper form only; or

[[Page 188]]

    (6) Redeemable solely for admission to events or venues at a 
particular location or group of affiliated locations, or to obtain goods 
or services in conjunction with admission to such events or venues, 
either at the event or venue or at specific locations affiliated with 
and in geographic proximity to the event or venue.
    (c) Form of disclosures--(1) Clear and conspicuous. Disclosures made 
under this section must be clear and conspicuous. The disclosures may 
contain commonly accepted or readily understandable abbreviations or 
symbols.
    (2) Format. Disclosures made under this section generally must be 
provided to the consumer in written or electronic form. Except for the 
disclosures in paragraphs (c)(3) and (h)(2) of this section, written and 
electronic disclosures made under this section must be in a retainable 
form. Only disclosures provided under paragraphs (c)(3) and (h)(2) may 
be given orally.
    (3) Disclosures prior to purchase. Before a gift certificate, store 
gift card, or general-use prepaid card is purchased, a person that 
issues or sells such certificate or card must disclose to the consumer 
the information required by paragraphs (d)(2), (e)(3), and (f)(1) of 
this section. The fees and terms and conditions of expiration that are 
required to be disclosed prior to purchase may not be changed after 
purchase.
    (4) Disclosures on the certificate or card. Disclosures required by 
paragraphs (a)(4)(iii), (d)(2), (e)(3), and (f)(2) of this section must 
be made on the certificate or card, or in the case of a loyalty, award, 
or promotional gift card, on the card, code, or other device. A 
disclosure made in an accompanying terms and conditions document, on 
packaging surrounding a certificate or card, or on a sticker or other 
label affixed to the certificate or card does not constitute a 
disclosure on the certificate or card. For an electronic certificate or 
card, disclosures must be provided electronically on the certificate or 
card provided to the consumer. An issuer that provides a code or 
confirmation to a consumer orally must provide to the consumer a written 
or electronic copy of the code or confirmation promptly, and the 
applicable disclosures must be provided on the written copy of the code 
or confirmation.
    (d) Prohibition on imposition of fees or charges. No person may 
impose a dormancy, inactivity, or service fee with respect to a gift 
certificate, store gift card, or general-use prepaid card, unless:
    (1) There has been no activity with respect to the certificate or 
card, in the one-year period ending on the date on which the fee is 
imposed;
    (2) The following are stated, as applicable, clearly and 
conspicuously on the gift certificate, store gift card, or general-use 
prepaid card:
    (i) The amount of any dormancy, inactivity, or service fee that may 
be charged;
    (ii) How often such fee may be assessed; and
    (iii) That such fee may be assessed for inactivity; and
    (3) Not more than one dormancy, inactivity, or service fee is 
imposed in any given calendar month.
    (e) Prohibition on sale of gift certificates or cards with 
expiration dates. No person may sell or issue a gift certificate, store 
gift card, or general-use prepaid card with an expiration date, unless:
    (1) The person has established policies and procedures to provide 
consumers with a reasonable opportunity to purchase a certificate or 
card with at least five years remaining until the certificate or card 
expiration date;
    (2) The expiration date for the underlying funds is at least the 
later of:
    (i) Five years after the date the gift certificate was initially 
issued, or the date on which funds were last loaded to a store gift card 
or general-use prepaid card; or
    (ii) The certificate or card expiration date, if any;
    (3) The following disclosures are provided on the certificate or 
card, as applicable:
    (i) The expiration date for the underlying funds or, if the 
underlying funds do not expire, that fact;
    (ii) A toll-free telephone number and, if one is maintained, a Web 
site that a

[[Page 189]]

consumer may use to obtain a replacement certificate or card after the 
certificate or card expires if the underlying funds may be available; 
and
    (iii) Except where a non-reloadable certificate or card bears an 
expiration date that is at least seven years from the date of 
manufacture, a statement, disclosed with equal prominence and in close 
proximity to the certificate or card expiration date, that:
    (A) The certificate or card expires, but the underlying funds either 
do not expire or expire later than the certificate or card, and;
    (B) The consumer may contact the issuer for a replacement card; and
    (4) No fee or charge is imposed on the cardholder for replacing the 
gift certificate, store gift card, or general-use prepaid card or for 
providing the certificate or card holder with the remaining balance in 
some other manner prior to the funds expiration date, unless such 
certificate or card has been lost or stolen.
    (f) Additional disclosure requirements for gift certificates or 
cards. The following disclosures must be provided in connection with a 
gift certificate, store gift card, or general-use prepaid card, as 
applicable:
    (1) Fee disclosures. For each type of fee that may be imposed in 
connection with the certificate or card (other than a dormancy, 
inactivity, or service fee subject to the disclosure requirements under 
paragraph (d)(2) of this section), the following information must be 
provided on or with the certificate or card:
    (i) The type of fee;
    (ii) The amount of the fee (or an explanation of how the fee will be 
determined); and
    (iii) The conditions under which the fee may be imposed.
    (2) Telephone number for fee information. A toll-free telephone 
number and, if one is maintained, a Web site, that a consumer may use to 
obtain information about fees described in paragraphs (d)(2) and (f)(1) 
of this section must be disclosed on the certificate or card.
    (g) Compliance dates--(1) Effective date for gift certificates, 
store gift cards, and general-use prepaid cards. Except as provided in 
paragraph (h) of this section, the requirements of this section apply to 
any gift certificate, store gift card, or general-use prepaid card sold 
to a consumer on or after August 22, 2010, or provided to a consumer as 
a replacement for such certificate or card.
    (2) Effective date for loyalty, award, or promotional gift cards. 
The requirements in paragraph (a)(4)(iii) of this section apply to any 
card, code, or other device provided to a consumer in connection with a 
loyalty, award, or promotional program if the period of eligibility for 
such program began on or after August 22, 2010.
    (h) Temporary exemption--(1) Delayed mandatory compliance date. For 
any gift certificate, store gift card, or general-use prepaid card 
produced prior to April 1, 2010, the mandatory compliance date of the 
requirements of paragraphs (c)(3), (d)(2), (e)(1), (e)(3), and (f) of 
this section is January 31, 2011, provided that an issuer of such 
certificate or card:
    (i) Complies with all other provisions of this section;
    (ii) Does not impose an expiration date with respect to the funds 
underlying such certificate or card;
    (iii) At the consumer's request, replaces such certificate or card 
if it has funds remaining at no cost to the consumer; and
    (iv) Satisfies the requirements of paragraph (h)(2) of this section.
    (2) Additional disclosures. Issuers relying on the delayed effective 
date in Sec. 1005.20(h)(1) must disclose through in-store signage, 
messages during customer service calls, Web sites, and general 
advertising, that:
    (i) The underlying funds of such certificate or card do not expire;
    (ii) Consumers holding such certificate or card have a right to a 
free replacement certificate or card, which must be accompanied by the 
packaging and materials typically associated with such certificate or 
card; and
    (iii) Any dormancy, inactivity, or service fee for such certificate 
or card that might otherwise be charged will not be charged if such fees 
do not comply with section 916 of the Act.
    (3) Expiration of additional disclosure requirements. The 
disclosures in paragraph (h)(2) of this section:
    (i) Are not required to be provided on or after January 31, 2011, 
with respect

[[Page 190]]

to in-store signage and general advertising.
    (ii) Are not required to be provided on or after January 31, 2013, 
with respect to messages during customer service calls and Web sites.



    Sec. Appendix A to Part 1005--Model Disclosure Clauses and Forms

A-1--Model Clauses for Unsolicited Issuance (Sec. 1005.5(b)(2))
A-2--Model Clauses for Initial Disclosures (Sec. 1005.7(b))
A-3--Model Forms for Error Resolution Notice (Sec. Sec. 1005.7(b)(10) 
          and 1005.8(b))
A-4--Model Form for Service-Providing Institutions (Sec. 
          1005.14(b)(1)(ii))
A-5--Model Forms for Government Agencies (Sec. 1005.15(d)(1) and (2))
A-6--Model Clauses for Authorizing One-Time Electronic Fund Transfers 
          Using Information From a Check (Sec. 1005.3(b)(2))
A-7--Model Clauses for Financial Institutions Offering Payroll Card 
          Accounts (Sec. 1005.18(c))
A-8--Model Clause for Electronic Collection of Returned Item Fees (Sec. 
          1005.3(b)(3))
A-9--Model Consent Form for Overdraft Services (Sec. 1005.17)

    A-1--Model Clauses for Unsolicited Issuance (Sec. 1005.5(b)(2))

    (a) Accounts using cards. You cannot use the enclosed card to 
transfer money into or out of your account until we have validated it. 
If you do not want to use the card, please (destroy it at once by 
cutting it in half).
    [Financial institution may add validation instructions here.]
    (b) Accounts using codes. You cannot use the enclosed code to 
transfer money into or out of your account until we have validated it. 
If you do not want to use the code, please (destroy this notice at 
once).
    [Financial institution may add validation instructions here.]

      A-2--Model Clauses for Initial Disclosures (Sec. 1005.7(b))

    (a) Consumer Liability (Sec. 1005.7(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 (Sec. 1005.7(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.
    (c) Business days (Sec. 1005.7(b)(3)). For purposes of these 
disclosures, our business days are (Monday through Friday) (Monday 
through Saturday) (any day including Saturdays and Sundays). Holidays 
are (not) included.
    (d) Transfer types and limitations (Sec. 1005.7(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

[[Page 191]]

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.
    (e) Fees (Sec. 1005.7(b)(5)) (1) Per transfer charge. We will 
charge you [insert dollar amount] for each transfer you make using our 
[automated teller machines] [telephone bill-payment service] [point-of-
sale transfer service].
    (2) Fixed charge. We will charge you [insert dollar amount] each 
[insert time period] for our [automated teller machine service] 
[telephone bill-payment service] [point-of-sale transfer service].
    (3) Average or minimum balance charge. We will only charge you for 
using our [automated teller machines] [telephone bill-payment service] 
[point-of-sale transfer service] if the [average] [minimum] balance in 
your [checking account] [savings account] [accounts] falls below [insert 
dollar amount]. If it does, we will charge you [insert dollar amount] 
each [transfer] [insert time period].
    (f) Confidentiality (Sec. 1005.7(b)(9)). We will disclose 
information to third parties about your account or the transfers you 
make:
    (i) Where it is necessary for completing transfers, or
    (ii) In order to verify the existence and condition of your account 
for a third party, such as a credit bureau or merchant, or
    (iii) In order to comply with government agency or court orders, or
    (iv) If you give us your written permission.
    (g) Documentation (Sec. 1005.7(b)(6)) (1) Terminal transfers. You 
can get a receipt at the time you make any transfer to or from your 
account using one of our [automated teller machines] [or] [point-of-sale 
terminals].
    (2) Preauthorized credits. If you have arranged to have direct 
deposits made to your account at least once every 60 days from the same 
person or company, (we will let you know if the deposit is [not] made.) 
[the person or company making the deposit will tell you every time they 
send us the money] [you can call us at (insert telephone number) to find 
out whether or not the deposit has been made].
    (3) Periodic statements. You will get a [monthly] [quarterly] 
account statement (unless there are no transfers in a particular month. 
In any case you will get the statement at least quarterly).
    (4) Passbook account where the only possible electronic fund 
transfers are preauthorized credits. If you bring your passbook to us, 
we will record any electronic deposits that were made to your account 
since the last time you brought in your passbook.
    (h) Preauthorized payments (Sec. 1005.7(b) (6), (7) and (8); Sec. 
1005.10(d)) (1) Right to stop payment and procedure for doing so. If you 
have told us in advance to make regular payments out of your account, 
you can stop any of these payments. Here's how:
    Call us at [insert telephone number], or write us at [insert 
address], in time for us to receive your request 3 business days or more 
before the payment is scheduled to be made. If you call, we may also 
require you to put your request in writing and get it to us within 14 
days after you call. (We will charge you [insert amount] for each stop-
payment order you give.)
    (2) Notice of varying amounts. If these regular payments may vary in 
amount, [we] [the person you are going to pay] will tell you, 10 days 
before each payment, when it will be made and how much it will be. (You 
may choose instead to get this notice only when the payment would differ 
by more than a certain amount from the previous payment, or when the 
amount would fall outside certain limits that you set.)
    (3) Liability for failure to stop payment of preauthorized transfer. 
If you order us to stop one of these payments 3 business days or more 
before the transfer is scheduled, and we do not do so, we will be liable 
for your losses or damages.
    (i) Financial institution's liability (Sec. 1005.7(b)(8)). If we do 
not complete a transfer to or from your account on time or in the 
correct amount according to our agreement with you, we will be liable 
for your losses or damages. However, there are some exceptions. We will 
not be liable, for instance:
    (1) If, through no fault of ours, you do not have enough money in 
your account to make the transfer.
    (2) If the transfer would go over the credit limit on your overdraft 
line.
    (3) If the automated teller machine where you are making the 
transfer does not have enough cash.
    (4) If the [terminal] [system] was not working properly and you knew 
about the breakdown when you started the transfer.
    (5) If circumstances beyond our control (such as fire or flood) 
prevent the transfer, despite reasonable precautions that we have taken.
    (6) There may be other exceptions stated in our agreement with you.
    (j) ATM fees (Sec. 1005.7(b)(11)). When you use an ATM not owned by 
us, you may be charged a fee by the ATM operator [or any network used] 
(and you may be charged a fee for a balance inquiry even if you do not 
complete a fund transfer).

 A-3--Model Forms for Error Resolution Notice (Sec. Sec. 1005.7(b)(10) 
                             and 1005.8(b))

    (a) Initial and annual error resolution notice (Sec. Sec. 
1005.7(b)(10) and 1005.8(b)).

[[Page 192]]

    In Case of Errors or Questions About Your Electronic Transfers 
Telephone us at [insert telephone number] Write us at [insert address] 
[or email us at [insert email 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 (Sec. 
1005.8(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.
    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-4--Model Form for Service-Providing Institutions (Sec. 
                           1005.14(b)(1)(ii))

    ALL QUESTIONS ABOUT TRANSACTIONS MADE WITH YOUR (NAME OF CARD) CARD 
MUST BE DIRECTED TO US (NAME OF SERVICE PROVIDER), AND NOT TO THE BANK 
OR OTHER FINANCIAL INSTITUTION WHERE YOU HAVE YOUR ACCOUNT. We are 
responsible for the [name of service] service and for resolving any 
errors in transactions made with your [name of card] card.
    We will not send you a periodic statement listing transactions that 
you make using your [name of card] card. The transactions will appear 
only on the statement issued by your bank or other financial 
institution. SAVE THE RECEIPTS YOU ARE GIVEN WHEN YOU USE YOUR [NAME OF 
CARD] CARD, AND CHECK THEM AGAINST THE ACCOUNT STATEMENT YOU RECEIVE 
FROM YOUR BANK OR OTHER FINANCIAL INSTITUTION. If you have any questions 
about one of these transactions, call or write us at [telephone number 
and address] [the telephone number and address indicated below].
    IF YOUR [NAME OF CARD] CARD IS LOST OR STOLEN, NOTIFY US AT ONCE by 
calling or writing to us at [telephone number and address].

 A-5--Model Forms for Government Agencies (Sec. 1005.15(d)(1) and (2))

    (a) Disclosure by government agencies of information about obtaining 
account balances and account histories (Sec. 1005.15(d)(1)(i) and 
(ii)).
    You may obtain information about the amount of benefits you have 
remaining by calling [telephone number]. That information is also 
available [on the receipt you get when you make a transfer with your 
card at (an ATM)(a POS terminal)][when you make a balance inquiry at an 
ATM][when you make a balance inquiry at specified locations].
    You also have the right to receive a written summary of transactions 
for the 60 days preceding your request by calling [telephone number]. 
[Optional: Or you may request the summary by contacting your 
caseworker.]
    (b) Disclosure of error resolution procedures for government 
agencies that do not provide periodic statements (Sec. 
1005.15(d)(1)(iii) and (d)(2)).

[[Page 193]]

    In Case of Errors or Questions About Your Electronic Transfers 
Telephone us at [telephone number] Write us at [insert address] [or 
email us at [insert email address]] as soon as you can, if you think an 
error has occurred in your [EBT][agency's name for program] account. We 
must hear from you no later than 60 days after you learn of the error. 
You will need to tell us:
     Your name and [case] [file] number.
     Why you believe there is an error, and the dollar 
amount involved.
     Approximately when the error took place.
    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.
    If you need more information about our error resolution procedures, 
call us at [telephone number][the telephone number shown above].

 A-6--Model Clauses for Authorizing One-Time Electronic Fund Transfers 
           Using Information From a Check (Sec. 1005.3(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.
    (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).]
    (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].

  A-7--Model Clauses for Financial Institutions Offering Payroll Card 
                       Accounts (Sec. 1005.18(c))

    (a) Disclosure by financial institutions of information about 
obtaining account information for payroll card accounts. Sec. 
1005.18(c)(1).
    You may obtain information about the amount of money you have 
remaining in your payroll card account by calling [telephone number]. 
This information, along with a 60-day history of account transactions, 
is also available online at [internet address].
    You also have the right to obtain a 60-day written history of 
account transactions by calling [telephone number], or by writing us at 
[address].
    (b) Disclosure of error-resolution procedures for financial 
institutions that provide alternative means of obtaining payroll card 
account information (Sec. 1005.18(c)(1)(ii) and (c)(2)).
    In Case of Errors or Questions About Your Payroll Card Account 
Telephone us at [telephone number] or Write us at [address] [or email us 
at [email address]] as soon as you can, if you think an error has 
occurred in your payroll card account. We must allow you to report an 
error until 60 days after the earlier of the date you electronically 
access your account, if the error could be viewed in your electronic 
history, or the date we sent the FIRST written history on which the 
error appeared. You may request a written history of your transactions 
at any time by calling us at [telephone number] or writing us at 
[address]. You will need to tell us:
    Your name and [payroll card account] number.
    Why you believe there is an error, and the dollar amount involved.
    Approximately when the error took place.
    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 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

[[Page 194]]

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.
    If you need more information about our error-resolution procedures, 
call us at [telephone number] [the telephone number shown above] [or 
visit [internet address]].

A-8--Model Clause for Electronic Collection of Returned Item Fees (Sec. 
                              1005.3(b)(3))

    If your payment is returned unpaid, you authorize [us/name of person 
collecting the fee electronically] to make a one-time electronic fund 
transfer from your account to collect a fee of [$--------]. [If your 
payment is returned unpaid, you authorize [us/name of person collecting 
the fee electronically] to make a one-time electronic fund transfer from 
your account to collect a fee. The fee will be determined [by]/[as 
follows]:

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[GRAPHIC] [TIFF OMITTED] TR27DE11.000


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                 Sec. Appendix B to Part 1005 [Reserved]



   Sec. Appendix C to Part 1005--Issuance of Official Interpretations

                        Official Interpretations

    Pursuant to section 916(d) of the Act, the Bureau has designated the 
Associate Director and other officials of the Division of Research, 
Markets, and Regulations as officials ``duly authorized'' to issue, at 
their discretion, official interpretations of this part. Except in 
unusual circumstances, such interpretations will not be issued 
separately but will be incorporated in an official commentary to this 
part, which will be amended periodically.

            Requests for Issuance of Official Interpretations

    A request for an official interpretation shall be in writing and 
addressed to the Bureau of Consumer Financial Protection, 1700 G Street 
NW., Washington, DC 20006. The request shall contain a complete 
statement of all relevant facts concerning the issue, including copies 
of all pertinent documents.

                        Scope of Interpretations

    No interpretations will be issued approving financial institutions' 
forms or statements. This restriction does not apply to forms or 
statements whose use is required or sanctioned by a government agency.



        Sec. Supplement I to Part 1005--Official Interpretations

                       Section 1005.2 Definitions

                           2(a) Access Device

    1. Examples. The term ``access device'' includes debit cards, 
personal identification numbers (PINs), telephone transfer and telephone 
bill payment codes, and other means that may be used by a consumer to 
initiate an electronic fund transfer (EFT) to or from a consumer 
account. The term does not include magnetic tape or other devices used 
internally by a financial institution to initiate electronic transfers.
    2. Checks used to capture information. The term ``access device'' 
does not include a check or draft used to capture the Magnetic Ink 
Character Recognition (MICR) encoding to initiate a one-time automated 
clearinghouse (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.)

                              2(b) Account

    1. Consumer asset account. The term ``consumer asset account'' 
includes:
    i. Club accounts, such as vacation clubs. In many cases, however, 
these accounts are exempt from the regulation under Sec. 1005.3(c)(5) 
because all electronic transfers to or from the account have been 
preauthorized by the consumer and involve another account of the 
consumer at the same institution.
    ii. A retail repurchase agreement (repo), which is a loan made to a 
financial institution by a consumer that is collateralized by government 
or government-insured securities.
    2. Certain employment-related cards not covered. The term ``payroll 
card account'' does not include a card used solely to disburse 
incentive-based payments (other than commissions which can represent the 
primary means through which a consumer is paid), such as bonuses, which 
are unlikely to be a consumer's primary source of salary or other 
compensation. The term also does not include a card used solely to make 
disbursements unrelated to compensation, such as petty cash 
reimbursements or travel per diem payments. Similarly, a payroll card 
account does not include a card that is used in isolated instances to 
which an employer typically does not make recurring payments, such as 
when providing final payments or in emergency situations when other 
payment methods are unavailable. However, all transactions involving the 
transfer of funds to or from a payroll card account are covered by the 
regulation, even if a particular transaction involves payment of a 
bonus, other incentive-based payment, or reimbursement, or the 
transaction does not represent a transfer of wages, salary, or other 
employee compensation.
    3. Examples of accounts not covered by Regulation E (12 CFR Part 
1005) include:
    i. Profit-sharing and pension accounts established under a trust 
agreement, which are exempt under Sec. 1005.2(b)(2).
    ii. Escrow accounts, such as those established to ensure payment of 
items such as real estate taxes, insurance premiums, or completion of 
repairs or improvements.
    iii. Accounts for accumulating funds to purchase U.S. savings bonds.

                            Paragraph 2(b)(2)

    1. Bona fide trust agreements. The term ``bona fide trust 
agreement'' is not defined by the Act or regulation; therefore, 
financial institutions must look to state or other applicable law for 
interpretation.
    2. Custodial agreements. An account held under a custodial agreement 
that qualifies as a trust under the Internal Revenue Code,

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such as an individual retirement account, is considered to be held under 
a trust agreement for purposes of Regulation E.

                            2(d) Business Day

    1. Duration. A business day includes the entire 24-hour period 
ending at midnight, and a notice required by the regulation is effective 
even if given outside normal business hours. The regulation does not 
require, however, that a financial institution make telephone lines 
available on a 24-hour basis.
    2. Substantially all business functions. Substantially all business 
functions include both the public and the back-office operations of the 
institution. For example, if the offices of an institution are open on 
Saturdays for handling some consumer transactions (such as deposits, 
withdrawals, and other teller transactions), but not for performing 
internal functions (such as investigating account errors), then Saturday 
is not a business day for that institution. In this case, Saturday does 
not count toward the business-day standard set by the regulation for 
reporting lost or stolen access devices, resolving errors, etc.
    3. Short hours. A financial institution may determine, at its 
election, whether an abbreviated day is a business day. For example, if 
an institution engages in substantially all business functions until 
noon on Saturdays instead of its usual 3 p.m. closing, it may consider 
Saturday a business day.
    4. Telephone line. If a financial institution makes a telephone line 
available on Sundays for reporting the loss or theft of an access 
device, but performs no other business functions, Sunday is not a 
business day under the substantially all business functions standard.

                        2(h) Electronic Terminal

    1. Point-of-sale (POS) payments initiated by telephone. Because the 
term ``electronic terminal'' excludes a telephone operated by a 
consumer, a financial institution need not provide a terminal receipt 
when:
    i. A consumer uses a debit card at a public telephone to pay for the 
call.
    ii. A consumer initiates a transfer by a means analogous in function 
to a telephone, such as by home banking equipment or a facsimile 
machine.
    2. POS terminals. A POS terminal that captures data electronically, 
for debiting or crediting to a consumer's asset account, is an 
electronic terminal for purposes of Regulation E even if no access 
device is used to initiate the transaction. See Sec. 1005.9 for receipt 
requirements.
    3. Teller-operated terminals. A terminal or other computer equipment 
operated by an employee of a financial institution is not an electronic 
terminal for purposes of the regulation. However, transfers initiated at 
such terminals by means of a consumer's access device (using the 
consumer's PIN, for example) are EFTs and are subject to other 
requirements of the regulation. If an access device is used only for 
identification purposes or for determining the account balance, the 
transfers are not EFTs for purposes of the regulation.

               2(k) Preauthorized Electronic Fund Transfer

    1. Advance authorization. A preauthorized electronic fund transfer 
under Regulation E is one authorized by the consumer in advance of a 
transfer that will take place on a recurring basis, at substantially 
regular intervals, and will require no further action by the consumer to 
initiate the transfer. In a bill-payment system, for example, if the 
consumer authorizes a financial institution to make monthly payments to 
a payee by means of EFTs, and the payments take place without further 
action by the consumer, the payments are preauthorized EFTs. In 
contrast, if the consumer must take action each month to initiate a 
payment (such as by entering instructions on a touch-tone telephone or 
home computer), the payments are not preauthorized EFTs.

               2(m) Unauthorized Electronic Fund Transfer

    1. Transfer by institution's employee. A consumer has no liability 
for erroneous or fraudulent transfers initiated by an employee of a 
financial institution.
    2. Authority. If a consumer furnishes an access device and grants 
authority to make transfers to a person (such as a family member or co-
worker) who exceeds the authority given, the consumer is fully liable 
for the transfers unless the consumer has notified the financial 
institution that transfers by that person are no longer authorized.
    3. Access device obtained through robbery or fraud. An unauthorized 
EFT includes a transfer initiated by a person who obtained the access 
device from the consumer through fraud or robbery.
    4. Forced initiation. An EFT at an ATM is an unauthorized transfer 
if the consumer has been induced by force to initiate the transfer.
    5. Reversal of direct deposits. The reversal of a direct deposit 
made in error is not an unauthorized EFT when it involves:
    i. A credit made to the wrong consumer's account;
    ii. A duplicate credit made to a consumer's account; or
    iii. A credit in the wrong amount (for example, when the amount 
credited to the consumer's account differs from the amount in the 
transmittal instructions).

[[Page 198]]

                         Section 1005.3 Coverage

                              3(a) General

    1. Accounts covered. The requirements of the regulation apply only 
to an account for which an agreement for EFT services to or from the 
account has been entered into between:
    i. The consumer and the financial institution (including an account 
for which an access device has been issued to the consumer, for 
example);
    ii. The consumer and a third party (for preauthorized debits or 
credits, for example), when the account-holding institution has received 
notice of the agreement and the fund transfers have begun.
    2. Automated clearing house (ACH) membership. The fact that 
membership in an ACH requires a financial institution to accept EFTs to 
accounts at the institution does not make every account of that 
institution subject to the regulation.
    3. Foreign applicability. Regulation E applies to all persons 
(including branches and other offices of foreign banks located in the 
United States) that offer EFT services to residents of any state, 
including resident aliens. It covers any account located in the United 
States through which EFTs are offered to a resident of a state. This is 
the case whether or not a particular transfer takes place in the United 
States and whether or not the financial institution is chartered in the 
United States or a foreign country. The regulation does not apply to a 
foreign branch of a U.S. bank unless the EFT services are offered in 
connection with an account in a state as defined in Sec. 1005.2(l).

                      3(b) Electronic Fund Transfer

                           3(b)(1) Definition

    1. Fund transfers covered. The term ``electronic fund transfer'' 
includes:
    i. A deposit made at an ATM or other electronic terminal (including 
a deposit in cash or by check) provided a specific agreement exists 
between the financial institution and the consumer for EFTs to or from 
the account to which the deposit is made.
    ii. A transfer sent via ACH. For example, social security benefits 
under the U.S. Treasury's direct-deposit program are covered, even if 
the listing of payees and payment amounts reaches the account-holding 
institution by means of a computer printout from a correspondent bank.
    iii. A preauthorized transfer credited or debited to an account in 
accordance with instructions contained on magnetic tape, even if the 
financial institution holding the account sends or receives a composite 
check.
    iv. A transfer from the consumer's account resulting from a debit-
card transaction at a merchant location, even if no electronic terminal 
is involved at the time of the transaction, if the consumer's asset 
account is subsequently debited for the amount of the transfer.
    v. A transfer via ACH where a consumer has provided a check to 
enable the merchant or other payee to capture the routing, account, and 
serial numbers to initiate the transfer, whether the check is blank, 
partially completed, or fully completed and signed; whether the check is 
presented at POS or is mailed to a merchant or other payee or lockbox 
and later converted to an EFT; or whether the check is retained by the 
consumer, the merchant or other payee, or the payee's financial 
institution.
    vi. A payment made by a bill payer under a bill-payment service 
available to a consumer via computer or other electronic means, unless 
the terms of the bill-payment service explicitly state that all 
payments, or all payments to a particular payee or payees, will be 
solely by check, draft, or similar paper instrument drawn on the 
consumer's account, and the payee or payees that will be paid in this 
manner are identified to the consumer.
    2. Fund transfers not covered. The term ``electronic fund transfer'' 
does not include:
    i. A payment that does not debit or credit a consumer asset account, 
such as a payroll allotment to a creditor to repay a credit extension 
(which is deducted from salary).
    ii. A payment made in currency by a consumer to another person at an 
electronic terminal.
    iii. A preauthorized check drawn by the financial institution on the 
consumer's account (such as an interest or other recurring payment to 
the consumer or another party), even if the check is computer-generated.
    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.

     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 1005.3(b)(2)(ii) for electronic check 
conversion (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 under which a check 
may not be converted to an EFT. See model clauses in Appendix A-6.

[[Page 199]]

    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.

  3(b)(3) Collection of Returned Item Fees via Electronic Fund Transfer

    1. Fees imposed by account-holding institution. The requirement to 
obtain a consumer's authorization to collect a fee via EFT for the 
return of an EFT or check unpaid applies only to the person that intends 
to initiate an EFT to collect the returned item fee from the consumer's 
account. The authorization requirement does not apply to any fees 
assessed by the consumer's account-holding financial institution when it 
returns the unpaid underlying EFT or check or pays the amount of an 
overdraft.
    2. Accounts receivable transactions. In an ARC transaction where a 
consumer sends in a payment for amounts owed (or makes an in-person 
payment at a biller's physical location, such as when a consumer makes a 
loan payment at a bank branch or places a payment in a drop box), a 
person seeking to electronically collect a fee for items returned unpaid 
must obtain the consumer's authorization to collect the fee in this 
manner. A consumer authorizes a person to electronically collect a 
returned item fee when the consumer receives notice, typically on an 
invoice or statement, that the person may collect the fee through an EFT 
to the consumer's account, and the consumer goes forward with the 
underlying transaction by providing payment. The notice must also state 
the dollar amount of the fee. However, an explanation of how that fee 
will be determined may be provided in place of the dollar amount of the 
fee if the fee may vary due to the amount of the transaction or due to 
other factors, such as the number of days the underlying transaction is 
left outstanding. For example, if a state law permits a maximum fee of 
$30 or 10% of the underlying transaction, whichever is greater, the 
person collecting the fee may explain how the fee is determined, rather 
than state a specific dollar amount for the fee.
    3. Disclosure of dollar amount of fee for POS transactions. The 
notice provided to the consumer in connection with a POS transaction 
under Sec. 1005.3(b)(3)(ii) must state the amount of the fee for a 
returned item if the dollar amount of the fee can be calculated at the 
time the notice is provided or mailed. For example, if notice is 
provided to the consumer at the time of the transaction, if the 
applicable state law sets a maximum fee that may be collected for a 
returned item

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based on the amount of the underlying transaction (such as where the 
amount of the fee is expressed as a percentage of the underlying 
transaction), the person collecting the fee must state the actual dollar 
amount of the fee on the notice provided to the consumer. Alternatively, 
if the amount of the fee to be collected cannot be calculated at the 
time of the transaction (for example, where the amount of the fee will 
depend on the number of days a debt continues to be owed), the person 
collecting the fee may provide a description of how the fee will be 
determined on both the posted notice as well as on the notice provided 
at the time of the transaction. However, if the person collecting the 
fee elects to send the consumer notice after the person has initiated an 
EFT to collect the fee, that notice must state the amount of the fee to 
be collected.
    4. Third party providing notice. The person initiating an EFT to a 
consumer's account to electronically collect a fee for an item returned 
unpaid may obtain the authorization and provide the notices required 
under Sec. 1005.3(b)(3) through third parties, such as merchants.

                      3(c) Exclusions From Coverage

                             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.

                3(c)(2) Check Guarantee or Authorization

    1. Memo posting. Under a check guarantee or check authorization 
service, debiting of the consumer's account occurs when the check or 
draft is presented for payment. These services are exempt from coverage, 
even when a temporary hold on the account is memo-posted electronically 
at the time of authorization.

                 3(c)(3) Wire or Other Similar Transfers

    1. Fedwire and ACH. If a financial institution makes a fund transfer 
to a consumer's account after receiving funds through Fedwire or a 
similar network, the transfer by ACH is covered by the regulation even 
though the Fedwire or network transfer is exempt.
    2. Article 4A. Financial institutions that offer telephone-initiated 
Fedwire payments are subject to the requirements of UCC section 4A-202, 
which encourages verification of Fedwire payment orders pursuant to a 
security procedure established by agreement between the consumer and the 
receiving bank. These transfers are not subject to Regulation E and the 
agreement is not considered a telephone plan if the service is offered 
separately from a telephone bill-payment or other prearranged plan 
subject to Regulation E. Regulation J of the Board of Governors of the 
Federal Reserve System (12 CFR part 210) specifies the rules applicable 
to funds handled by Federal Reserve Banks. To ensure that the rules for 
all fund transfers through Fedwire are consistent, the Board of 
Governors used its preemptive authority under UCC section 4A-107 to 
determine that subpart B of the Board's Regulation J, including the 
provisions of Article 4A, applies to all fund transfers through Fedwire, 
even if a portion of the fund transfer is governed by the EFTA. The 
portion of the fund transfer that is governed by the EFTA is not 
governed by subpart B of the Board's Regulation J.
    3. Similar fund transfer systems. Fund transfer systems that are 
similar to Fedwire include the Clearing House Interbank Payments System 
(CHIPS), Society for Worldwide Interbank Financial Telecommunication 
(SWIFT), Telex, and transfers made on the books of correspondent banks.

              3(c)(4) Securities and Commodities Transfers

    1. Coverage. The securities exemption applies to securities and 
commodities that may be sold by a registered broker-dealer or futures 
commission merchant, even when the security or commodity itself is not 
regulated by the Securities and Exchange Commission or the Commodity 
Futures Trading Commission.
    2. Example of exempt transfer. The exemption applies to a transfer 
involving a transfer initiated by a telephone order to a stockbroker to 
buy or sell securities or to exercise a margin call.
    3. Examples of nonexempt transfers. The exemption does not apply to 
a transfer involving:
    i. A debit card or other access device that accesses a securities or 
commodities account such as a money market mutual fund and that the 
consumer uses for purchasing goods or services or for obtaining cash.
    ii. A payment of interest or dividends into the consumer's account 
(for example, from a brokerage firm or from a Federal Reserve Bank for 
government securities).

       3(c)(5) Automatic Transfers by Account-Holding Institution

    1. Automatic transfers exempted. The exemption applies to:
    i. Electronic debits or credits to consumer accounts for check 
charges, stop-payment charges, non-sufficient funds (NSF) charges,

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overdraft charges, provisional credits, error adjustments, and similar 
items that are initiated automatically on the occurrence of certain 
events.
    ii. Debits to consumer accounts for group insurance available only 
through the financial institution and payable only by means of an 
aggregate payment from the institution to the insurer.
    iii. EFTs between a thrift institution and its paired commercial 
bank in the state of Rhode Island, which are deemed under state law to 
be intra-institutional.
    iv. Automatic transfers between a consumer's accounts within the 
same financial institution, even if the account holders on the two 
accounts are not identical.
    2. Automatic transfers not exempted. Transfers between accounts of 
the consumer at affiliated institutions (such as between a bank and its 
subsidiary or within a holding company) are not intra-institutional 
transfers, and thus do not qualify for the exemption.

                  3(c)(6) Telephone-Initiated Transfers

    1. Written plan or agreement. A transfer that the consumer initiates 
by telephone is covered by Regulation E if the transfer is made under a 
written plan or agreement between the consumer and the financial 
institution making the transfer. A written statement available to the 
public or to account holders that describes a service allowing a 
consumer to initiate transfers by telephone constitutes a plan; for 
example, a brochure, or material included with periodic statements. The 
following, however, do not by themselves constitute a written plan or 
agreement:
    i. A hold-harmless agreement on a signature card that protects the 
institution if the consumer requests a transfer.
    ii. A legend on a signature card, periodic statement, or passbook 
that limits the number of telephone-initiated transfers the consumer can 
make from a savings account because of reserve requirements under 
Regulation D of the Board of Governors of the Federal Reserve System (12 
CFR part 204).
    iii. An agreement permitting the consumer to approve by telephone 
the rollover of funds at the maturity of an instrument.
    2. Examples of covered transfers. When a written plan or agreement 
has been entered into, a transfer initiated by a telephone call from a 
consumer is covered even though:
    i. An employee of the financial institution completes the transfer 
manually (for example, by means of a debit memo or deposit slip).
    ii. The consumer is required to make a separate request for each 
transfer.
    iii. The consumer uses the plan infrequently.
    iv. The consumer initiates the transfer via a facsimile machine.
    v. The consumer initiates the transfer using a financial 
institution's audio-response or voice-response telephone system.

                       3(c)(7) Small Institutions

    1. Coverage. This exemption is limited to preauthorized transfers; 
institutions that offer other EFTs must comply with the applicable 
sections of the regulation as to such services. The preauthorized 
transfers remain subject to sections 913, 916, and 917 of the Act and 
Sec. 1005.10(e), and are therefore exempt from UCC Article 4A.

Section 1005.4 General Disclosure Requirements; Jointly Offered Services

                        4(a) Form of Disclosures

    1. General. Although no particular rules govern type size, number of 
pages, or the relative conspicuousness of various terms, the disclosures 
must be in a clear and readily understandable written form that the 
consumer may retain. Numbers or codes are considered readily 
understandable if explained elsewhere on the disclosure form.
    2. Foreign language disclosures. Disclosures may be made in 
languages other than English, provided they are available in English 
upon request.

                Section 1005.5 Issuance of Access Devices

    1. Coverage. The provisions of this section limit the circumstances 
under which a financial institution may issue an access device to a 
consumer. Making an additional account accessible through an existing 
access device is equivalent to issuing an access device and is subject 
to the limitations of this section.

                         5(a) Solicited Issuance

                            Paragraph 5(a)(1)

    1. Joint account. For a joint account, a financial institution may 
issue an access device to each account holder if the requesting holder 
specifically authorizes the issuance.
    2. Permissible forms of request. The request for an access device 
may be written or oral (for example, in response to a telephone 
solicitation by a card issuer).

                            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 Sec. 
1005.5(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

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change-in-terms notice or new disclosures are required.
    2. Renewal or substitution by a successor institution. A successor 
institution is an entity that replaces the original financial 
institution (for example, following a corporate merger or acquisition) 
or that acquires accounts or assumes the operation of an EFT system.

                        5(b) Unsolicited Issuance

    1. Compliance. A financial institution may issue an unsolicited 
access device (such as the combination of a debit card and PIN) if the 
institution's ATM system has been programmed not to accept the access 
device until after the consumer requests and the institution validates 
the device. Merely instructing a consumer not to use an unsolicited 
debit card and PIN until after the institution verifies the consumer's 
identity does not comply with the regulation.
    2. PINs. A financial institution may impose no liability on a 
consumer for unauthorized transfers involving an unsolicited access 
device until the device becomes an ``accepted access device'' under the 
regulation. A card and PIN combination may be treated as an accepted 
access device once the consumer has used it to make a transfer.
    3. Functions of PIN. If an institution issues a PIN at the 
consumer's request, the issuance may constitute both a way of validating 
the debit card and the means to identify the consumer (required as a 
condition of imposing liability for unauthorized transfers).
    4. Verification of identity. To verify the consumer's identity, a 
financial institution may use any reasonable means, such as a 
photograph, fingerprint, personal visit, signature comparison, or 
personal information about the consumer. However, even if reasonable 
means were used, if an institution fails to verify correctly the 
consumer's identity and an imposter succeeds in having the device 
validated, the consumer is not liable for any unauthorized transfers 
from the account.
    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 Sec. 1005.5(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 1005.6 Liability of Consumer for Unauthorized Transfers

                      6(a) Conditions for Liability

    1. Means of identification. A financial institution may use various 
means for identifying the consumer to whom the access device is issued, 
including but not limited to:
    i. Electronic or mechanical confirmation (such as a PIN).
    ii. Comparison of the consumer's signature, fingerprint, or 
photograph.
    2. Multiple users. When more than one access device is issued for an 
account, the financial institution may, but need not, provide a separate 
means to identify each user of the account.

                 6(b) Limitations on Amount of Liability

    1. Application of liability provisions. There are three possible 
tiers of consumer liability for unauthorized EFTs depending on the 
situation. A consumer may be liable for: (1) up to $50; (2) up to $500; 
or (3) an unlimited amount depending on when the unauthorized EFT 
occurs. More than one tier may apply to a given situation because each 
corresponds to a different (sometimes overlapping) time period or set of 
conditions.
    2. Consumer negligence. Negligence by the consumer cannot be used as 
the basis for imposing greater liability than is permissible under 
Regulation E. Thus, consumer behavior that may constitute negligence 
under state law, such as writing the PIN on a debit card or on a piece 
of paper kept with the card, does not affect the consumer's liability 
for unauthorized transfers. (However, refer to comment 2(m)-2 regarding 
termination of the authority of given by the consumer to another 
person.)
    3. Limits on liability. The extent of the consumer's liability is 
determined solely by the consumer's promptness in reporting the loss or 
theft of an access device. Similarly, no agreement between the consumer 
and an institution may impose greater liability on the consumer for an 
unauthorized transfer than the limits provided in Regulation E.

                       6(b)(1) Timely Notice Given

    1. $50 limit applies. The basic liability limit is $50. For example, 
the consumer's card is lost or stolen on Monday and the consumer learns 
of the loss or theft on Wednesday. If the consumer notifies the 
financial institution within two business days of learning of the loss 
or theft (by midnight Friday), the consumer's liability is limited to 
$50 or the amount of the unauthorized transfers that occurred before 
notification, whichever is less.

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    2. Knowledge of loss or theft of access device. The fact that a 
consumer has received a periodic statement that reflects unauthorized 
transfers may be a factor in determining whether the consumer had 
knowledge of the loss or theft, but cannot be deemed to represent 
conclusive evidence that the consumer had such knowledge.
    3. Two business day rule. The two business day period does not 
include the day the consumer learns of the loss or theft or any day that 
is not a business day. The rule is calculated based on two 24-hour 
periods, without regard to the financial institution's business hours or 
the time of day that the consumer learns of the loss or theft. For 
example, a consumer learns of the loss or theft at 6 p.m. on Friday. 
Assuming that Saturday is a business day and Sunday is not, the two 
business day period begins on Saturday and expires at 11:59 p.m. on 
Monday, not at the end of the financial institution's business day on 
Monday.

                     6(b)(2) Timely Notice Not Given

    1. $500 limit applies. The second tier of liability is $500. For 
example, the consumer's card is stolen on Monday and the consumer learns 
of the theft that same day. The consumer reports the theft on Friday. 
The $500 limit applies because the consumer failed to notify the 
financial institution within two business days of learning of the theft 
(which would have been by midnight Wednesday). How much the consumer is 
actually liable for, however, depends on when the unauthorized transfers 
take place. In this example, assume a $100 unauthorized transfer was 
made on Tuesday and a $600 unauthorized transfer on Thursday. Because 
the consumer is liable for the amount of the loss that occurs within the 
first two business days (but no more than $50), plus the amount of the 
unauthorized transfers that occurs after the first two business days and 
before the consumer gives notice, the consumer's total liability is $500 
($50 of the $100 transfer plus $450 of the $600 transfer, in this 
example). But if $600 was taken on Tuesday and $100 on Thursday, the 
consumer's maximum liability would be $150 ($50 of the $600 plus $100).

           6(b)(3) Periodic Statement; Timely Notice Not Given

    1. Unlimited liability applies. The standard of unlimited liability 
applies if unauthorized transfers appear on a periodic statement, and 
may apply in conjunction with the first two tiers of liability. If a 
periodic statement shows an unauthorized transfer made with a lost or 
stolen debit card, the consumer must notify the financial institution 
within 60 calendar days after the periodic statement was sent; 
otherwise, the consumer faces unlimited liability for all unauthorized 
transfers made after the 60-day period. The consumer's liability for 
unauthorized transfers before the statement is sent, and up to 60 days 
following, is determined based on the first two tiers of liability: up 
to $50 if the consumer notifies the financial institution within two 
business days of learning of the loss or theft of the card and up to 
$500 if the consumer notifies the institution after two business days of 
learning of the loss or theft.
    2. Transfers not involving access device. The first two tiers of 
liability do not apply to unauthorized transfers from a consumer's 
account made without an access device. If, however, the consumer fails 
to report such unauthorized transfers within 60 calendar days of the 
financial institution's transmittal of the periodic statement, the 
consumer may be liable for any transfers occurring after the close of 
the 60 days and before notice is given to the institution. For example, 
a consumer's account is electronically debited for $200 without the 
consumer's authorization and by means other than the consumer's access 
device. If the consumer notifies the institution within 60 days of the 
transmittal of the periodic statement that shows the unauthorized 
transfer, the consumer has no liability. However, if in addition to the 
$200, the consumer's account is debited for a $400 unauthorized transfer 
on the 61st day and the consumer fails to notify the institution of the 
first unauthorized transfer until the 62nd day, the consumer may be 
liable for the full $400.

                    6(b)(4) Extension of Time Limits

    1. Extenuating circumstances. Examples of circumstances that require 
extension of the notification periods under this section include the 
consumer's extended travel or hospitalization.

                 6(b)(5) Notice to Financial Institution

    1. Receipt of notice. A financial institution is considered to have 
received notice for purposes of limiting the consumer's liability if 
notice is given in a reasonable manner, even if the consumer notifies 
the institution but uses an address or telephone number other than the 
one specified by the institution.
    2. Notice by third party. Notice to a financial institution by a 
person acting on the consumer's behalf is considered valid under this 
section. For example, if a consumer is hospitalized and unable to report 
the loss or theft of an access device, notice is considered given when 
someone acting on the consumer's behalf notifies the bank of the loss or 
theft. A financial institution may require appropriate documentation 
from the person representing the consumer to establish that the person 
is acting on the consumer's behalf.
    3. Content of notice. Notice to a financial institution is 
considered given when a consumer takes reasonable steps to provide the

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institution with the pertinent account information. Even when the 
consumer is unable to provide the account number or the card number in 
reporting a lost or stolen access device or an unauthorized transfer, 
the notice effectively limits the consumer's liability if the consumer 
otherwise identifies sufficiently the account in question. For example, 
the consumer may identify the account by the name on the account and the 
type of account in question.

                   Section 1005.7 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 
the consumer contracts for a new service.
    2. Lack of advance notice of a transfer. Where a consumer authorizes 
a third party to debit or credit the consumer's account, an account-
holding institution that has not received advance notice of the transfer 
or transfers must provide the required disclosures as soon as reasonably 
possible after the first debit or credit is made, unless the institution 
has previously given the disclosures.
    3. Addition of new accounts. If a consumer opens a new account 
permitting EFTs at a financial institution, and the consumer already has 
received Regulation E disclosures for another account at that 
institution, the institution need only disclose terms and conditions 
that differ from those previously given.
    4. Addition of service in interchange systems. If a financial 
institution joins an interchange or shared network system (which 
provides access to terminals operated by other institutions), 
disclosures are required for additional EFT services not previously 
available to consumers if the terms and conditions differ from those 
previously disclosed.
    5. Disclosures covering all EFT services offered. An institution may 
provide disclosures covering all EFT services that it offers, even if 
some consumers have not arranged to use all services.

                       7(b) Content of Disclosures

                      7(b)(1) Liability of Consumer

    1. No liability imposed by financial institution. If a financial 
institution chooses to impose zero liability for unauthorized EFTs, it 
need not provide the liability disclosures. If the institution later 
decides to impose liability, however, it must first provide the 
disclosures.
    2. Preauthorized transfers. If the only EFTs from an account are 
preauthorized transfers, liability could arise if the consumer fails to 
report unauthorized transfers reflected on a periodic statement. To 
impose such liability on the consumer, the institution must have 
disclosed the potential liability and the telephone number and address 
for reporting unauthorized transfers.
    3. Additional information. At the institution's option, the summary 
of the consumer's liability may include advice on promptly reporting 
unauthorized transfers or the loss or theft of the access device.

                  7(b)(2) Telephone Number and Address

    1. Disclosure of telephone numbers. An institution may use the same 
or different telephone numbers in the disclosures for the purpose of:
    i. Reporting the loss or theft of an access device or possible 
unauthorized transfers;
    ii. Inquiring about the receipt of a preauthorized credit;
    iii. Stopping payment of a preauthorized debit;
    iv. Giving notice of an error.
    2. Location of telephone number. The telephone number need not be 
incorporated into the text of the disclosure; for example, the 
institution may instead insert a reference to a telephone number that is 
readily available to the consumer, such as ``Call your branch office. 
The number is shown on your periodic statement.'' However, an 
institution must provide a specific telephone number and address, on or 
with the disclosure statement, for reporting a lost or stolen access 
device or a possible unauthorized transfer.

                 7(b)(4) Types of Transfers; Limitations

    1. Security limitations. Information about limitations on the 
frequency and dollar amount of transfers generally must be disclosed in 
detail, even if related to security aspects of the system. If the 
confidentiality of certain details is essential to the security of an 
account or system, these details may be withheld (but the fact that 
limitations exist must still be disclosed). For example, an institution 
limits cash ATM withdrawals to $100 per day. The institution may 
disclose that daily withdrawal limitations apply and need not disclose 
that the limitations may not always be in force (such as during periods 
when its ATMs are off-line).

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    2. Restrictions on certain deposit accounts. A limitation on account 
activity that restricts the consumer's ability to make EFTs must be 
disclosed even if the restriction also applies to transfers made by non-
electronic means. For example, Regulation D of the Board of Governors of 
the Federal Reserve System (12 CFR Part 204) restricts the number of 
payments to third parties that may be made from a money market deposit 
account; an institution that does not execute fund transfers in excess 
of those limits must disclose the restriction as a limitation on the 
frequency of EFTs.
    3. Preauthorized transfers. Financial institutions are not required 
to list preauthorized transfers among the types of transfers that a 
consumer can make.
    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(b)(5) Fees

    1. Disclosure of EFT fees. An institution is required to disclose 
all fees for EFTs or the right to make them. Others fees (for example, 
minimum-balance fees, stop-payment fees, or account overdrafts) may, but 
need not, be disclosed. But see Regulation DD, 12 CFR Part 1030. An 
institution is not required to disclose fees for inquiries made at an 
ATM since no transfer of funds is involved.
    2. Fees also applicable to non-EFT. A per-item fee for EFTs must be 
disclosed even if the same fee is imposed on non-electronic transfers. 
If a per-item fee is imposed only under certain conditions, such as when 
the transactions in the cycle exceed a certain number, those conditions 
must be disclosed. Itemization of the various fees may be provided on 
the disclosure statement or on an accompanying document that is 
referenced in the statement.
    3. Interchange system fees. Fees paid by the account-holding 
institution to the operator of a shared or interchange ATM system need 
not be disclosed, unless they are imposed on the consumer by the 
account-holding institution. Fees for use of an ATM that are debited 
directly from the consumer's account by an institution other than the 
account-holding institution (for example, fees included in the transfer 
amount) need not be disclosed. See Sec. 1005.7(b)(11) for the general 
notice requirement regarding fees that may be imposed by ATM operators 
and by a network used to complete the transfer.

                         7(b)(9) Confidentiality

    1. Information provided to third parties. An institution must 
describe the circumstances under which any information relating to an 
account to or from which EFTs are permitted will be made available to 
third parties, not just information concerning those EFTs. The term 
``third parties'' includes affiliates such as other subsidiaries of the 
same holding company.

                        7(b)(10) Error Resolution

    1. Substantially similar. The error resolution notice must be 
substantially similar to the model form in Appendix A of part 1005. An 
institution may use different wording so long as the substance of the 
notice remains the same, may delete inapplicable provisions (for 
example, the requirement for written confirmation of an oral 
notification), and may substitute substantive state law requirements 
affording greater consumer protection than Regulation E.
    2. Extended time-period for certain transactions. To take advantage 
of the longer time periods for resolving errors under Sec. 
1005.11(c)(3) (for new accounts as defined in Regulation CC of the Board 
of Governors of the Federal Reserve System (12 CFR part 229), transfers 
initiated outside the United States, or transfers resulting from POS 
debit-card transactions), a financial institution must have disclosed 
these longer time periods. Similarly, an institution that relies on the 
exception from provisional crediting in Sec. 1005.11(c)(2) for accounts 
subject to Regulation T of the Board of Governors of the Federal Reserve 
System (12 CFR part 220) must have disclosed accordingly.

           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 1005.8 Change-in-Terms Notice; Error Resolution Notice

                       8(a) Change-in-Terms Notice

    1. Form of notice. No specific form or wording is required for a 
change-in-terms notice. The notice may appear on a periodic statement, 
or may be given by sending a copy of a revised disclosure statement, 
provided attention is directed to the change (for example, in a cover 
letter referencing the changed term).
    2. Changes not requiring notice. The following changes do not 
require disclosure:
    i. Closing some of an institution's ATMs;
    ii. Cancellation of an access device.
    3. Limitations on transfers. When the initial disclosures omit 
details about limitations because secrecy is essential to the security 
of the account or system, a subsequent increase in those limitations 
need not be disclosed if secrecy is still essential. If, however, an 
institution had no limits in place

[[Page 206]]

when the initial disclosures were given and now wishes to impose limits 
for the first time, it must disclose at least the fact that limits have 
been adopted. See also Sec. 1005.7(b)(4) and the related commentary.
    4. Change in telephone number or address. When a financial 
institution changes the telephone number or address used for reporting 
possible unauthorized transfers, a change-in-terms notice is required 
only if the institution will impose liability on the consumer for 
unauthorized transfers under Sec. 1005.6. See also Sec. 1005.6(a) and 
the related commentary.

                      8(b) Error Resolution Notice

    1. Change between annual and periodic notice. If an institution 
switches from an annual to a periodic notice, or vice versa, the first 
notice under the new method must be sent no later than 12 months after 
the last notice sent under the old method.
    2. Exception for new accounts. For new accounts, disclosure of the 
longer error resolution time periods under Sec. 1005.11(c)(3) is not 
required in the annual error resolution notice or in the notice that may 
be provided with each periodic statement as an alternative to the annual 
notice.

  Section 1005.9 Receipts at Electronic Terminals; Periodic Statements

                  9(a) Receipts at Electronic Terminals

    1. Receipts furnished only on request. The regulation requires that 
a receipt be ``made available.'' A financial institution may program its 
electronic terminals to provide a receipt only to consumers who elect to 
receive one.
    2. Third party providing receipt. An account-holding institution may 
make terminal receipts available through third parties such as merchants 
or other financial institutions.
    3. Inclusion of promotional material. A financial institution may 
include promotional material on receipts if the required information is 
set forth clearly (for example, by separating it from the promotional 
material). In addition, a consumer may not be required to surrender the 
receipt or that portion containing the required disclosures in order to 
take advantage of a promotion.
    4. Transfer not completed. The receipt requirement does not apply to 
a transfer that is initiated but not completed (for example, if the ATM 
is out of currency or the consumer decides not to complete the 
transfer).
    5. Receipts not furnished due to inadvertent error. If a receipt is 
not provided to the consumer because of a bona fide unintentional error, 
such as when a terminal runs out of paper or the mechanism jams, no 
violation results if the financial institution maintains procedures 
reasonably adapted to avoid such occurrences.
    6. Multiple transfers. If the consumer makes multiple transfers at 
the same time, the financial institution may document them on a single 
or on separate receipts.

                             9(a)(1) Amount

    1. Disclosure of transaction fee. The required display of a fee 
amount on or at the terminal may be accomplished by displaying the fee 
on a sign at the terminal or on the terminal screen for a reasonable 
duration. Displaying the fee on a screen provides adequate notice, as 
long as a consumer is given the option to cancel the transaction after 
receiving notice of a fee. See Sec. 1005.16 for the notice requirements 
applicable to ATM operators that impose a fee for providing EFT 
services.
    2. Relationship between Sec. 1005.9(a)(1) and Sec. 1005.16. The 
requirements of Sec. Sec. 1005.9(a)(1) and 1005.16 are similar but not 
identical.
    i. Section 1005.9(a)(1) requires that if the amount of the transfer 
as shown on the receipt will include the fee, then the fee must be 
disclosed either on a sign on or at the terminal, or on the terminal 
screen. Section 1005.16 requires disclosure both on a sign on or at the 
terminal (in a prominent and conspicuous location) and on the terminal 
screen. Section 1005.16 permits disclosure on a paper notice as an 
alternative to the on-screen disclosure.
    ii. The disclosure of the fee on the receipt under Sec. 
1005.9(a)(1) cannot be used to comply with the alternative paper 
disclosure procedure under Sec. 1005.16, if the receipt is provided at 
the completion of the transaction because, pursuant to the statute, the 
paper notice must be provided before the consumer is committed to paying 
the fee.
    iii. Section 1005.9(a)(1) applies to any type of electronic terminal 
as defined in Regulation E (for example, to POS terminals as well as to 
ATMs), while Sec. 1005.16 applies only to ATMs.

                              9(a)(2) Date

    1. Calendar date. The receipt must disclose the calendar date on 
which the consumer uses the electronic terminal. An accounting or 
business date may be disclosed in addition if the dates are clearly 
distinguished.

                              9(a)(3) Type

    1. Identifying transfer and account. Examples identifying the type 
of transfer and the type of the consumer's account include ``withdrawal 
from checking,'' ``transfer from savings to checking,'' or ``payment 
from savings.''
    2. Exception. Identification of an account is not required when the 
consumer can access only one asset account at a particular time or 
terminal, even if the access device can normally be used to access more 
than one account. For example, the consumer may be able to access only 
one particular account at

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terminals not operated by the account-holding institution, or may be 
able to access only one particular account when the terminal is off-
line. The exception is available even if, in addition to accessing one 
asset account, the consumer also can access a credit line.
    3. Access to multiple accounts. If the consumer can use an access 
device to make transfers to or from different accounts of the same type, 
the terminal receipt must specify which account was accessed, such as 
``withdrawal from checking I'' or ``withdrawal from checking II.'' If 
only one account besides the primary checking account can be debited, 
the receipt can identify the account as ``withdrawal from other 
account.''
    4. Generic descriptions. Generic descriptions may be used for 
accounts that are similar in function, such as share draft or NOW 
accounts and checking accounts. In a shared system, for example, when a 
credit union member initiates transfers to or from a share draft account 
at a terminal owned or operated by a bank, the receipt may identify a 
withdrawal from the account as a ``withdrawal from checking.''
    5. Point-of-sale transactions. There is no prescribed terminology 
for identifying a transfer at a merchant's POS terminal. A transfer may 
be identified, for example, as a purchase, a sale of goods or services, 
or a payment to a third party. When a consumer obtains cash from a POS 
terminal in addition to purchasing goods, or obtains cash only, the 
documentation need not differentiate the transaction from one involving 
the purchase of goods.

                        9(a)(5) Terminal Location

    1. Options for identifying terminal. The institution may provide 
either:
    i. The city, state or foreign country, and the information in Sec. 
1005.9(a)(5) (i), (ii), or (iii), or
    ii. A number or a code identifying the terminal. If the institution 
chooses the second option, the code or terminal number identifying the 
terminal where the transfer is initiated may be given as part of a 
transaction code.
    2. Omission of city name. The city may be omitted if the generally 
accepted name (such as a branch name) contains the city name.
    3. Omission of a state. A state may be omitted from the location 
information on the receipt if:
    i. All the terminals owned or operated by the financial institution 
providing the statement (or by the system in which it participates) are 
located in that state, or
    ii. All transfers occur at terminals located within 50 miles of the 
financial institution's main office.
    4. Omission of a city and state. A city and state may be omitted if 
all the terminals owned or operated by the financial institution 
providing the statement (or by the system in which it participates) are 
located in the same city.

                          Paragraph 9(a)(5)(i)

    1. Street address. The address should include number and street (or 
intersection); the number (or intersecting street) may be omitted if the 
street alone uniquely identifies the terminal location.

                          Paragraph 9(a)(5)(ii)

    1. Generally accepted name. Examples of a generally accepted name 
for a specific location include a branch of the financial institution, a 
shopping center, or an airport.

                         Paragraph 9(a)(5)(iii)

    1. Name of owner or operator of terminal. Examples of an owner or 
operator of a terminal are a financial institution or a retail merchant.

                      9(a)(6) Third Party Transfer

    1. Omission of third-party name. The receipt need not disclose the 
third-party name if the name is provided by the consumer in a form that 
is not machine readable (for example, if the consumer indicates the 
payee by depositing a payment stub into the ATM). If, on the other hand, 
the consumer keys in the identity of the payee, the receipt must 
identify the payee by name or by using a code that is explained 
elsewhere on the receipt.
    2. Receipt as proof of payment. Documentation required under the 
regulation constitutes prima facie proof of a payment to another person, 
except in the case of a terminal receipt documenting a deposit.

                        9(b) Periodic Statements

    1. Periodic cycles. Periodic statements may be sent on a cycle that 
is shorter than monthly. The statements must correspond to periodic 
cycles that are reasonably equal, that is, do not vary by more than four 
days from the regular cycle. The requirement of reasonably equal cycles 
does not apply when an institution changes cycles for operational or 
other reasons, such as to establish a new statement day or date.
    2. Interim statements. Generally, a financial institution must 
provide periodic statements for each monthly cycle in which an EFT 
occurs, and at least quarterly if a transfer has not occurred. Where 
EFTs occur between regularly-scheduled cycles, interim statements must 
be provided. For example, if an institution issues quarterly statements 
at the end of March, June, September and December, and the consumer 
initiates an EFT in February, an interim statement for February must be 
provided. If an interim statement contains interest or rate information, 
the institution must comply with Regulation DD, 12 CFR 1030.6.

[[Page 208]]

    3. Inactive accounts. A financial institution need not send 
statements to consumers whose accounts are inactive as defined by the 
institution.
    4. Statement pickup. A financial institution may permit, but may not 
require, consumers to pick up their periodic statements at the financial 
institution.
    5. Periodic statements limited to EFT activity. A financial 
institution that uses a passbook as the primary means for displaying 
account activity, but also allows the account to be debited 
electronically, may provide a periodic statement requirement that 
reflects only the EFTs and other required disclosures (such as charges, 
account balances, and address and telephone number for inquiries). See 
Sec. 1005.9(c)(1)(i) for the exception applicable to preauthorized 
transfers for passbook accounts.
    6. Codes and accompanying documents. To meet the documentation 
requirements for periodic statements, a financial institution may:
    i. Include copies of terminal receipts to reflect transfers 
initiated by the consumer at electronic terminals;
    ii. Enclose posting memos, deposit slips, and other documents that, 
together with the statement, disclose all the required information;
    iii. Use codes for names of third parties or terminal locations and 
explain the information to which the codes relate on an accompanying 
document.

                     9(b)(1) Transaction Information

    1. Information obtained from others. While financial institutions 
must maintain reasonable procedures to ensure the integrity of data 
obtained from another institution, a merchant, or other third parties, 
verification of each transfer that appears on the periodic statement is 
not required.

                          Paragraph 9(b)(1)(i)

    1. Incorrect deposit amount. If a financial institution determines 
that the amount actually deposited at an ATM is different from the 
amount entered by the consumer, the institution need not immediately 
notify the consumer of the discrepancy. The periodic statement 
reflecting the deposit may show either the correct amount of the deposit 
or the amount entered by the consumer along with the institution's 
adjustment.

                         Paragraph 9(b)(1)(iii)

    1. Type of transfer. There is no prescribed terminology for 
describing a type of transfer. Placement of the amount of the transfer 
in the debit or the credit column is sufficient if other information on 
the statement, such as a terminal location or third-party name, enables 
the consumer to identify the type of transfer.

                          Paragraph 9(b)(1)(iv)

    1. Nonproprietary terminal in network. An institution need not 
reflect on the periodic statement the street addresses, identification 
codes, or terminal numbers for transfers initiated in a shared or 
interchange system at a terminal operated by an institution other than 
the account-holding institution. The statement must, however, specify 
the entity that owns or operates the terminal, plus the city and state.

                          Paragraph 9(b)(1)(v)

    1. Recurring payments by government agency. The third-party name for 
recurring payments from Federal, state, or local governments need not 
list the particular agency. For example, ``U.S. gov't'' or ``N.Y. sal'' 
will suffice.
    2. Consumer as third-party payee. If a consumer makes an electronic 
fund transfer to another consumer, the financial institution must 
identify the recipient by name (not just by an account number, for 
example).
    3. Terminal location/third party. A single entry may be used to 
identify both the terminal location and the name of the third party to 
or from whom funds are transferred. For example, if a consumer purchases 
goods from a merchant, the name of the party to whom funds are 
transferred (the merchant) and the location of the terminal where the 
transfer is initiated will be satisfied by a disclosure such as ``XYZ 
Store, Anytown, Ohio.''
    4. Account-holding institution as third party. Transfers to the 
account-holding institution (by ATM, for example) must show the 
institution as the recipient, unless other information on the statement 
(such as, ``loan payment from checking'') clearly indicates that the 
payment was to the account-holding institution.
    5. Consistency in third-party identity. The periodic statement must 
disclose a third-party name as it appeared on the receipt, whether it 
was, for example, the ``dba'' (doing business as) name of the third 
party or the parent corporation's name.
    6. Third-party identity on deposits at electronic terminal. A 
financial institution need not identify third parties whose names appear 
on checks, drafts, or similar paper instruments deposited to the 
consumer's account at an electronic terminal.

                              9(b)(3) Fees

    1. Disclosure of fees. The fees disclosed may include fees for EFTs 
and for other non-electronic services, and both fixed fees and per-item 
fees; they may be given as a total or may be itemized in part or in 
full.
    2. Fees in interchange system. An account-holding institution must 
disclose any fees it imposes on the consumer for EFTs, including fees 
for ATM transactions in an interchange

[[Page 209]]

or shared ATM system. Fees for use of an ATM imposed on the consumer by 
an institution other than the account-holding institution and included 
in the amount of the transfer by the terminal-operating institution need 
not be separately disclosed on the periodic statement.
    3. Finance charges. The requirement to disclose any fees assessed 
against the account does not include a finance charge imposed on the 
account during the statement period.

                        9(b)(4) Account Balances

    1. Opening and closing balances. The opening and closing balances 
must reflect both EFTs and other account activity.

           9(b)(5) Address and Telephone Number for Inquiries

    1. Telephone number. A single telephone number, preceded by the 
``direct inquiries to'' language, will satisfy the requirements of 
Sec. Sec. 1005.9(b)(5) and (6).

          9(b)(6) Telephone Number for Preauthorized Transfers

    1. Telephone number. See comment 9(b)(5)-1.

   9(c) Exceptions to the Periodic Statement Requirements for Certain 
                                Accounts

    1. Transfers between accounts. The regulation provides an exception 
from the periodic statement requirement for certain intra-institutional 
transfers between a consumer's accounts. The financial institution must 
still comply with the applicable periodic statement requirements for any 
other EFTs to or from the account. For example, a Regulation E statement 
must be provided quarterly for an account that also receives payroll 
deposits electronically, or for any month in which an account is also 
accessed by a withdrawal at an ATM.

               9(c)(1) Preauthorized Transfers to Accounts

    1. Accounts that may be accessed only by preauthorized transfers to 
the account. The exception for ``accounts that may be accessed only by 
preauthorized transfers to the account'' includes accounts that can be 
accessed by means other than EFTs, such as checks. If, however, an 
account may be accessed by any EFT other than preauthorized credits to 
the account, such as preauthorized debits or ATM transactions, the 
account does not qualify for the exception.
    2. Reversal of direct deposits. For direct-deposit-only accounts, a 
financial institution must send a periodic statement at least quarterly. 
A reversal of a direct deposit to correct an error does not trigger the 
monthly statement requirement when the error represented a credit to the 
wrong consumer's account, a duplicate credit, or a credit in the wrong 
amount. See also comment 2(m)-5.

           9(d) Documentation for Foreign-Initiated Transfers

    1. Foreign-initiated transfers. An institution must make a good 
faith effort to provide all required information for foreign-initiated 
transfers. For example, even if the institution is not able to provide a 
specific terminal location, it should identify the country and city in 
which the transfer was initiated.

                 Section 1005.10 Preauthorized Transfers

           10(a) Preauthorized Transfers to Consumer's Account

                10(a)(1) Notice by Financial Institution

    1. Content. No specific language is required for notice regarding 
receipt of a preauthorized transfer. Identifying the deposit is 
sufficient; however, simply providing the current account balance is 
not.
    2. Notice of credit. A financial institution may use different 
methods of notice for various types or series of preauthorized 
transfers, and the institution need not offer consumers a choice of 
notice methods.
    3. Positive notice. A periodic statement sent within two business 
days of the scheduled transfer, showing the transfer, can serve as 
notice of receipt.
    4. Negative notice. The absence of a deposit entry (on a periodic 
statement sent within two business days of the scheduled transfer date) 
will serve as negative notice.
    5. Telephone notice. If a financial institution uses the telephone 
notice option, the institution should be able in most instances to 
verify during a consumer's initial call whether a transfer was received. 
The institution must respond within two business days to any inquiry not 
answered immediately.
    6. Phone number for passbook accounts. The financial institution may 
use any reasonable means necessary to provide the telephone number to 
consumers with passbook accounts that can only be accessed by 
preauthorized credits and that do not receive periodic statements. For 
example, it may print the telephone number in the passbook, or include 
the number with the annual error resolution notice.
    7. Telephone line availability. To satisfy the readily-available 
standard, the financial institution must provide enough telephone lines 
so that consumers get a reasonably prompt response. The institution need 
only provide telephone service during normal business hours. Within its 
primary service area, an institution must provide a local or toll-free 
telephone number. It need not provide a toll-free number or accept 
collect long-distance calls from outside the area where it normally 
conducts business.

[[Page 210]]

10(b) Written Authorization for Preauthorized Transfers From Consumer's 
                                 Account

    1. Preexisting authorizations. The financial institution need not 
require a new authorization before changing from paper-based to 
electronic debiting when the existing authorization does not specify 
that debiting is to occur electronically or specifies that the debiting 
will occur by paper means. A new authorization also is not required when 
a successor institution begins collecting payments.
    2. Authorization obtained by third party. The account-holding 
financial institution does not violate the regulation when a third-party 
payee fails to obtain the authorization in writing or fails to give a 
copy to the consumer; rather, it is the third-party payee that is in 
violation of the regulation.
    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.
    4. Use of a confirmation form. A financial institution or designated 
payee may comply with the requirements of this section in various ways. 
For example, a payee may provide the consumer with two copies of a 
preauthorization form, and ask the consumer to sign and return one and 
to retain the second copy.
    5. Similarly authenticated. The similarly authenticated standard 
permits signed, written authorizations to be provided electronically. 
The writing and signature requirements of this section are satisfied by 
complying with the Electronic Signatures in Global and National Commerce 
Act, 15 U.S.C. 7001 et seq., which defines electronic records and 
electronic signatures. Examples of electronic signatures include, but 
are not limited to, digital signatures and security codes. A security 
code need not originate with the account-holding institution. The 
authorization process should evidence the consumer's identity and assent 
to the authorization. The person that obtains the authorization must 
provide a copy of the terms of the authorization to the consumer either 
electronically or in paper form. Only the consumer may authorize the 
transfer and not, for example, a third-party merchant on behalf of the 
consumer.
    6. Requirements of an authorization. An authorization is valid if it 
is readily identifiable as such and the terms of the preauthorized 
transfer are clear and readily understandable.
    7. Bona fide error. Consumers sometimes authorize third-party 
payees, by telephone or online, 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

    1. Stop-payment order. The financial institution must honor an oral 
stop-payment order made at least three business days before a scheduled 
debit. If the debit item is resubmitted, the institution must continue 
to honor the stop-payment order (for example, by suspending all 
subsequent payments to the payee-originator until the consumer notifies 
the institution that payments should resume).
    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. But 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

[[Page 211]]

the transfer(s), as long as the consumer's account is not debited for 
the payment.

               10(d) Notice of Transfers Varying in Amount

                             10(d)(1) Notice

    1. Preexisting authorizations. A financial institution holding the 
consumer's account does not violate the regulation if the designated 
payee fails to provide notice of varying amounts.

                             10(d)(2) Range

    1. Range. A financial institution or designated payee that elects to 
offer the consumer a specified range of amounts for debiting (in lieu of 
providing the notice of transfers varying in amount) must provide an 
acceptable range that could be anticipated by the consumer. For example, 
if the transfer is for payment of a gas bill, an appropriate range might 
be based on the highest bill in winter and the lowest bill in summer.
    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.

                          10(e) Compulsory Use

                             10(e)(1) Credit

    1. Loan payments. Creditors may not require repayment of loans by 
electronic means on a preauthorized, recurring basis. A creditor may 
offer a program with a reduced annual percentage rate or other cost-
related incentive for an automatic repayment feature, provided the 
program with the automatic payment feature is not the only loan program 
offered by the creditor for the type of credit involved. Examples 
include:
    i. Mortgages with graduated payments in which a pledged savings 
account is automatically debited during an initial period to supplement 
the monthly payments made by the borrower.
    ii. Mortgage plans calling for preauthorized biweekly payments that 
are debited electronically to the consumer's account and produce a lower 
total finance charge.
    2. Overdraft. A financial institution may require the automatic 
repayment of an overdraft credit plan even if the overdraft extension is 
charged to an open-end account that may be accessed by the consumer in 
ways other than by overdrafts.

                10(e)(2) Employment or Government Benefit

    1. Payroll. An employer (including a financial institution) may not 
require its employees to receive their salary by direct deposit to any 
particular institution. An employer may require direct deposit of salary 
by electronic means if employees are allowed to choose the institution 
that will receive the direct deposit. Alternatively, an employer may 
give employees the choice of having their salary deposited at a 
particular institution (designated by the employer) or receiving their 
salary by another means, such as by check or cash.

             Section 1005.11 Procedures for Resolving Errors

                        11(a) Definition of Error

    1. Terminal location. With regard to deposits at an ATM, a 
consumer's request for the terminal location or other information 
triggers the error resolution procedures, but the financial institution 
need only provide the ATM location if it has captured that information.
    2. Verifying an account debit or credit. If the consumer contacts 
the financial institution to ascertain whether a payment (for example, 
in a home-banking or bill-payment program) or any other type of EFT was 
debited to the account, or whether a deposit made via ATM, preauthorized 
transfer, or any other type of EFT was credited to the account, without 
asserting an error, the error resolution procedures do not apply.
    3. Loss or theft of access device. A financial institution is 
required to comply with the error resolution procedures when a consumer 
reports the loss or theft of an access device if the consumer also 
alleges possible unauthorized use as a consequence of the loss or theft.
    4. Error asserted after account closed. The financial institution 
must comply with the error resolution procedures when a consumer 
properly asserts an error, even if the account has been closed.
    5. Request for documentation or information. A request for 
documentation or other information must be treated as an error unless it 
is clear that the consumer is requesting a duplicate copy for tax or 
other record-keeping purposes.
    6. Terminal receipts for transfers of $15 or less. The fact that an 
institution does not make a terminal receipt available for a transfer of 
$15 or less in accordance with Sec. 1005.9(e) is

[[Page 212]]

not an error for purposes of Sec. 1005.11(a)(1)(vi) or (vii).

                   11(b) Notice of Error From Consumer

                        11(b)(1) Timing; Contents

    1. Content of error notice. The notice of error is effective even if 
it does not contain the consumer's account number, so long as the 
financial institution is able to identify the account in question. For 
example, the consumer could provide a Social Security number or other 
unique means of identification.
    2. Investigation pending receipt of information. While a financial 
institution may request a written, signed statement from the consumer 
relating to a notice of error, it may not delay initiating or completing 
an investigation pending receipt of the statement.
    3. Statement held for consumer. When a consumer has arranged for 
periodic statements to be held until picked up, the statement for a 
particular cycle is deemed to have been transmitted on the date the 
financial institution first makes the statement available to the 
consumer.
    4. Failure to provide statement. When a financial institution fails 
to provide the consumer with a periodic statement, a request for a copy 
is governed by this section if the consumer gives notice within 60 days 
from the date on which the statement should have been transmitted.
    5. Discovery of error by institution. The error resolution 
procedures of this section apply when a notice of error is received from 
the consumer, and not when the financial institution itself discovers 
and corrects an error.
    6. Notice at particular phone number or address. A financial 
institution may require the consumer to give notice only at the 
telephone number or address disclosed by the institution, provided the 
institution maintains reasonable procedures to refer the consumer to the 
specified telephone number or address if the consumer attempts to give 
notice to the institution in a different manner.
    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 Sec. 1005.6 before it may 
impose any liability on the consumer.

                      11(b)(2) Written Confirmation

    1. Written confirmation-of-error notice. If the consumer sends a 
written confirmation of error to the wrong address, the financial 
institution must process the confirmation through normal procedures. But 
the institution need not provisionally credit the consumer's account if 
the written confirmation is delayed beyond 10 business days in getting 
to the right place because it was sent to the wrong address.

              11(c) Time Limits and Extent of Investigation

    1. Notice to consumer. Unless otherwise indicated in this section, 
the financial institution may provide the required notices to the 
consumer either orally or in writing.
    2. Written confirmation of oral notice. A financial institution must 
begin its investigation promptly upon receipt of an oral notice. It may 
not delay until it has received a written confirmation.
    3. Charges for error resolution. If a billing error occurred, 
whether as alleged or in a different amount or manner, the financial 
institution may not impose a charge related to any aspect of the error-
resolution process (including charges for documentation or 
investigation). Since the Act grants the consumer error-resolution 
rights, the institution should avoid any chilling effect on the good-
faith assertion of errors that might result if charges are assessed when 
no billing error has occurred.
    4. Correction without investigation. A financial institution may 
make, without investigation, a final correction to a consumer's account 
in the amount or manner alleged by the consumer to be in error, but must 
comply with all other applicable requirements of Sec. 1005.11.
    5. Correction notice. A financial institution may include the notice 
of correction on a periodic statement that is mailed or delivered within 
the 10-business-day or 45-calendar-day time limits and that clearly 
identifies the correction to the consumer's account. The institution 
must determine whether such a mailing will be prompt enough to satisfy 
the requirements of this section, taking into account the specific facts 
involved.
    6. Correction of an error. If the financial institution determines 
an error occurred, within either the 10-day or 45-day period, it must 
correct the error (subject to the liability provisions of Sec. Sec. 
1005.6(a) and (b)) including, where applicable, the crediting of 
interest and the refunding of any fees imposed by the institution. In a 
combined credit/EFT transaction, for example, the institution must 
refund any finance charges incurred as a result of the error. The 
institution need not refund fees that would have been imposed whether or 
not the error occurred.
    7. Extent of required investigation. A financial institution 
complies with its duty to investigate, correct, and report its 
determination regarding an error described in Sec. 1005.11(a)(1)(vii) 
by transmitting the requested information, clarification, or 
documentation within the time limits set forth in

[[Page 213]]

Sec. 1005.11(c). If the institution has provisionally credited the 
consumer's account in accordance with Sec. 1005.11(c)(2), it may debit 
the amount upon transmitting the requested information, clarification, 
or documentation.

                          Paragraph 11(c)(2)(i)

    1. Compliance with all requirements. Financial institutions exempted 
from provisionally crediting a consumer's account under Sec. Sec. 
1005.11(c)(2)(i)(A) and (B) must still comply with all other 
requirements of Sec. 1005.11.

                   11(c)(3) Extension of Time Periods

    1. POS debit card transactions. The extended deadlines for 
investigating errors resulting from POS debit card transactions apply to 
all debit card transactions, including those for cash only, at 
merchants' POS terminals, and also including mail and telephone orders. 
The deadlines do not apply to transactions at an ATM, however, even 
though the ATM may be in a merchant location.

                         11(c)(4) Investigation

    1. Third parties. When information or documentation requested by the 
consumer is in the possession of a third party with whom the financial 
institution does not have an agreement, the institution satisfies the 
error resolution requirement by so advising the consumer within the 
specified time period.
    2. Scope of investigation. When an alleged error involves a payment 
to a third party under the financial institution's telephone bill-
payment plan, a review of the institution's own records is sufficient, 
assuming no agreement exists between the institution and the third party 
concerning the bill-payment service.
    3. POS transfers. When a consumer alleges an error involving a 
transfer to a merchant via a POS terminal, the institution must verify 
the information previously transmitted when executing the transfer. For 
example, the financial institution may request a copy of the sales 
receipt to verify that the amount of the transfer correctly corresponds 
to the amount of the consumer's purchase.
    4. Agreement. An agreement that a third party will honor an access 
device is an agreement for purposes of this paragraph. A financial 
institution does not have an agreement for purposes of Sec. 
1005.11(c)(4)(ii) 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 the institution agrees to be bound 
by the rules of such an arrangement.
    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;
    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.

    11(d) Procedures if Financial Institution Determines No Error or 
                        Different Error Occurred

    1. Error different from that alleged. When a financial institution 
determines that an error occurred in a manner or amount different from 
that described by the consumer, it must comply with the requirements of 
both Sec. Sec. 1005.11(c) and (d), as relevant. The institution may 
give the notice of correction and the explanation separately or in a 
combined form.

                      11(d)(1) Written Explanation

    1. Request for documentation. When a consumer requests copies of 
documents, the financial institution must provide the copies in an 
understandable form. If an institution relied on magnetic tape, it must 
convert the applicable data into readable form, for example, by printing 
it and explaining any codes.

                  11(d)(2) Debiting Provisional Credit

    1. Alternative procedure for debiting of credited funds. The 
financial institution may comply with the requirements of this section 
by notifying the consumer that the consumer's account will be debited 
five business days from the transmittal of the notification, specifying 
the calendar date on which the debiting will occur.

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    2. Fees for overdrafts. The financial institution may not impose 
fees for items it is required to honor under Sec. 1005.11. It may, 
however, impose any normal transaction or item fee that is unrelated to 
an overdraft resulting from the debiting. If the account is still 
overdrawn after five business days, the institution may impose the fees 
or finance charges to which it is entitled, if any, under an overdraft 
credit plan.

                       11(e) Reassertion of Error

    1. Withdrawal of error; right to reassert. The financial institution 
has no further error resolution responsibilities if the consumer 
voluntarily withdraws the notice alleging an error. A consumer who has 
withdrawn an allegation of error has the right to reassert the 
allegation unless the financial institution had already complied with 
all of the error resolution requirements before the allegation was 
withdrawn. The consumer must do so, however, within the original 60-day 
period.

                 Section 1005.12 Relation to Other Laws

                   12(a) Relation to Truth in Lending

    1. Determining applicable regulation. i. For transactions involving 
access devices that also function as credit cards, whether Regulation E 
or Regulation Z (12 CFR part 1026) applies depends on the nature of the 
transaction. For example, if the transaction solely involves an 
extension of credit, and does not include a debit to a checking account 
(or other consumer asset account), the liability limitations and error 
resolution requirements of Regulation Z apply. If the transaction debits 
a checking account only (with no credit extended), the provisions of 
Regulation E apply. If the transaction debits a checking account but 
also draws on an overdraft line of credit attached to the account, 
Regulation E's liability limitations apply, in addition to Sec. Sec. 
1026.13(d) and (g) of Regulation Z (which apply because of the extension 
of credit associated with the overdraft feature on the checking 
account). If a consumer's access device is also a credit card and the 
device is used to make unauthorized withdrawals from a checking account, 
but also is used to obtain unauthorized cash advances directly from a 
line of credit that is separate from the checking account, both 
Regulation E and Regulation Z apply.
    ii. The following examples illustrate these principles:
    A. A consumer has a card that can be used either as a credit card or 
a debit card. When used as a debit card, the card draws on the 
consumer's checking account. When used as a credit card, the card draws 
only on a separate line of credit. If the card is stolen and used as a 
credit card to make purchases or to get cash advances at an ATM from the 
line of credit, the liability limits and error resolution provisions of 
Regulation Z apply; Regulation E does not apply.
    B. In the same situation, if the card is stolen and is used as a 
debit card to make purchases or to get cash withdrawals at an ATM from 
the checking account, the liability limits and error resolution 
provisions of Regulation E apply; Regulation Z does not apply.
    C. In the same situation, assume the card is stolen and used both as 
a debit card and as a credit card; for example, the thief makes some 
purchases using the card as a debit card, and other purchases using the 
card as a credit card. Here, the liability limits and error resolution 
provisions of Regulation E apply to the unauthorized transactions in 
which the card was used as a debit card, and the corresponding 
provisions of Regulation Z apply to the unauthorized transactions in 
which the card was used as a credit card.
    D. Assume a somewhat different type of card, one that draws on the 
consumer's checking account and can also draw on an overdraft line of 
credit attached to the checking account. There is no separate line of 
credit, only the overdraft line, associated with the card. In this 
situation, if the card is stolen and used, the liability limits and the 
error resolution provisions of Regulation E apply. In addition, if the 
use of the card has resulted in accessing the overdraft line of credit, 
the error resolution provisions of Sec. Sec. 1026.13(d) and (g) of 
Regulation Z also apply, but not the other error resolution provisions 
of Regulation Z.
    2. Issuance rules. For access devices that also constitute credit 
cards, the issuance rules of Regulation E apply if the only credit 
feature is a preexisting credit line attached to the asset account to 
cover overdrafts (or to maintain a specified minimum balance) or an 
overdraft service, as defined in Sec. 1005.17(a). Regulation Z (12 CFR 
part 1026) rules apply if there is another type of credit feature; for 
example, one permitting direct extensions of credit that do not involve 
the asset account.
    3. Overdraft service. The addition of an overdraft service, as that 
term is defined in Sec. 1005.17(a), to an accepted access device does 
not constitute the addition of a credit feature subject to Regulation Z. 
Instead, the provisions of Regulation E apply, including the liability 
limitations (Sec. 1005.6) and the requirement to obtain consumer 
consent to the service before any fees or charges for paying an 
overdraft may be assessed on the account (Sec. 1005.17).

               12(b) Preemption of Inconsistent State Laws

    1. Specific determinations. The regulation prescribes standards for 
determining whether state laws that govern EFTs, and state laws 
regarding gift certificates, store gift cards, or general-use prepaid 
cards that govern dormancy, inactivity, or service fees, or expiration 
dates, are preempted by the Act

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and the regulation. A state law that is inconsistent may be preempted 
even if the Bureau has not issued a determination. However, nothing in 
Sec. 1005.12(b) provides a financial institution with immunity for 
violations of state law if the institution chooses not to make state 
disclosures and the Bureau later determines that the state law is not 
preempted.
    2. Preemption determination. The Bureau recognizes state law 
preemption determinations made by the Board of Governors of the Federal 
Reserve System prior to July 21, 2011, until and unless the Bureau makes 
and publishes any contrary determination. The Board of Governors 
determined that certain provisions in the state law of Michigan are 
preempted by the Federal law, effective March 30, 1981:
    i. Definition of unauthorized use. Section 5(4) is preempted to the 
extent that it relates to the section of state law governing consumer 
liability for unauthorized use of an access device.
    ii. Consumer liability for unauthorized use of an account. Section 
14 is inconsistent with Sec. 1005.6 and is less protective of the 
consumer than the Federal law. The state law places liability on the 
consumer for the unauthorized use of an account in cases involving the 
consumer's negligence. Under the Federal law, a consumer's liability for 
unauthorized use is not related to the consumer's negligence and depends 
instead on the consumer's promptness in reporting the loss or theft of 
the access device.
    iii. Error resolution. Section 15 is preempted because it is 
inconsistent with Sec. 1005.11 and is less protective of the consumer 
than the Federal law. The state law allows financial institutions up to 
70 days to resolve errors, whereas the Federal law generally requires 
errors to be resolved within 45 days.
    iv. Receipts and periodic statements. Sections 17 and 18 are 
preempted because they are inconsistent with Sec. 1005.9. The state 
provisions require a different disclosure of information than does the 
Federal law. The receipt provision is also preempted because it allows 
the consumer to be charged for receiving a receipt if a machine cannot 
furnish one at the time of a transfer.

      Section 1005.13 Administrative Enforcement; Record Retention

                         13(b) Record Retention

    1. Requirements. A financial institution need not retain records 
that it has given disclosures and documentation to each consumer; it 
need only retain evidence demonstrating that its procedures reasonably 
ensure the consumers' receipt of required disclosures and documentation.

 Section 1005.14 Electronic Fund Transfer Service Provider Not Holding 
                           Consumer's Account

 14(a) Electronic Fund Transfer Service Providers Subject to Regulation

    1. Applicability. This section applies only when a service provider 
issues an access device to a consumer for initiating transfers to or 
from the consumer's account at a financial institution and the two 
entities have no agreement regarding this EFT service. If the service 
provider does not issue an access device to the consumer for accessing 
an account held by another institution, it does not qualify for the 
treatment accorded by Sec. 1005.14. For example, this section does not 
apply to an institution that initiates preauthorized payroll deposits to 
consumer accounts on behalf of an employer. By contrast, Sec. 1005.14 
can apply to an institution that issues a code for initiating telephone 
transfers to be carried out through the ACH from a consumer's account at 
another institution. This is the case even if the consumer has accounts 
at both institutions.
    2. ACH agreements. The ACH rules generally do not constitute an 
agreement for purposes of this section. However, an ACH agreement under 
which members specifically agree to honor each other's debit cards is an 
``agreement,'' and thus this section does not apply.

      14(b) Compliance by Electronic Fund Transfer Service Provider

    1. Liability. The service provider is liable for unauthorized EFTs 
that exceed limits on the consumer's liability under Sec. 1005.6.

                 14(b)(1) Disclosures and Documentation

    1. Periodic statements from electronic fund transfer service 
provider. A service provider that meets the conditions set forth in this 
paragraph does not have to issue periodic statements. A service provider 
that does not meet the conditions need only include on periodic 
statements information about transfers initiated with the access device 
it has issued.

                        14(b)(2) Error Resolution

    1. Error resolution. When a consumer notifies the service provider 
of an error, the EFT service provider must investigate and resolve the 
error in compliance with Sec. 1005.11 as modified by Sec. 
1005.14(b)(2). If an error occurred, any fees or charges imposed as a 
result of the error, either by the service provider or by the account-
holding institution (for example, overdraft or dishonor fees) must be 
reimbursed to the consumer by the service provider.

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             14(c) Compliance by Account-Holding Institution

                         14(c)(1) Documentation

    1. Periodic statements from account-holding institution. The 
periodic statement provided by the account-holding institution need only 
contain the information required by Sec. 1005.9(b)(1).

        Section 1005.16 Disclosures at 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.

           Section 1005.17 Requirements for Overdraft Services

                            17(a) Definition

    1. Exempt securities- and commodities-related lines of credit. The 
definition of ``overdraft service'' does not include the payment of 
transactions in a securities or commodities account pursuant to which 
credit is extended by a broker-dealer registered with the Securities and 
Exchange Commission or the Commodity Futures Trading Commission.

                        17(b) Opt-In Requirement

    1. Scope. i. Account-holding institutions. Section 1005.17(b) 
applies to ATM and one-time debit card transactions made with a debit 
card issued by or on behalf of the account-holding institution. Section 
1005.17(b) does not apply to ATM and one-time debit card transactions 
made with a debit card issued by or through a third party unless the 
debit card is issued on behalf of the account-holding institution.
    ii. Coding of transactions. A financial institution complies with 
the rule if it adapts its systems to identify debit card transactions as 
either one-time or recurring. If it does so, the financial institution 
may rely on the transaction's coding by merchants, other institutions, 
and other third parties as a one-time or a preauthorized or recurring 
debit card transaction.
    iii. One-time debit card transactions. The opt-in applies to any 
one-time debit card transaction, whether the card is used, for example, 
at a point-of-sale, in an online transaction, or in a telephone 
transaction.
    iv. Application of fee prohibition. The prohibition on assessing 
overdraft fees under Sec. 1005.17(b)(1) applies to all institutions. 
For example, the prohibition applies to an institution that has a policy 
and practice of declining to authorize and pay any ATM or one-time debit 
card transactions when the institution has a reasonable belief at the 
time of the authorization request that the consumer does not have 
sufficient funds available to cover the transaction. However, the 
institution is not required to comply with Sec. Sec. 1005.17(b)(1)(i)-
(iv), including the notice and opt-in requirements, if it does not 
assess overdraft fees for paying ATM or one-time debit card transactions 
that overdraw the consumer's account. Assume an institution does not 
provide an opt-in notice, but authorizes an ATM or one-time debit card 
transaction on the reasonable belief that the consumer has sufficient 
funds in the account to cover the transaction. If, at settlement, the 
consumer has insufficient funds in the account (for example, due to 
intervening transactions that post to the consumer's account), the 
institution is not permitted to assess an overdraft fee or charge for 
paying that transaction.
    2. No affirmative consent. A financial institution may pay 
overdrafts for ATM and one-time debit card transactions even if a 
consumer has not affirmatively consented or opted in to the 
institution's overdraft service. If the institution pays such an 
overdraft without the consumer's affirmative consent, however, it may 
not impose a fee or charge for doing so. These provisions do not limit 
the institution's ability to debit the consumer's account for the amount 
overdrawn if the institution is permitted to do so under applicable law.
    3. Overdraft transactions not required to be authorized or paid. 
Section 1005.17 does not require a financial institution to authorize or 
pay an overdraft on an ATM or one-time debit card transaction even if 
the consumer has affirmatively consented to an institution's overdraft 
service for such transactions.
    4. Reasonable opportunity to provide affirmative consent. A 
financial institution provides a consumer with a reasonable opportunity 
to provide affirmative consent when, among other things, it provides 
reasonable methods by which the consumer may affirmatively consent. A 
financial institution provides such reasonable methods, if:
    i. By mail. The institution provides a form for the consumer to fill 
out and mail to affirmatively consent to the service.

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    ii. By telephone. The institution provides a readily-available 
telephone line that consumers may call to provide affirmative consent.
    iii. By electronic means. The institution provides an electronic 
means for the consumer to affirmatively consent. For example, the 
institution could provide a form that can be accessed and processed at 
its Web site, where the consumer may click on a check box to provide 
consent and confirm that choice by clicking on a button that affirms the 
consumer's consent.
    iv. In person. The institution provides a form for the consumer to 
complete and present at a branch or office to affirmatively consent to 
the service.
    5. Implementing opt-in at account-opening. A financial institution 
may provide notice regarding the institution's overdraft service prior 
to or at account-opening. A financial institution may require a 
consumer, as a necessary step to opening an account, to choose whether 
or not to opt into the payment of ATM or one-time debit card 
transactions pursuant to the institution's overdraft service. For 
example, the institution could require the consumer, at account opening, 
to sign a signature line or check a box on a form (consistent with 
comment 17(b)-6) indicating whether or not the consumer affirmatively 
consents at account opening. If the consumer does not check any box or 
provide a signature, the institution must assume that the consumer does 
not opt in. Or, the institution could require the consumer to choose 
between an account that does not permit the payment of ATM or one-time 
debit card transactions pursuant to the institution's overdraft service 
and an account that permits the payment of such overdrafts, provided 
that the accounts comply with Sec. 1005.17(b)(2) and Sec. 
1005.17(b)(3).
    6. Affirmative consent required. A consumer's affirmative consent, 
or opt-in, to a financial institution's overdraft service must be 
obtained separately from other consents or acknowledgements obtained by 
the institution, including a consent to receive disclosures 
electronically. An institution may obtain a consumer's affirmative 
consent by providing a blank signature line or check box that the 
consumer could sign or select to affirmatively consent, provided that 
the signature line or check box is used solely for purposes of 
evidencing the consumer's choice whether or not to opt into the 
overdraft service and not for other purposes. An institution does not 
obtain a consumer's affirmative consent by including preprinted language 
about the overdraft service in an account disclosure provided with a 
signature card or contract that the consumer must sign to open the 
account and that acknowledges the consumer's acceptance of the account 
terms. Nor does an institution obtain a consumer's affirmative consent 
by providing a signature card that contains a pre-selected check box 
indicating that the consumer is requesting the service.
    7. Confirmation. A financial institution may comply with the 
requirement in Sec. 1005.17(b)(1)(iv) to provide confirmation of the 
consumer's affirmative consent by mailing or delivering to the consumer 
a copy of the consumer's completed opt-in notice, or by mailing or 
delivering a letter or notice to the consumer acknowledging that the 
consumer has elected to opt into the institution's service. The 
confirmation, which must be provided in writing, or electronically if 
the consumer agrees, must include a statement informing the consumer of 
the right to revoke the opt-in at any time. See Sec. 1005.17(d)(6), 
which permits institutions to include the revocation statement on the 
initial opt-in notice. An institution complies with the confirmation 
requirement if it has adopted reasonable procedures designed to ensure 
that overdraft fees are assessed only in connection with transactions 
paid after the confirmation has been mailed or delivered to the 
consumer.
    8. Outstanding Negative Balance. If a fee or charge is based on the 
amount of the outstanding negative balance, an institution is prohibited 
from assessing any such fee if the negative balance is solely 
attributable to an ATM or one-time debit card transaction, unless the 
consumer has opted into the institution's overdraft service for ATM or 
one-time debit card transactions. However, the rule does not prohibit an 
institution from assessing such a fee if the negative balance is 
attributable in whole or in part to a check, ACH, or other type of 
transaction not subject to the prohibition on assessing overdraft fees 
in Sec. 1005.17(b)(1).
    9. Daily or Sustained Overdraft, Negative Balance, or Similar Fee or 
Charge i. Daily or sustained overdraft, negative balance, or similar 
fees or charges. If a consumer has not opted into the institution's 
overdraft service for ATM or one-time debit card transactions, the fee 
prohibition in Sec. 1005.17(b)(1) applies to all overdraft fees or 
charges for paying those transactions, including but not limited to 
daily or sustained overdraft, negative balance, or similar fees or 
charges. Thus, where a consumer's negative balance is solely 
attributable to an ATM or one-time debit card transaction, the rule 
prohibits the assessment of such fees unless the consumer has opted in. 
However, the rule does not prohibit an institution from assessing daily 
or sustained overdraft, negative balance, or similar fees or charges if 
a negative balance is attributable in whole or in part to a check, ACH, 
or other type of transaction not subject to the fee prohibition. When 
the negative balance is attributable in part to an ATM or one-time debit 
card transaction, and in part to a check, ACH, or other type of

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transaction not subject to the fee prohibition, the date on which such a 
fee may be assessed is based on the date on which the check, ACH, or 
other type of transaction is paid into overdraft.
    ii. Examples. The following examples illustrate how an institution 
complies with the fee prohibition. For each example, assume the 
following: (a) The consumer has not opted into the payment of ATM or 
one-time debit card overdrafts; (b) these transactions are paid into 
overdraft because the amount of the transaction at settlement exceeded 
the amount authorized or the amount was not submitted for authorization; 
(c) under the account agreement, the institution may charge a per-item 
fee of $20 for each overdraft, and a one-time sustained overdraft fee of 
$20 on the fifth consecutive day the consumer's account remains 
overdrawn; (d) the institution posts ATM and debit card transactions 
before other transactions; and (e) the institution allocates deposits to 
account debits in the same order in which it posts debits.
    A. Assume that a consumer has a $50 account balance on March 1. That 
day, the institution posts a one-time debit card transaction of $60 and 
a check transaction of $40. The institution charges an overdraft fee of 
$20 for the check overdraft but cannot assess an overdraft fee for the 
debit card transaction. At the end of the day, the consumer has an 
account balance of negative $70. The consumer does not make any deposits 
to the account, and no other transactions occur between March 2 and 
March 6. Because the consumer's negative balance is attributable in part 
to the $40 check (and associated overdraft fee), the institution may 
charge a sustained overdraft fee on March 6 in connection with the 
check.
    B. Same facts as in A., except that on March 3, the consumer 
deposits $40 in the account. The institution allocates the $40 to the 
debit card transaction first, consistent with its posting order policy. 
At the end of the day on March 3, the consumer has an account balance of 
negative $30, which is attributable to the check transaction (and 
associated overdraft fee). The consumer does not make any further 
deposits to the account, and no other transactions occur between March 4 
and March 6. Because the remaining negative balance is attributable to 
the March 1 check transaction, the institution may charge a sustained 
overdraft fee on March 6 in connection with the check.
    C. Assume that a consumer has a $50 account balance on March 1. That 
day, the institution posts a one-time debit card transaction of $60. At 
the end of that day, the consumer has an account balance of negative 
$10. The institution may not assess an overdraft fee for the debit card 
transaction. On March 3, the institution pays a check transaction of 
$100 and charges an overdraft fee of $20. At the end of that day, the 
consumer has an account balance of negative $130. The consumer does not 
make any deposits to the account, and no other transactions occur 
between March 4 and March 8. Because the consumer's negative balance is 
attributable in part to the check, the institution may assess a $20 
sustained overdraft fee. However, because the check was paid on March 3, 
the institution must use March 3 as the start date for determining the 
date on which the sustained overdraft fee may be assessed. Thus, the 
institution may charge a $20 sustained overdraft fee on March 8.
    iii. Alternative approach. For a consumer who does not opt into the 
institution's overdraft service for ATM and one-time debit card 
transactions, an institution may also comply with the fee prohibition in 
Sec. 1005.17(b)(1) by not assessing daily or sustained overdraft, 
negative balance, or similar fees or charges unless a consumer's 
negative balance is attributable solely to check, ACH or other types of 
transactions not subject to the fee prohibition while that negative 
balance remains outstanding. In such case, the institution would not 
have to determine how to allocate subsequent deposits that reduce but do 
not eliminate the negative balance. For example, if a consumer has a 
negative balance of $30, of which $10 is attributable to a one-time 
debit card transaction, an institution complies with the fee prohibition 
if it does not assess a sustained overdraft fee while that negative 
balance remains outstanding.

    17(b)(2) Conditioning Payment of Other Overdrafts on Consumer's 
                           Affirmative Consent

    1. Application of the same criteria. The prohibitions on 
conditioning in Sec. 1005.17(b)(2) generally require an institution to 
apply the same criteria for deciding when to pay overdrafts for checks, 
ACH transactions, and other types of transactions, whether or not the 
consumer has affirmatively consented to the institution's overdraft 
service with respect to ATM and one-time debit card overdrafts. For 
example, if an institution's internal criteria would lead the 
institution to pay a check overdraft if the consumer had affirmatively 
consented to the institution's overdraft service for ATM and one-time 
debit card transactions, it must also apply the same criteria in a 
consistent manner in determining whether to pay the check overdraft if 
the consumer has not opted in.
    2. No requirement to pay overdrafts on checks, ACH transactions, or 
other types of transactions. The prohibition on conditioning in Sec. 
1005.17(b)(2) does not require an institution to pay overdrafts on 
checks, ACH transactions, or other types of transactions in all 
circumstances. Rather, the rule simply prohibits institutions from 
considering the consumer's decision not to opt in when deciding

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whether to pay overdrafts for checks, ACH transactions, or other types 
of transactions.

          17(b)(3) Same Account Terms, Conditions, and Features

    1. Variations in terms, conditions, or features. A financial 
institution may not vary the terms, conditions, or features of an 
account provided to a consumer who does not affirmatively consent to the 
payment of ATM or one-time debit card transactions pursuant to the 
institution's overdraft service. This includes, but is not limited to:
    i. Interest rates paid and fees assessed;
    ii. The type of ATM or debit card provided to the consumer. For 
instance, an institution may not provide consumers who do not opt in a 
PIN-only card while providing a debit card with both PIN and signature-
debit functionality to consumers who opt in;
    iii. Minimum balance requirements; or
    iv. Account features such as online bill payment services.
    2. Limited-feature bank accounts. Section 1005.17(b)(3) does not 
prohibit institutions from offering deposit account products with 
limited features, provided that a consumer is not required to open such 
an account because the consumer did not opt in. For example, Sec. 
1005.17(b)(3) does not prohibit an institution from offering a checking 
account designed to comply with state basic banking laws, or designed 
for consumers who are not eligible for a checking account because of 
their credit or checking account history, which may include features 
limiting the payment of overdrafts. However, a consumer who applies, and 
is otherwise eligible, for a full-service or other particular deposit 
account product may not be provided instead with the account with more 
limited features because the consumer has declined to opt in.

                              17(c) Timing

    1. Permitted fees or charges. Fees or charges for ATM and one-time 
debit card overdrafts may be assessed only for overdrafts paid on or 
after the date the financial institution receives the consumer's 
affirmative consent to the institution's overdraft service. See also 
comment 17(b)-7.

                        17(d) Content and Format

    1. Overdraft service. The description of the institution's overdraft 
service should indicate that the consumer has the right to affirmatively 
consent, or opt into payment of overdrafts for ATM and one-time debit 
card transactions. The description should also disclose the 
institution's policies regarding the payment of overdrafts for other 
transactions, including checks, ACH transactions, and automatic bill 
payments, provided that this content is not more prominent than the 
description of the consumer's right to opt into payment of overdrafts 
for ATM and one-time debit card transactions. As applicable, the 
institution also should indicate that it pays overdrafts at its 
discretion, and should briefly explain that if the institution does not 
authorize and pay an overdraft, it may decline the transaction.
    2. Maximum fee. If the amount of a fee may vary from transaction to 
transaction, the financial institution may indicate that the consumer 
may be assessed a fee ``up to'' the maximum fee. The financial 
institution must disclose all applicable overdraft fees, including but 
not limited to:
    i. Per item or per transaction fees;
    ii. Daily overdraft fees;
    iii. Sustained overdraft fees, where fees are assessed when the 
consumer has not repaid the amount of the overdraft after some period of 
time (for example, if an account remains overdrawn for five or more 
business days); or
    iv. Negative balance fees.
    3. Opt-in methods. The opt-in notice must include the methods by 
which the consumer may consent to the overdraft service for ATM and one-
time debit card transactions. Institutions may tailor Model Form A-9 to 
the methods offered to consumers for affirmatively consenting to the 
service. For example, an institution need not provide the tear-off 
portion of Model Form A-9 if it is only permitting consumers to opt-in 
telephonically or electronically. Institutions may, but are not 
required, to provide a signature line or check box where the consumer 
can indicate that he or she declines to opt in.
    4. Identification of consumer's account. An institution may use any 
reasonable method to identify the account for which the consumer submits 
the opt-in notice. For example, the institution may include a line for a 
printed name and an account number, as shown in Model Form A-9. Or, the 
institution may print a bar code or use other tracking information. See 
also comment 17(b)-6, which describes how an institution obtains a 
consumer's affirmative consent.
    5. Alternative plans for covering overdrafts. If the institution 
offers both a line of credit subject to Regulation Z (12 CFR part 1026) 
and a service that transfers funds from another account of the consumer 
held at the institution to cover overdrafts, the institution must state 
in its opt-in notice that both alternative plans are offered. For 
example, the notice might state ``We also offer overdraft protection 
plans, such as a link to a savings account or to an overdraft line of 
credit, which may be less expensive than our standard overdraft 
practices.'' If the institution offers one, but not the other, it must 
state in its opt-in notice the alternative plan that it offers. If the 
institution does not offer either plan, it should omit the reference to 
the alternative plans.

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        17(f) Continuing Right To Opt-In or To Revoke the Opt-In

    1. Fees or charges for overdrafts incurred prior to revocation. 
Section 1005.17(f)(1) provides that a consumer may revoke his or her 
prior consent at any time. If a consumer does so, this provision does 
not require the financial institution to waive or reverse any overdraft 
fees assessed on the consumer's account prior to the institution's 
implementation of the consumer's revocation request.

                        17(g) Duration of Opt-In

    1. Termination of overdraft service. A financial institution may, 
for example, terminate the overdraft service when the consumer makes 
excessive use of the service.

Section 1005.18 Requirements for Financial Institutions Offering Payroll 
                              Card Accounts

                             18(a) Coverage

    1. Issuance of access device. Consistent with Sec. 1005.5(a), a 
financial institution may issue an access device only in response to an 
oral or written request for the device, or as a renewal or substitute 
for an accepted access device. A consumer is deemed to request an access 
device for a payroll card account when the consumer chooses to receive 
salary or other compensation through a payroll card account.
    2. Application to employers and service providers. Typically, 
employers and third-party service providers do not meet the definition 
of a ``financial institution'' subject to the regulation because they 
neither hold payroll card accounts nor issue payroll cards and agree 
with consumers to provide EFT services in connection with payroll card 
accounts. However, to the extent an employer or a service provider 
undertakes either of these functions, it would be deemed a financial 
institution under the regulation.

                18(b) Alternative to Periodic Statements

    1. Posted transactions. A history of transactions provided under 
Sec. Sec. 1005.18(b)(1)(ii) and (iii) shall reflect transfers once they 
have been posted to the account. Thus, an institution does not need to 
include transactions that have been authorized, but that have not yet 
posted to the account.
    2. Electronic history. The electronic history required under Sec. 
1005.18(b)(1)(ii) must be provided in a form that the consumer may keep, 
as required under Sec. 1005.4(a)(1). Financial institutions may satisfy 
this requirement if they make the electronic history available in a 
format that is capable of being retained. For example, an institution 
satisfies the requirement if it provides a history at a Web site in a 
format that is capable of being printed or stored electronically using a 
web browser.

                       18(c) Modified Requirements

    1. Error resolution safe harbor provision. Institutions that choose 
to investigate notices of error provided up to 120 days from the date a 
transaction has posted to a consumer's account may still disclose the 
error resolution time period required by the regulation (as set forth in 
the Model Form in Appendix A-7). Specifically, an institution may 
disclose to payroll card account holders that the institution will 
investigate any notice of error provided within 60 days of the consumer 
electronically accessing an account or receiving a written history upon 
request that reflects the error, even if, for some or all transactions, 
the institution investigates any notice of error provided up to 120 days 
from the date that the transaction alleged to be in error has posted to 
the consumer's account. Similarly, an institution's summary of the 
consumer's liability (as required under Sec. 1005.7(b)(1)) may disclose 
that liability is based on the consumer providing notice of error within 
60 days of the consumer electronically accessing an account or receiving 
a written history reflecting the error, even if, for some or all 
transactions, the institution allows a consumer to assert a notice of 
error up to 120 days from the date of posting of the alleged error.
    2. Electronic access. A consumer is deemed to have accessed a 
payroll card account electronically when the consumer enters a user 
identification code or password or otherwise complies with a security 
procedure used by an institution to verify the consumer's identity. An 
institution is not required to determine whether a consumer has in fact 
accessed information about specific transactions to trigger the 
beginning of the 60-day periods for liability limits and error 
resolution under Sec. Sec. 1005.6 and 1005.11.
    3. Untimely notice of error. An institution that provides a 
transaction history under Sec. 1005.18(b)(1) is not required to comply 
with the requirements of Sec. 1005.11 for any notice of error from the 
consumer pertaining to a transfer that occurred more than 60 days prior 
to the earlier of the date the consumer electronically accesses the 
account or the date the financial institution sends a written history 
upon the consumer's request. (Alternatively, as provided in Sec. 
1005.18(c)(4)(ii), an institution need not comply with the requirements 
of Sec. 1005.11 with respect to any notice of error received from the 
consumer more than 120 days after the date of posting of the transfer 
allegedly in error.) Where the consumer's assertion of error involves an 
unauthorized EFT, however, the institution must comply with Sec. 1005.6 
before it may impose any liability on the consumer.

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    Section 1005.20 Requirements for Gift Cards and Gift Certificates

                            20(a) Definitions

    1. Form of card, code, or device. Section 1005.20 applies to any 
card, code, or other device that meets one of the definitions in 
Sec. Sec. 1005.20(a)(1) through (a)(3) (and is not otherwise excluded 
by Sec. 1005.20(b)), even if it is not issued in card form. Section 
1005.20 applies, for example, to an account number or bar code that can 
be used to access underlying funds. Similarly, Sec. 1005.20 applies to 
a device with a chip or other embedded mechanism that links the device 
to stored funds, such as a mobile phone or sticker containing a 
contactless chip that enables the consumer to access the stored funds. A 
card, code, or other device that meets the definition in Sec. Sec. 
1005.20(a)(1) through (a)(3) includes an electronic promise (see comment 
20(a)-2) as well as a promise that is not electronic. See, however, 
Sec. 1005.20(b)(5). In addition, Sec. 1005.20 applies if a merchant 
issues a code that entitles a consumer to redeem the code for goods or 
services, regardless of the medium in which the code is issued (see, 
however, Sec. 1005.20(b)(5)), and whether or not it may be redeemed 
electronically or in the merchant's store. Thus, for example, if a 
merchant emails a code that a consumer may redeem in a specified amount 
either online or in the merchant's store, that code is covered under 
Sec. 1005.20, unless one of the exclusions in Sec. 1005.20(b) apply.
    2. Electronic promise. The term ``electronic promise'' as used in 
EFTA sections 915(a)(2)(B), (a)(2)(C), and (a)(2)(D) means a person's 
commitment or obligation communicated or stored in electronic form made 
to a consumer to provide payment for goods or services for transactions 
initiated by the consumer. The electronic promise is itself represented 
by a card, code or other device that is issued or honored by the person, 
reflecting the person's commitment or obligation to pay. For example, if 
a merchant issues a code that can be given as a gift and that entitles 
the recipient to redeem the code in an online transaction for goods or 
services, that code represents an electronic promise by the merchant and 
is a card, code, or other device covered by Sec. 1005.20.
    3. Cards, codes, or other devices redeemable for specific goods or 
services. Certain cards, codes, or other devices may be redeemable upon 
presentation for a specific good or service, or ``experience,'' such as 
a spa treatment, hotel stay, or airline flight. In other cases, a card, 
code, or other device may entitle the consumer to a certain percentage 
off the purchase of a good or service, such as 20% off of any purchase 
in a store. Such cards, codes, or other devices generally are not 
subject to the requirements of this section because they are not issued 
to a consumer ``in a specified amount'' as required under the 
definitions of ``gift certificate,'' ``store gift card,'' or ``general-
use prepaid card.'' However, if the card, code, or other device is 
issued in a specified or denominated amount that can be applied toward 
the purchase of a specific good or service, such as a certificate or 
card redeemable for a spa treatment up to $50, the card, code, or other 
device is subject to this section, unless one of the exceptions in Sec. 
1005.20(b) apply. See, e.g., Sec. 1005.20(b)(3). Similarly, if the 
card, code, or other device states a specific monetary value, such as 
``a $50 value,'' the card, code, or other device is subject to this 
section, unless an exclusion in Sec. 1005.20(b) applies.
    4. Issued primarily for personal, family, or household purposes. 
Section 1005.20 only applies to cards, codes, or other devices that are 
sold or issued to a consumer primarily for personal, family, or 
household purposes. A card, code, or other device initially purchased by 
a business is subject to this section if the card, code, or other device 
is purchased for redistribution or resale to consumers primarily for 
personal, family, or household purposes. Moreover, the fact that a card, 
code, or other device may be primarily funded by a business, for 
example, in the case of certain rewards or incentive cards, does not 
mean the card, code, or other device is outside the scope of Sec. 
1005.20, if the card, code, or other device will be provided to a 
consumer primarily for personal, family, or household purposes. But see 
Sec. 1005.20(b)(3). Whether a card, code, or other device is issued to 
a consumer primarily for personal, family, or household purposes will 
depend on the facts and circumstances. For example, if a program manager 
purchases store gift cards directly from an issuing merchant and sells 
those cards through the program manager's retail outlets, such gift 
cards are subject to the requirements of Sec. 1005.20 because the store 
gift cards are sold to consumers primarily for personal, family, or 
household purposes. In contrast, a card, code, or other device generally 
would not be issued to consumers primarily for personal, family, or 
household purposes, and therefore would fall outside the scope of Sec. 
1005.20, if the purchaser of the card, code, or device is contractually 
prohibited from reselling or redistributing the card, code, or device to 
consumers primarily for personal, family, or household purposes, and 
reasonable policies and procedures are maintained to avoid such sale or 
distribution for such purposes. However, if an entity that has purchased 
cards, codes, or other devices for business purposes sells or 
distributes such cards, codes, or other devices to consumers primarily 
for personal, family, or household purposes, that entity does not comply 
with Sec. 1005.20 if it has not otherwise met the substantive and 
disclosure

[[Page 222]]

requirements of the rule or unless an exclusion in Sec. 1005.20(b) 
applies.
    5. Examples of cards, codes, or other devices issued for business 
purposes. Examples of cards, codes, or other devices that are issued and 
used for business purposes and therefore excluded from the definitions 
of ``gift certificate,'' ``store gift card,'' or ``general-use prepaid 
card'' include:
    i. Cards, codes, or other devices to reimburse employees for travel 
or moving expenses.
    ii. Cards, codes, or other devices for employees to use to purchase 
office supplies and other business-related items.

                        20(a)(2) Store Gift Card

    1. Relationship between ``gift certificate'' and ``store gift 
card.'' The term ``store gift card'' in Sec. 1005.20(a)(2) includes 
``gift certificate'' as defined in Sec. 1005.20(a)(1). For example, a 
numeric or alphanumeric code representing a specified dollar amount or 
value that is electronically sent to a consumer as a gift which can be 
redeemed or exchanged by the recipient to obtain goods or services may 
be both a ``gift certificate'' and a ``store gift card'' if the 
specified amount or value cannot be increased.
    2. Affiliated group of merchants. The term ``affiliated group of 
merchants'' means two or more affiliated merchants or other persons that 
are related by common ownership or common corporate control (see, e.g., 
12 CFR 227.3(b) and 12 CFR 223.2) and that share the same name, mark, or 
logo. For example, the term includes franchisees that are subject to a 
common set of corporate policies or practices under the terms of their 
franchise licenses. The term also applies to two or more merchants or 
other persons that agree among themselves, by contract or otherwise, to 
redeem cards, codes, or other devices bearing the same name, mark, or 
logo (other than the mark, logo, or brand of a payment network), for the 
purchase of goods or services solely at such merchants or persons. For 
example, assume a movie theatre chain and a restaurant chain jointly 
agree to issue cards that share the same ``Flix and Food'' logo that can 
be redeemed solely towards the purchase of movie tickets or concessions 
at any of the participating movie theatres, or towards the purchase of 
food or beverages at any of the participating restaurants. For purposes 
of Sec. 1005.20, the movie theatre chain and the restaurant chain would 
be considered to be an affiliated group of merchants, and the cards are 
considered to be ``store gift cards.'' However, merchants or other 
persons are not considered to be affiliated merely because they agree to 
accept a card that bears the mark, logo, or brand of a payment network.
    3. Mall gift cards. See comment 20(a)(3)-2.

                    20(a)(3) General-Use Prepaid Card

    1. Redeemable upon presentation at multiple, unaffiliated merchants. 
A card, code, or other device is redeemable upon presentation at 
multiple, unaffiliated merchants if, for example, such merchants agree 
to honor the card, code, or device if it bears the mark, logo, or brand 
of a payment network, pursuant to the rules of the payment network.
    2. Mall gift cards. Mall gift cards that are intended to be used or 
redeemed for goods or services at participating retailers within a 
shopping mall may be considered store gift cards or general-use prepaid 
cards depending on the merchants with which the cards may be redeemed. 
For example, if a mall card may only be redeemed at merchants within the 
mall itself, the card is more likely to be redeemable at an affiliated 
group of merchants and considered a store gift card. However, certain 
mall cards also carry the brand of a payment network and can be used at 
any retailer that accepts that card brand, including retailers located 
outside of the mall. Such cards are considered general-use prepaid 
cards.

            20(a)(4) Loyalty, Award, or Promotional Gift Card

    1. Examples of loyalty, award, or promotional programs. Examples of 
loyalty, award, or promotional programs under Sec. 1005.20(a)(4) 
include, but are not limited to:
    i. Consumer retention programs operated or administered by a 
merchant or other person that provide to consumers cards or coupons 
redeemable for or towards goods or services or other monetary value as a 
reward for purchases made or for visits to the participating merchant.
    ii. Sales promotions operated or administered by a merchant or 
product manufacturer that provide coupons or discounts redeemable for or 
towards goods or services or other monetary value.
    iii. Rebate programs operated or administered by a merchant or 
product manufacturer that provide cards redeemable for or towards goods 
or services or other monetary value to consumers in connection with the 
consumer's purchase of a product or service and the consumer's 
completion of the rebate submission process.
    iv. Sweepstakes or contests that distribute cards redeemable for or 
towards goods or services or other monetary value to consumers as an 
invitation to enter into the promotion for a chance to win a prize.
    v. Referral programs that provide cards redeemable for or towards 
goods or services or other monetary value to consumers in exchange for 
referring other potential consumers to a merchant.
    vi. Incentive programs through which an employer provides cards 
redeemable for or towards goods or services or other monetary

[[Page 223]]

value to employees, for example, to recognize job performance, such as 
increased sales, or to encourage employee wellness and safety.
    vii. Charitable or community relations programs through which a 
company provides cards redeemable for or towards goods or services or 
other monetary value to a charity or community group for their 
fundraising purposes, for example, as a reward for a donation or as a 
prize in a charitable event.
    2. Issued for loyalty, award, or promotional purposes. To indicate 
that a card, code, or other device is issued for loyalty, award, or 
promotional purposes as required by Sec. 1005.20(a)(4)(iii), it is 
sufficient for the card, code, or other device to state on the front, 
for example, ``Reward'' or ``Promotional.''
    3. Reference to toll-free number and Web site. If a card, code, or 
other device issued in connection with a loyalty, award, or promotional 
program does not have any fees, the disclosure under Sec. 
1005.20(a)(4)(iii)(D) is not required on the card, code, or other 
device.

                          20(a)(6) Service Fee

    1. Service fees. Under Sec. 1005.20(a)(6), a service fee includes a 
periodic fee for holding or use of a gift certificate, store gift card, 
or general-use prepaid card. A periodic fee includes any fee that may be 
imposed on a gift certificate, store gift card, or general-use prepaid 
card from time to time for holding or using the certificate or card, 
such as a monthly maintenance fee, a transaction fee, an ATM fee, a 
reload fee, a foreign currency transaction fee, or a balance inquiry 
fee, whether or not the fee is waived for a certain period of time or is 
only imposed after a certain period of time. A service fee does not 
include a one-time fee or a fee that is unlikely to be imposed more than 
once while the underlying funds are still valid, such as an initial 
issuance fee, a cash-out fee, a supplemental card fee, or a lost or 
stolen certificate or card replacement fee.

                            20(a)(7) Activity

    1. Activity. Under Sec. 1005.20(a)(7), any action that results in 
an increase or decrease of the funds underlying a gift certificate, 
store gift card, or general-use prepaid card, other than the imposition 
of a fee, or an adjustment due to an error or a reversal of a prior 
transaction, constitutes activity for purposes of Sec. 1005.20. For 
example, the purchase and activation of a certificate or card, the use 
of the certificate or card to purchase a good or service, or the 
reloading of funds onto a store gift card or general-use prepaid card 
constitutes activity. However, the imposition of a fee, the replacement 
of an expired, lost, or stolen certificate or card, and a balance 
inquiry do not constitute activity. In addition, if a consumer attempts 
to engage in a transaction with a gift certificate, store gift card, or 
general-use prepaid card, but the transaction cannot be completed due to 
technical or other reasons, such attempt does not constitute activity. 
Furthermore, if the funds underlying a gift certificate, store gift 
card, or general-use prepaid card are adjusted because there was an 
error or the consumer has returned a previously purchased good, the 
adjustment also does not constitute activity with respect to the 
certificate or card.

                            20(b) Exclusions

    1. Application of exclusion. A card, code, or other device is 
excluded from the definition of ``gift certificate,'' ``store gift 
card,'' or ``general-use prepaid card'' if it meets any of the 
exclusions in Sec. 1005.20(b). An excluded card, code, or other device 
generally is not subject to any of the requirements of this section. 
See, however, Sec. 1005.20(a)(4)(iii), requiring certain disclosures 
for loyalty, award, or promotional gift cards.
    2. Eligibility for multiple exclusions. A card, code, or other 
device may qualify for one or more exclusions. For example, a 
corporation may give its employees a gift card that is marketed solely 
to businesses for incentive-related purposes, such as to reward job 
performance or promote employee safety. In this case, the card may 
qualify for the exclusion for loyalty, award, or promotional gift cards 
under Sec. 1005.20(b)(3), or for the exclusion for cards, codes, or 
other devices not marketed to the general public under Sec. 
1005.20(b)(4). In addition, as long as any one of the exclusions 
applies, a card, code, or other device is not covered by Sec. 1005.20, 
even if other exclusions do not apply. In the above example, the 
corporation may give its employees a type of gift card that can also be 
purchased by a consumer directly from a merchant. Under these 
circumstances, while the card does not qualify for the exclusion for 
cards, codes, or other devices not marketed to the general public under 
Sec. 1005.20(b)(4) because the card can also be obtained through retail 
channels, it is nevertheless exempt from the substantive requirements of 
Sec. 1005.20 because it is a loyalty, award, or promotional gift card. 
See, however, Sec. 1005.20(a)(4)(iii), requiring certain disclosures 
for loyalty, award, or promotional gift cards. Similarly, a person may 
market a reloadable card to teenagers for occasional expenses that 
enables parents to monitor spending. Although the card does not qualify 
for the exclusion for cards, codes, or other devices not marketed to the 
general public under Sec. 1005.20(b)(4), it may nevertheless be exempt 
from the requirements of Sec. 1005.20 under Sec. 1005.20(b)(2) if it 
is reloadable and not marketed or labeled as a gift card or gift 
certificate.

[[Page 224]]

                           Paragraph 20(b)(1)

    1. Examples of excluded products. The exclusion for products usable 
solely for telephone services applies to prepaid cards for long-distance 
telephone service, prepaid cards for wireless telephone service and 
prepaid cards for other services that function similar to telephone 
services, such as prepaid cards for voice over Internet protocol (VoIP) 
access time.

                           Paragraph 20(b)(2)

    1. Reloadable. A card, code, or other device is ``reloadable'' if 
the terms and conditions of the agreement permit funds to be added to 
the card, code, or other device after the initial purchase or issuance. 
A card, code, or other device is not ``reloadable'' merely because the 
issuer or processor is technically able to add functionality that would 
otherwise enable the card, code, or other device to be reloaded.
    2. Marketed or labeled as a gift card or gift certificate. The term 
``marketed or labeled as a gift card or gift certificate'' means 
directly or indirectly offering, advertising, or otherwise suggesting 
the potential use of a card, code or other device, as a gift for another 
person. Whether the exclusion applies generally does not depend on the 
type of entity that makes the promotional message. For example, a card 
may be marketed or labeled as a gift card or gift certificate if anyone 
(other than the purchaser of the card), including the issuer, the 
retailer, the program manager that may distribute the card, or the 
payment network on which a card is used, promotes the use of the card as 
a gift card or gift certificate. A card, code, or other device, 
including a general-purpose reloadable card, is marketed or labeled as a 
gift card or gift certificate even if it is only occasionally marketed 
as a gift card or gift certificate. For example, a network-branded 
general purpose reloadable card would be marketed or labeled as a gift 
card or gift certificate if the issuer principally advertises the card 
as a less costly alternative to a bank account but promotes the card in 
a television, radio, newspaper, or Internet advertisement, or on signage 
as ``the perfect gift'' during the holiday season. However, the mere 
mention of the availability of gift cards or gift certificates in an 
advertisement or on a sign that also indicates the availability of other 
excluded prepaid cards does not by itself cause the excluded prepaid 
cards to be marketed as a gift card or a gift certificate. For example, 
the posting of a sign in a store that refers to the availability of gift 
cards does not by itself constitute the marketing of otherwise excluded 
prepaid cards that may also be sold in the store as gift cards or gift 
certificates, provided that a consumer acting reasonably under the 
circumstances would not be led to believe that the sign applies to all 
prepaid cards sold in the store. See, however, comment 20(b)(2)-4.ii.
    3. Examples of marketed or labeled as a gift card or gift 
certificate. i. Examples of marketed or labeled as a gift card or gift 
certificate include:
    A. Using the word ``gift'' or ``present'' on a card, certificate, or 
accompanying material, including documentation, packaging and 
promotional displays.
    B. Representing or suggesting that a certificate or card can be 
given to another person, for example, as a ``token of appreciation'' or 
a ``stocking stuffer,'' or displaying a congratulatory message on the 
card, certificate or accompanying material.
    C. Incorporating gift-giving or celebratory imagery or motifs, such 
as a bow, ribbon, wrapped present, candle, or congratulatory message, on 
a card, certificate, accompanying documentation, or promotional 
material.
    ii. The term does not include:
    A. Representing that a card or certificate can be used as a 
substitute for a checking, savings, or deposit account.
    B. Representing that a card or certificate can be used to pay for a 
consumer's health-related expenses--for example, a card tied to a health 
savings account.
    C. Representing that a card or certificate can be used as a 
substitute for traveler's checks or cash.
    D. Representing that a card or certificate can be used as a 
budgetary tool, for example, by teenagers, or to cover emergency 
expenses.
    4. Reasonable policies and procedures to avoid marketing as a gift 
card. The exclusion for a card, code, or other device that is reloadable 
and not marketed or labeled as a gift card or gift certificate in Sec. 
1005.20(b)(2) applies if a reloadable card, code, or other device is not 
marketed or labeled as a gift card or gift certificate and if persons 
subject to the rule, including issuers, program managers, and retailers, 
maintain policies and procedures reasonably designed to avoid such 
marketing. Such policies and procedures may include contractual 
provisions prohibiting a reloadable card, code, or other device from 
being marketed or labeled as a gift card or gift certificate, 
merchandising guidelines or plans regarding how the product must be 
displayed in a retail outlet, and controls to regularly monitor or 
otherwise verify that the card, code or other device is not being 
marketed as a gift card. Whether a reloadable card, code, or other 
device has been marketed as a gift card or gift certificate will depend 
on the facts and circumstances, including whether a reasonable consumer 
would be led to believe that the card, code, or other device is a gift 
card or gift certificate. The following examples illustrate the 
application of Sec. 1005.20(b)(2):

[[Page 225]]

    i. An issuer or program manager of prepaid cards agrees to sell 
general-purpose reloadable cards through a retailer. The contract 
between the issuer or program manager and the retailer establishes the 
terms and conditions under which the cards may be sold and marketed at 
the retailer. The terms and conditions prohibit the general-purpose 
reloadable cards from being marketed as a gift card or gift certificate, 
and require policies and procedures to regularly monitor or otherwise 
verify that the cards are not being marketed as such. The issuer or 
program manager sets up one promotional display at the retailer for gift 
cards and another physically separated display for excluded products 
under Sec. 1005.20(b), including general-purpose reloadable cards and 
wireless telephone cards, such that a reasonable consumer would not 
believe that the excluded cards are gift cards. The exclusion in Sec. 
1005.20(b)(2) applies because policies and procedures reasonably 
designed to avoid the marketing of the general-purpose reloadable cards 
as gift cards or gift certificates are maintained, even if a retail 
clerk inadvertently stocks or a consumer inadvertently places a general-
purpose reloadable card on the gift card display.
    ii. Same facts as in i., except that the issuer or program manager 
sets up a single promotional display at the retailer on which a variety 
of prepaid cards are sold, including store gift cards and general-
purpose reloadable cards. A sign stating ``Gift Cards'' appears 
prominently at the top of the display. The exclusion in Sec. 
1005.20(b)(2) does not apply with respect to the general-purpose 
reloadable cards because policies and procedures reasonably designed to 
avoid the marketing of excluded cards as gift cards or gift certificates 
are not maintained.
    iii. Same facts as in i., except that the issuer or program manager 
sets up a single promotional multi-sided display at the retailer on 
which a variety of prepaid card products, including store gift cards and 
general-purpose reloadable cards are sold. Gift cards are segregated 
from excluded cards, with gift cards on one side of the display and 
excluded cards on a different side of a display. Signs of equal 
prominence at the top of each side of the display clearly differentiate 
between gift cards and the other types of prepaid cards that are 
available for sale. The retailer does not use any more conspicuous 
signage suggesting the general availability of gift cards, such as a 
large sign stating ``Gift Cards'' at the top of the display or located 
near the display. The exclusion in Sec. 1005.20(b)(2) applies because 
policies and procedures reasonably designed to avoid the marketing of 
the general-purpose reloadable cards as gift cards or gift certificates 
are maintained, even if a retail clerk inadvertently stocks or a 
consumer inadvertently places a general-purpose reloadable card on the 
gift card display.
    iv. Same facts as in i., except that the retailer sells a variety of 
prepaid card products, including store gift cards and general-purpose 
reloadable cards, arranged side-by-side in the same checkout lane. The 
retailer does not affirmatively indicate or represent that gift cards 
are available, such as by displaying any signage or other indicia at the 
checkout lane suggesting the general availability of gift cards. The 
exclusion in Sec. 1005.20(b)(2) applies because policies and procedures 
reasonably designed to avoid marketing the general-purpose reloadable 
cards as gift cards or gift certificates are maintained.
    5. Online sales of prepaid cards. Some Web sites may prominently 
advertise or promote the availability of gift cards or gift certificates 
in a manner that suggests to a consumer that the Web site exclusively 
sells gift cards or gift certificates. For example, a Web site may 
display a banner advertisement or a graphic on the home page that 
prominently states ``Gift Cards,'' ``Gift Giving,'' or similar language 
without mention of other available products, or use a web address that 
includes only a reference to gift cards or gift certificates in the 
address. In such a case, a consumer acting reasonably under the 
circumstances could be led to believe that all prepaid products sold on 
the Web site are gift cards or gift certificates. Under these facts, the 
Web site has marketed all such products, including general-purpose 
reloadable cards, as gift cards or gift certificates, and the exclusion 
in Sec. 1005.20(b)(2) does not apply.
    6. Temporary non-reloadable cards issued in connection with a 
general-purpose reloadable card. Certain general-purpose reloadable 
cards that are typically marketed as an account substitute initially may 
be sold or issued in the form of a temporary non-reloadable card. After 
the card is purchased, the cardholder is typically required to call the 
issuer to register the card and to provide identifying information in 
order to obtain a reloadable replacement card. In most cases, the 
temporary non-reloadable card can be used for purchases until the 
replacement reloadable card arrives and is activated by the cardholder. 
Because the temporary non-reloadable card may only be obtained in 
connection with the general-purpose reloadable card, the exclusion in 
Sec. 1005.20(b)(2) applies so long as the card is not marketed as a 
gift card or gift certificate.

                           Paragraph 20(b)(4)

    1. Marketed to the general public. A card, code, or other device is 
marketed to the general public if the potential use of the card, code, 
or other device is directly or indirectly offered, advertised, or 
otherwise promoted to the general public. A card, code, or other device 
may be marketed to the general public

[[Page 226]]

through any advertising medium, including television, radio, newspaper, 
the Internet, or signage. However, the posting of a company policy that 
funds may be disbursed by prepaid card (such as a sign posted at a cash 
register or customer service center stating that store credit will be 
issued by prepaid card) does not constitute the marketing of a card, 
code, or other device to the general public. In addition, the method of 
distribution by itself is not dispositive in determining whether a card, 
code, or other device is marketed to the general public. Factors that 
may be considered in determining whether the exclusion applies to a 
particular card, code, or other device include the means or channel 
through which the card, code, or device may be obtained by a consumer, 
the subset of consumers that are eligible to obtain the card, code, or 
device, and whether the availability of the card, code, or device is 
advertised or otherwise promoted in the marketplace.
    2. Examples. The following examples illustrate the application of 
the exclusion in Sec. 1005.20(b)(4):
    i. A merchant sells its gift cards at a discount to a business which 
may give them to employees or loyal consumers as incentives or rewards. 
In determining whether the gift card falls within the exclusion in Sec. 
1005.20(b)(4), the merchant must consider whether the card is of a type 
that is advertised or made available to consumers generally or can be 
obtained elsewhere. If the card can also be purchased through retail 
channels, the exclusion in Sec. 1005.20(b)(4) does not apply, even if 
the consumer obtained the card from the business as an incentive or 
reward. See, however, Sec. 1005.20(b)(3).
    ii. A national retail chain decides to market its gift cards only to 
members of its frequent buyer program. Similarly, a bank may decide to 
sell gift cards only to its customers. If a member of the general public 
may become a member of the program or a customer of the bank, the card 
does not fall within the exclusion in Sec. 1005.20(b)(4) because the 
general public has the ability to obtain the cards. See, however, Sec. 
1005.20(b)(3).
    iii. A card issuer advertises a reloadable card to teenagers and 
their parents promoting the card for use by teenagers for occasional 
expenses, schoolbooks and emergencies and by parents to monitor 
spending. Because the card is marketed to and may be sold to any member 
of the general public, the exclusion in Sec. 1005.20(b)(4) does not 
apply. See, however, Sec. 1005.20(b)(2).
    iv. An insurance company settles a policyholder's claim and 
distributes the insurance proceeds to the consumer by means of a prepaid 
card. Because the prepaid card is simply the means for providing the 
insurance proceeds to the consumer and the availability of the card is 
not advertised to the general public, the exclusion in Sec. 
1005.20(b)(4) applies.
    v. A merchant provides store credit to a consumer following a 
merchandise return by issuing a prepaid card that clearly indicates that 
the card contains funds for store credit. Because the prepaid card is 
issued for the stated purpose of providing store credit to the consumer 
and the ability to receive refunds by a prepaid card is not advertised 
to the general public, the exclusion in Sec. 1005.20(b)(4) applies.
    vi. A tax preparation company elects to distribute tax refunds to 
its clients by issuing prepaid cards, but does not advertise or 
otherwise promote the ability to receive proceeds in this manner. 
Because the prepaid card is simply the mechanism for providing the tax 
refund to the consumer, and the tax preparer does not advertise the 
ability to obtain tax refunds by a prepaid card, the exclusion in Sec. 
1005.20(b)(4) applies. However, if the tax preparer promotes the ability 
to receive tax refund proceeds through a prepaid card as a way to obtain 
``faster'' access to the proceeds, the exclusion in Sec. 1005.20(b)(4) 
does not apply.

                           Paragraph 20(b)(5)

    1. Exclusion explained. To qualify for the exclusion in Sec. 
1005.20(b)(5), the sole means of issuing the card, code, or other device 
must be in a paper form. Thus, the exclusion generally applies to 
certificates issued in paper form where solely the paper itself may be 
used to purchase goods or services. A card, code or other device is not 
issued solely in paper form simply because it may be reproduced or 
printed on paper. For example, a bar code, card or certificate number, 
or certificate or coupon electronically provided to a consumer and 
redeemable for goods and services is not issued in paper form, even if 
it may be reproduced or otherwise printed on paper by the consumer. In 
this circumstance, although the consumer might hold a paper facsimile of 
the card, code, or other device, the exclusion does not apply because 
the information necessary to redeem the value was initially issued in 
electronic form. A paper certificate is within the exclusion regardless 
of whether it may be redeemed electronically. For example, a paper 
certificate or receipt that bears a bar code, code, or account number 
falls within the exclusion in Sec. 1005.20(b)(5) if the bar code, code, 
or account number is not issued in any form other than on the paper. In 
addition, the exclusion in Sec. 1005.20(b)(5) continues to apply in 
circumstances where an issuer replaces a gift certificate that was 
initially issued in paper form with a card or electronic code (for 
example, to replace a lost paper certificate).
    2. Examples. The following examples illustrate the application of 
the exclusion in Sec. 1005.20(b)(5):
    i. A merchant issues a paper gift certificate that entitles the 
bearer to a specified dollar amount that can be applied towards a

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future meal. The merchant fills in the certificate with the name of the 
certificate holder and the amount of the certificate. The certificate 
falls within the exclusion in Sec. 1005.20(b)(5) because it is issued 
in paper form only.
    ii. A merchant allows a consumer to prepay for a good or service, 
such as a car wash or time at a parking meter, and issues a paper 
receipt bearing a numerical or bar code that the consumer may redeem to 
obtain the good or service. The exclusion in Sec. 1005.20(b)(5) applies 
because the code is issued in paper form only.
    iii. A merchant issues a paper certificate or receipt bearing a bar 
code or certificate number that can later be scanned or entered into the 
merchant's system and redeemed by the certificate or receipt holder 
towards the purchase of goods or services. The bar code or certificate 
number is not issued by the merchant in any form other than paper. The 
exclusion in Sec. 1005.20(b)(5) applies because the bar code or 
certificate number is issued in paper form only.
    iv. An online merchant electronically provides a bar code, card or 
certificate number, or certificate or coupon to a consumer that the 
consumer may print on a home printer and later redeem towards the 
purchase of goods or services. The exclusion in Sec. 1005.20(b)(5) does 
not apply because the bar code or card or certificate number was issued 
to the consumer in electronic form, even though it can be reproduced or 
otherwise printed on paper by the consumer.

                           Paragraph 20(b)(6)

    1. Exclusion explained. The exclusion for cards, codes, or other 
devices that are redeemable solely for admission to events or venues at 
a particular location or group of affiliated locations generally applies 
to cards, codes, or other devices that are not redeemed for a specified 
monetary value, but rather solely for admission or entry to an event or 
venue. The exclusion also covers a card, code, or other device that is 
usable to purchase goods or services in addition to entry into the event 
or the venue, either at the event or venue or at an affiliated location 
or location in geographic proximity to the event or venue.
    2. Examples. The following examples illustrate the application of 
the exclusion in Sec. 1005.20(b)(6):
    i. A consumer purchases a prepaid card that entitles the holder to a 
ticket for entry to an amusement park. The prepaid card may only be used 
for entry to the park. The card qualifies for the exclusion in Sec. 
1005.20(b)(6) because it is redeemable for admission or entry and for 
goods or services in conjunction with that admission. In addition, if 
the prepaid card does not have a monetary value, and therefore is not 
``issued in a specified amount,'' the card does not meet the definitions 
of ``gift certificate,'' ``store gift card,'' or ``general-use prepaid 
card'' in Sec. 1005.20(a). See comment 20(a)-3.
    ii. Same facts as in i., except that the gift card also entitles the 
holder of the gift card to a dollar amount that can be applied towards 
the purchase of food and beverages or goods or services at the park or 
at nearby affiliated locations. The card qualifies for the exclusion in 
Sec. 1005.20(b)(6) because it is redeemable for admission or entry and 
for goods or services in conjunction with that admission.
    iii. A consumer purchases a $25 gift card that the holder of the 
gift card can use to make purchases at a merchant, or, alternatively, 
can apply towards the cost of admission to the merchant's affiliated 
amusement park. The card is not eligible for the exclusion in Sec. 
1005.20(b)(6) because it is not redeemable solely for the admission or 
ticket itself (or for goods and services purchased in conjunction with 
such admission). The card meets the definition of ``store gift card'' 
and is therefore subject to Sec. 1005.20, unless a different exclusion 
applies.

                        20(c) Form of Disclosures

                     20(c)(1) Clear and Conspicuous

    1. Clear and conspicuous standard. All disclosures required by this 
section must be clear and conspicuous. Disclosures are clear and 
conspicuous for purposes of this section if they are readily 
understandable and, in the case of written and electronic disclosures, 
the location and type size are readily noticeable to consumers. 
Disclosures need not be located on the front of the certificate or card, 
except where otherwise required, to be considered clear and conspicuous. 
Disclosures are clear and conspicuous for the purposes of this section 
if they are in a print that contrasts with and is otherwise not 
obstructed by the background on which they are printed. For example, 
disclosures on a card or computer screen are not likely to be 
conspicuous if obscured by a logo printed in the background. Similarly, 
disclosures on the back of a card that are printed on top of 
indentations from embossed type on the front of the card are not likely 
to be conspicuous if the indentations obstruct the readability of the 
disclosures. To the extent permitted, oral disclosures meet the standard 
when they are given at a volume and speed sufficient for a consumer to 
hear and comprehend them.
    2. Abbreviations and symbols. Disclosures may contain commonly 
accepted or readily understandable abbreviations or symbols, such as 
``mo.'' for month or a ``/'' to indicate ``per.'' Under the clear and 
conspicuous standard, it is sufficient to state, for example, that a 
particular fee is charged ``$2.50/mo. after 12 mos.''

[[Page 228]]

                             20(c)(2) Format

    1. Electronic disclosures. Disclosures provided electronically 
pursuant to this section are not subject to compliance with the consumer 
consent and other applicable provisions of the Electronic Signatures in 
Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). 
Electronic disclosures must be in a retainable form. For example, a 
person may satisfy the requirement if it provides an online disclosure 
in a format that is capable of being printed. Electronic disclosures may 
not be provided through a hyperlink or in another manner by which the 
purchaser can bypass the disclosure. A person is not required to confirm 
that the consumer has read the electronic disclosures.

                  20(c)(3) Disclosure Prior to Purchase

    1. Method of purchase. The disclosures required by this paragraph 
must be provided before a certificate or card is purchased regardless of 
whether the certificate or card is purchased in person, online, by 
telephone, or by other means.
    2. Electronic disclosures. Section 1005.20(c)(3) provides that the 
disclosures required by this section must be provided to the consumer 
prior to purchase. For certificates or cards purchased electronically, 
disclosures made to the consumer after a consumer has initiated an 
online purchase of a certificate or card, but prior to completing the 
purchase of the certificate or card, would satisfy the prior-to-purchase 
requirement. However, electronic disclosures made available on a 
person's Web site that may or may not be accessed by the consumer are 
not provided to the consumer and therefore would not satisfy the prior-
to-purchase requirement.
    3. Non-physical certificates and cards. If no physical certificate 
or card is issued, the disclosures must be provided to the consumer 
before the certificate or card is purchased. For example, where a gift 
certificate or card is a code that is provided by telephone, the 
required disclosures may be provided orally prior to purchase. See also 
Sec. 1005.20(c)(2).

             20(c)(4) Disclosures on the Certificate or Card

    1. Non-physical certificates and cards. If no physical certificate 
or card is issued, the disclosures required by this paragraph must be 
disclosed on the code, confirmation, or other written or electronic 
document provided to the consumer. For example, where a gift certificate 
or card is a code or confirmation that is provided to a consumer online 
or sent to a consumer's email address, the required disclosures may be 
provided electronically on the same document as the code or 
confirmation.
    2. No disclosures on a certificate or card. Disclosures required by 
Sec. 1005.20(c)(4) need not be made on a certificate or card if it is 
accompanied by a certificate or card that complies with this section. 
For example, a person may issue or sell a supplemental gift card that is 
smaller than a standard size and that does not bear the applicable 
disclosures if it is accompanied by a fully compliant certificate or 
card. See also comment 20(c)(2)-2.

           20(d) Prohibition on Imposition of Fees or Charges

    1. One-year period. Section 1005.20(d) provides that a person may 
impose a dormancy, inactivity, or service fee only if there has been no 
activity with respect to a certificate or card for one year. The 
following examples illustrate this rule:
    i. A certificate or card is purchased on January 15 of year one. If 
there has been no activity on the certificate or card since the 
certificate or card was purchased, a dormancy, inactivity, or service 
fee may be imposed on the certificate or card on January 15 of year two.
    ii. Same facts as i., and a fee was imposed on January 15 of year 
two. Because no more than one dormancy, inactivity, or service fee may 
be imposed in any given calendar month, the earliest date that another 
dormancy, inactivity, or service fee may be imposed, assuming there 
continues to be no activity on the certificate or card, is February 1 of 
year two. A dormancy, inactivity, or service fee is permitted to be 
imposed on February 1 of year two because there has been no activity on 
the certificate or card for the preceding year (February 1 of year one 
through January 31 of year two), and February is a new calendar month. 
The imposition of a fee on January 15 of year two is not activity for 
purposes of Sec. 1005.20(d). See comment 20(a)(7)-1.
    iii. Same facts as i., and a fee was imposed on January 15 of year 
two. On January 31 of year two, the consumer uses the card to make a 
purchase. Another dormancy, inactivity, or service fee could not be 
imposed until January 31 of year three, assuming there has been no 
activity on the certificate or card since January 31 of year two.
    2. Relationship between Sec. Sec. 1005.20(d)(2) and (c)(3). 
Sections 1005.20(d)(2) and (c)(3) contain similar, but not identical, 
disclosure requirements. Section 1005.20(d)(2) requires the disclosure 
of dormancy, inactivity, and service fees on a certificate or card. 
Section 1005.20(c)(3) requires that vendor person that issues or sells 
such certificate or card disclose to a consumer any dormancy, 
inactivity, and service fees associated with the certificate or card 
before such certificate or card may be purchased. Depending on the 
context, a single disclosure that meets the clear and conspicuous 
requirements of both Sec. Sec. 1005.20(d)(2) and (c)(3) may be used to 
disclose a dormancy, inactivity, or service fee. For example, if the 
disclosures on a certificate or card, required by Sec. 1005.20(d)(2), 
are visible to the consumer without having to

[[Page 229]]

remove packaging or other materials sold with the certificate or card, 
for a purchase made in person, the disclosures also meet the 
requirements of Sec. 1005.20(c)(3). Otherwise, a dormancy, inactivity, 
or service fee may need to be disclosed multiple times to satisfy the 
requirements of Sec. Sec. 1005.20(d)(2) and (c)(3). For example, if the 
disclosures on a certificate or card, required by Sec. 1005.20(d)(2), 
are obstructed by packaging sold with the certificate or card, for a 
purchase made in person, they also must be disclosed on the packaging 
sold with the certificate or card to meet the requirements of Sec. 
1005.20(c)(3).
    3. Relationship between Sec. Sec. 1005.20(d)(2), (e)(3), and 
(f)(2). In addition to any disclosures required under Sec. 
1005.20(d)(2), any applicable disclosures under Sec. Sec. 1005.20(e)(3) 
and (f)(2) of this section must also be provided on the certificate or 
card.
    4. One fee per month. Under Sec. 1005.20(d)(3), no more than one 
dormancy, inactivity, or service fee may be imposed in any given 
calendar month. For example, if a dormancy fee is imposed on January 1, 
following a year of inactivity, and a consumer makes a balance inquiry 
on January 15, a balance inquiry fee may not be imposed at that time 
because a dormancy fee was already imposed earlier that month and a 
balance inquiry fee is a type of service fee. If, however, the dormancy 
fee could be imposed on January 1, following a year of inactivity, and 
the consumer makes a balance inquiry on the same date, the person 
assessing the fees may choose whether to impose the dormancy fee or the 
balance inquiry fee on January 1. The restriction in Sec. 1005.20(d)(3) 
does not apply to any fee that is not a dormancy, inactivity, or service 
fee. For example, assume a service fee is imposed on a general-use 
prepaid card on January 1, following a year of inactivity. If a consumer 
cashes out the remaining funds by check on January 15, a cash-out fee, 
to the extent such cash-out fee is permitted under Sec. 1005.20(e)(4), 
may be imposed at that time because a cash-out fee is not a dormancy, 
inactivity, or service fee.
    5. Accumulation of fees. Section 1005.20(d) prohibits the 
accumulation of dormancy, inactivity, or service fees for previous 
periods into a single fee because such a practice would circumvent the 
limitation in Sec. 1005.20(d)(3) that only one fee may be charged per 
month. For example, if a consumer purchases and activates a store gift 
card on January 1 but never uses the card, a monthly maintenance fee of 
$2.00 a month may not be accumulated such that a fee of $24 is imposed 
on January 1 the following year.

20(e) Prohibition on Sale of Gift Certificates or Cards With Expiration 
                                  Dates

    1. Reasonable opportunity. Under Sec. 1005.20(e)(1), no person may 
sell or issue a gift certificate, store gift card, or general-use 
prepaid card with an expiration date, unless there are policies and 
procedures in place to provide consumers with a reasonable opportunity 
to purchase a certificate or card with at least five years remaining 
until the certificate or card expiration date. Consumers are deemed to 
have a reasonable opportunity to purchase a certificate or card with at 
least five years remaining until the certificate or card expiration date 
if:
    i. There are policies and procedures established to prevent the sale 
of a certificate or card unless the certificate or card expiration date 
is at least five years after the date the certificate or card was sold 
or initially issued to a consumer; or
    ii. A certificate or card is available to consumers to purchase five 
years and six months before the certificate or card expiration date.
    2. Applicability to replacement certificates or cards. Section 
1005.20(e)(1) applies solely to the purchase of a certificate or card. 
Therefore, Sec. 1005.20(e)(1) does not apply to the replacement of such 
certificates or cards. Certificates or cards issued as a replacement may 
bear a certificate or card expiration date of less than five years from 
the date of issuance of the replacement certificate or card. If the 
certificate or card expiration date for a replacement certificate or 
card is later than the date set forth in Sec. 1005.20(e)(2)(i), then 
pursuant to Sec. 1005.20(e)(2), the expiration date for the underlying 
funds at the time the replacement certificate or card is issued must be 
no earlier than the expiration date for the replacement certificate or 
card. For purposes of Sec. 1005.20(e)(2), funds are not considered to 
be loaded to a store gift card or general-use prepaid card solely 
because a replacement card has been issued or activated for use.
    3. Disclosure of funds expiration--date not required. Section 
1005.20(e)(3)(i) does not require disclosure of the precise date the 
funds will expire. It is sufficient to disclose, for example, ``Funds 
expire 5 years from the date funds last loaded to the card.''; ``Funds 
can be used 5 years from the date money was last added to the card.''; 
or ``Funds do not expire.''
    4. Disclosure not required if no expiration date. If the certificate 
or card and underlying funds do not expire, the disclosure required by 
Sec. 1005.20(e)(3)(i) need not be stated on the certificate or card. If 
the certificate or card and underlying funds expire at the same time, 
only one expiration date need be disclosed on the certificate or card.
    5. Reference to toll-free telephone number and Web site. If a 
certificate or card does not expire, or if the underlying funds are not 
available after the certificate or card expires, the disclosure required 
by Sec. 1005.20(e)(3)(ii) need not be stated on the certificate or 
card. See, however, Sec. 1005.20(f)(2).

[[Page 230]]

    6. Relationship to Sec. 226.20(f)(2). The same toll-free telephone 
number and Web site may be used to comply with Sec. Sec. 
226.20(e)(3)(ii) and (f)(2). Neither a toll-free number nor a Web site 
must be maintained or disclosed if no fees are imposed in connection 
with a certificate or card, and the certificate or card and the 
underlying funds do not expire.
    7. Distinguishing between certificate or card expiration and funds 
expiration. If applicable, a disclosure must be made on the certificate 
or card that notifies a consumer that the certificate or card expires, 
but the funds either do not expire or expire later than the certificate 
or card, and that the consumer may contact the issuer for a replacement 
card. The disclosure must be made with equal prominence and in close 
proximity to the certificate or card expiration date. The close 
proximity requirement does not apply to oral disclosures. In the case of 
a certificate or card, close proximity means that the disclosure must be 
on the same side as the certificate or card expiration date. For 
example, if the disclosure is the same type size and is located 
immediately next to or directly above or below the certificate or card 
expiration date, without any intervening text or graphical displays, the 
disclosures would be deemed to be equally prominent and in close 
proximity. The disclosure need not be embossed on the certificate or 
card to be deemed equally prominent, even if the expiration date is 
embossed on the certificate or card. The disclosure may state on the 
front of the card, for example, ``Funds expire after card. Call for 
replacement card.'' or ``Funds do not expire. Call for new card after 
09/2016.'' Disclosures made pursuant to Sec. 1005.20(e)(3)(iii)(A) may 
also fulfill the requirements of Sec. 1005.20(e)(3)(i). For example, 
making a disclosure that ``Funds do not expire'' to comply with Sec. 
1005.20(e)(3)(iii)(A) also fulfills the requirements of Sec. 
1005.20(e)(3)(i).
    8. Expiration date safe harbor. A non-reloadable certificate or card 
that bears an expiration date that is at least seven years from the date 
of manufacture need not state the disclosure required by Sec. 
1005.20(e)(3)(iii). However, Sec. 1005.20(e)(1) still prohibits the 
sale or issuance of such certificate or card unless there are policies 
and procedures in place to provide a consumer with a reasonable 
opportunity to purchase the certificate or card with at least five years 
remaining until the certificate or card expiration date. In addition, 
under Sec. 1005.20(e)(2), the funds may not expire before the 
certificate or card expiration date, even if the expiration date of the 
certificate or card bears an expiration date that is more than five 
years from the date of purchase. For purposes of this safe harbor, the 
date of manufacture is the date on which the certificate or card 
expiration date is printed on the certificate or card.
    9. Relationship between Sec. Sec. 1005.20(d)(2), (e)(3), and 
(f)(2). In addition to any disclosures required to be made under Sec. 
1005.20(e)(3), any applicable disclosures under Sec. Sec. 1005.20(d)(2) 
and (f)(2) must also be provided on the certificate or card.
    10. Replacement or remaining balance of an expired certificate or 
card. When a certificate or card expires, but the underlying funds have 
not expired, an issuer, at its option in accordance with applicable 
state law, may provide either a replacement certificate or card or 
otherwise provide the certificate or card holder, for example, by check, 
with the remaining balance on the certificate or card. In either case, 
the issuer may not charge a fee for the service.
    11. Replacement of a lost or stolen certificate or card not 
required. Section 1005.20(e)(4) does not require the replacement of a 
certificate or card that has been lost or stolen.
    12. Date of issuance or loading. For purposes of Sec. 
1005.20(e)(2)(i), a certificate or card is not issued or loaded with 
funds until the certificate or card is activated for use.
    13. Application of expiration date provisions after redemption of 
certificate or card. The requirement that funds underlying a certificate 
or card must not expire for at least five years from the date of 
issuance or date of last load ceases to apply once the certificate or 
card has been fully redeemed, even if the underlying funds are not used 
to contemporaneously purchase a specific good or service. For example, 
some certificates or cards can be used to purchase music, media, or 
virtual goods. Once redeemed by a consumer, the entire balance on the 
certificate or card is debited from the certificate or card and credited 
or transferred to another ``account'' established by the merchant of 
such goods or services. The consumer can then make purchases of songs, 
media, or virtual goods from the merchant using that ``account'' either 
at the time the value is transferred from the certificate or card or at 
a later time. Under these circumstances, once the card has been fully 
redeemed and the ``account'' credited with the amount of the underlying 
funds, the five-year minimum expiration term no longer applies to the 
underlying funds. However, if the consumer only partially redeems the 
value of the certificate or card, the five-year minimum expiration term 
requirement continues to apply to the funds remaining on the certificate 
or card.

 20(f) Additional Disclosure Requirements for Gift Certificates or Cards

    1. Reference to toll-free telephone number and Web site. If a 
certificate or card does not have any fees, the disclosure under Sec. 
1005.20(f)(2) is not required on the certificate or card. See, however, 
Sec. 1005.20(e)(3)(ii).
    2. Relationship to Sec. 226.20(e)(3)(ii). The same toll-free 
telephone number and Web site may be used to comply with Sec. Sec. 
226.20(e)(3)(ii) and

[[Page 231]]

(f)(2). Neither a toll-free number nor a Web site must be maintained or 
disclosed if no fees are imposed in connection with a certificate or 
card, and both the certificate or card and underlying funds do not 
expire.
    3. Relationship between Sec. Sec. 1005.20(d)(2), (e)(3), and 
(f)(2). In addition to any disclosures required pursuant to Sec. 
1005.20(f)(2), any applicable disclosures under Sec. Sec. 1005.20(d)(2) 
and (e)(3) must also be provided on the certificate or card.

                         20(g) Compliance Dates

    1. Period of eligibility for loyalty, award, or promotional 
programs. For purposes of Sec. 1005.20(g)(2), the period of eligibility 
is the time period during which a consumer must engage in a certain 
action or actions to meet the terms of eligibility for a loyalty, award, 
or promotional program and obtain the card, code, or other device. Under 
Sec. 1005.20(g)(2), a gift card issued pursuant to a loyalty, award, or 
promotional program that began prior to August 22, 2010 need not state 
the disclosures in Sec. 1005.20(a)(4)(iii) regardless of whether the 
consumer became eligible to receive the gift card prior to August 22, 
2010, or after that date. For example, a product manufacturer may 
provide a $20 rebate card to a consumer if the consumer purchases a 
particular product and submits a fully completed entry between January 
1, 2010 and December 31, 2010. Similarly, a merchant may provide a $20 
gift card to a consumer if the consumer makes $200 worth of qualifying 
purchases between June 1, 2010 and October 30, 2010. Under both 
examples, gift cards provided pursuant to these loyalty, award, or 
promotional programs need not state the disclosures in Sec. 
1005.20(a)(4)(iii) to qualify for the exclusion in Sec. 1005.20(b)(3) 
for loyalty, award, or promotional gift cards because the period of 
eligibility for each program began prior to August 22, 2010.

                        20(h) Temporary Exemption

                     20(h)(1) Delayed Effective Date

    1. Application to certificates or cards produced prior to April 1, 
2010. Certificates or cards produced prior to April 1, 2010 may be sold 
to a consumer on or after August 22, 2010 without satisfying the 
requirements of Sec. Sec. 1005.20(c)(3), (d)(2), (e)(1), (e)(3), and 
(f) through January 30, 2011, provided that issuers of such certificates 
or cards comply with the additional substantive and disclosure 
requirements of Sec. Sec. 1005.20(h)(1)(i) through (iv). Issuers of 
certificates or cards produced prior to April 1, 2010 need not satisfy 
these additional requirements if the certificates or cards fully comply 
with the rule (Sec. Sec. 1005.20(a) through (f)). For example, the in-
store signage and other disclosures required by Sec. 1005.20(h)(2) do 
not apply to gift cards produced prior to April 1, 2010 that do not have 
fees and do not expire, and which otherwise comply with the rule.
    2. Expiration of temporary exemption. Certificates or cards produced 
prior to April 1, 2010 that do not fully comply with Sec. Sec. 
1005.20(a) through (f) may not be issued or sold to consumers on or 
after January 31, 2011.

                     20(h)(2) Additional Disclosures

    1. Disclosures through third parties. Issuers may make the 
disclosures required by Sec. 1005.20(h)(2) through a third party, such 
as a retailer or merchant. For example, an issuer may have a merchant 
install in-store signage with the disclosures required by Sec. 
1005.20(h)(2) on the issuer's behalf.
    2. General advertising disclosures. Section 1005.20(h)(2) does not 
impose an obligation on the issuer to advertise gift certificates, store 
gift cards, or general-use prepaid cards.

             Appendix A--Model Disclosure Clauses and Forms

    1. Review of forms. The Bureau will not review or approve disclosure 
forms or statements for financial institutions. However, the Bureau has 
issued model clauses for institutions to use in designing their 
disclosures. If an institution uses these clauses accurately to reflect 
its service, the institution is protected from liability for failure to 
make disclosures in proper form.
    2. Use of forms. The appendix contains model disclosure clauses for 
optional use by financial institutions to facilitate compliance with the 
disclosure requirements of sections 1005.5(b)(2) and (b)(3), 1005.6(a), 
1005.7, 1005.8(b), 1005.14(b)(1)(ii), 1005.15(d)(1) and (d)(2), and 
1005.18(c)(1) and (c)(2). The use of appropriate clauses in making 
disclosures will protect a financial institution from liability under 
sections 916 and 917 of the Act provided the clauses accurately reflect 
the institution's EFT services.
    3. Altering the clauses. Financial institutions may use clauses of 
their own design in conjunction with the Bureau's model clauses. The 
inapplicable words or portions of phrases in parentheses should be 
deleted. The catchlines are not part of the clauses and need not be 
used. Financial institutions may make alterations, substitutions, or 
additions in the clauses to reflect the services offered, such as 
technical changes (including the substitution of a trade name for the 
word ``card,'' deletion of inapplicable services, or substitution of 
lesser liability limits). Several of the model clauses include 
references to a telephone number and address. Where two or more of these 
clauses are used in a disclosure, the telephone number and address may 
be referenced and need not be repeated.T

[[Page 232]]



PART 1006_FAIR DEBT COLLECTION PRACTICES ACT (REGULATION F)--Table of
Contents



   Subpart A_Procedures for State Application for Exemption From the 
                          Provisions of the Act

Sec.
1006.1 Purpose and definitions.
1006.2 Application.
1006.3 Supporting documents.
1006.4 Criteria for determination.
1006.5 Public notice of filing.
1006.6 Exemption from requirements.
1006.7 Adverse determination.
1006.8 Revocation of exemption.

Subpart B [Reserved]

    Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1692o.

    Source: 76 FR 78124, Dec. 16, 2011, unless otherwise noted.



   Subpart A_Procedures for State Application for Exemption From the 
                          Provisions of the Act



Sec. 1006.1  Purpose and definitions.

    (a) Purpose. This part, known as Regulation F, is issued by the 
Bureau of Consumer Financial Protection (Bureau). This subpart 
establishes procedures and criteria whereby states may apply to the 
Bureau for exemption of a class of debt collection practices within the 
applying state from the provisions of the Fair Debt Collection Practices 
Act (the Act) as provided in section 817 of the Act, 15 U.S.C. 1692o.
    (b) Definitions. For purposes of this subpart:
    Class of debt collection practices includes one or more such classes 
of debt collection practices.
    State law includes any regulations that implement state law and 
formal interpretations thereof by a court of competent jurisdiction or 
duly authorized agency of that state.



Sec. 1006.2  Application.

    Any state may apply to the Bureau pursuant to the terms of this part 
for a determination that, under the laws of that state, any class of 
debt collection practices within that state is subject to requirements 
that are substantially similar to, or provide greater protection for 
consumers than, those imposed under sections 803 through 812 of the Act, 
and that there is adequate provision for state enforcement of such 
requirements. The application shall be in writing, addressed to the 
Bureau, signed by the Governor, Attorney General or state official 
having primary enforcement or responsibility under the state law which 
is applicable to the class of debt collection practices, and shall be 
supported by the documents specified in this subpart.



Sec. 1006.3  Supporting documents.

    The application shall be accompanied by the following, which may be 
submitted in paper or electronic form:
    (a) A copy of the full text of the state law that is claimed to 
contain requirements substantially similar to those imposed under 
sections 803 through 812 of the Act, or to provide greater protection to 
consumers than sections 803 through 812 of the Act, regarding the class 
of debt collection practices within that state.
    (b) A comparison of each provision of sections 803 through 812 of 
the Act with the corresponding provision of the state law, together with 
reasons supporting the claim that the corresponding provisions of the 
state law are substantially similar to or provide greater protection to 
consumers than provisions of sections 803 through 812 of the Act and an 
explanation as to why any differences between the state and Federal law 
are not inconsistent with the provisions of sections 803 through 812 of 
the Act and do not result in a diminution in the protection otherwise 
afforded consumers; and a statement that no other state laws (including 
administrative or judicial interpretations) are related to, or would 
have an effect upon, the state law that is being considered by the 
Bureau in making its determination.
    (c) A copy of the full text of the state law that provides for 
enforcement of the state law referred to in paragraph (a) of this 
section.
    (d) A comparison of the provisions of the state law that provides 
for enforcement with the provisions of section 814 of the Act, together 
with reasons supporting the claim that such state law

[[Page 233]]

provides for administrative enforcement of the state law referred to in 
paragraph (a) of this section that is substantially similar to, or more 
extensive than, the enforcement provided under section 814 of the Act.
    (e) A statement identifying the office designated or to be 
designated to administer the state law referred to in paragraph (a) of 
this section, together with complete information regarding the fiscal 
arrangements for administrative enforcement (including the amount of 
funds available or to be provided), the number and qualifications of 
personnel engaged or to be engaged in enforcement, and a description of 
the procedures under which such state law is to be administratively 
enforced. The statement should also include reasons to support the claim 
that there is adequate provision for enforcement of such state law.



Sec. 1006.4  Criteria for determination.

    The Bureau will consider the criteria set forth below, and any other 
relevant information, in determining whether the law of a state is 
substantially similar to, or provides greater protection to consumers 
than, the provisions of sections 803 through 812 of the Act regarding 
the class of debt collection practices within that state, and whether 
there is adequate provision for state enforcement of such law. In making 
that determination, the Bureau primarily will consider each provision of 
the state law in comparison with each corresponding provision in 
sections 803 through 812 of the Act, and not the state law as a whole in 
comparison with the Act as a whole.
    (a)(1) In order for provisions of state law to be substantially 
similar to, or provide greater protection to consumers than the 
provisions of sections 803 through 812 of the Act, the provisions of 
state law at least shall provide that:
    (i) Definitions and rules of construction, as applicable, import the 
same meaning and have the same application as those prescribed by 
sections 803 through 812 of the Act.
    (ii) Debt collectors provide all of the applicable notifications 
required by the provisions of sections 803 through 812 of the Act, with 
the content and in the terminology, form, and time periods prescribed by 
this part pursuant to sections 803 through 812; however, required 
references to state law may be substituted for the references to Federal 
law required in this part. Notification requirements under state law in 
additional circumstances or with additional detail that do not frustrate 
any of the purposes of the Act may be determined by the Bureau to be 
consistent with sections 803 through 812 of the Act;
    (iii) Debt collectors take all affirmative actions and abide by 
obligations substantially similar to, or more extensive than, those 
prescribed by sections 803 through 812 of the Act under substantially 
similar or more stringent conditions and within the same or more 
stringent time periods as are prescribed in sections 803 through 812 of 
the Act;
    (iv) Debt collectors abide by the same or more stringent 
prohibitions as are prescribed by sections 803 through 812 of the Act;
    (v) Obligations or responsibilities imposed on consumers are no more 
costly, lengthy, or burdensome relative to consumers exercising any of 
the rights or gaining the benefits of the protections provided in the 
state law than corresponding obligations or responsibilities imposed on 
consumers in sections 803 through 812 of the Act.
    (vi) Consumers' rights and protections are substantially similar to, 
or more favorable than, those provided by sections 803 through 812 of 
the Act under conditions or within time periods that are substantially 
similar to, or more favorable to consumers than, those prescribed by 
sections 803 through 812 of the Act.
    (2) Paragraph (a)(1) of this section is not to be construed as 
indicating that the Bureau would consider adversely any additional 
requirements of state law that are not inconsistent with the purpose of 
the Act or the requirements imposed under sections 803 through 812 of 
the Act.
    (b) In determining whether provisions for enforcement of the state 
law referred to in Sec. 1006.3(a) of this part are adequate, 
consideration will be given to the extent to which, under state law, 
provision is made for administrative

[[Page 234]]

enforcement, including necessary facilities, personnel, and funding.



Sec. 1006.5  Public notice of filing.

    In connection with any application that has been filed in accordance 
with the requirements of Sec. Sec. 1006.2 and 1006.3 of this part and 
following initial review of the application, a notice of such filing 
shall be published by the Bureau in the Federal Register, and a copy of 
such application shall be made available for examination by interested 
persons during business hours at the Bureau of Consumer Financial 
Protection, 1700 G Street NW., Washington, DC 20006. A period of time 
shall be allowed from the date of such publication for interested 
parties to submit written comments to the Bureau regarding that 
application.



Sec. 1006.6  Exemption from requirements.

    If the Bureau determines on the basis of the information before it 
that, under the law of a state, a class of debt collection practices is 
subject to requirements substantially similar to, or that provide 
greater protection to consumers than, those imposed under sections 803 
through 812 and section 814 of the Act, and that there is adequate 
provision for state enforcement, the Bureau will exempt the class of 
debt collection practices in that state from the requirements of 
sections 803 through 812 and section 814 of the Act in the following 
manner and subject to the following conditions:
    (a) Notice of the exemption shall be published in the Federal 
Register, and the Bureau shall furnish a copy of such notice to the 
state official who made application for such exemption, to each Federal 
authority responsible for administrative enforcement of the requirements 
of sections 803 through 812 of the Act, and to the Attorney General of 
the United States. Any exemption granted shall be effective 90 days 
after the date of publication of such notice in the Federal Register.
    (b) The appropriate official of any state that receives an exemption 
shall inform the Bureau in writing within 30 days of any change in the 
state laws referred to in Sec. 1006.3(a) and (c) of this part. The 
report of any such change shall contain copies of the full text of that 
change, together with statements setting forth the information and 
opinions regarding that change that are specified in Sec. 1006.3(b) and 
(d). The appropriate official of any state that has received such an 
exemption also shall file with the Bureau from time to time such reports 
as the Bureau may require.
    (c) The Bureau shall inform the appropriate official of any state 
that receives such an exemption of any subsequent amendments of the Act 
or this part that might necessitate the amendment of state law for the 
exemption to continue.
    (d) No exemption shall extend to the civil liability provisions of 
section 813 of the Act. After an exemption is granted, the requirements 
of the applicable state law shall constitute the requirements of 
sections 803 through 812 of the Act, except to the extent such state law 
imposes requirements not imposed by the Act or this part.



Sec. 1006.7  Adverse determination.

    (a) If, after publication of a notice in the Federal Register as 
provided under Sec. 1006.5 of this part, the Bureau finds on the basis 
of the information before it that it cannot make a favorable 
determination in connection with the application, the Bureau shall 
notify the appropriate state official of the facts upon which such 
findings are based and shall afford that state authority a reasonable 
opportunity to demonstrate or achieve compliance.
    (b) If, after having afforded the state authority such opportunity 
to demonstrate or achieve compliance, the Bureau finds on the basis of 
the information before it that it still cannot make a favorable 
determination in connection with the application, the Bureau shall 
publish in the Federal Register a notice of its determination regarding 
the application and shall furnish a copy of such notice to the state 
official who made application for such exemption.



Sec. 1006.8  Revocation of exemption.

    (a) The Bureau reserves the right to revoke any exemption granted 
under the provisions of this part, if at any time it determines that the 
state law does not, in fact, impose requirements

[[Page 235]]

that are substantially similar to, or that provide greater protection to 
applicants than, those imposed under sections 803 through 812 of the Act 
or that there is not, in fact, adequate provision for state enforcement.
    (b) Before revoking any such exemption, the Bureau shall notify the 
appropriate state official of the facts or conduct that, in the Bureau's 
opinion, warrant such revocation, and shall afford that state such 
opportunity as the Bureau deems appropriate in the circumstances to 
demonstrate or achieve compliance.
    (c) If, after having been afforded the opportunity to demonstrate or 
achieve compliance, the Bureau determines that the state has not done 
so, notice of the Bureau's intention to revoke such exemption shall be 
published in the Federal Register. A period of time shall be allowed 
from the date of such publication for interested persons to submit 
written comments to the Bureau regarding the intention to revoke.
    (d) If such exemption is revoked, notice of such revocation shall be 
published by the Bureau in the Federal Register, and a copy of such 
notice shall be furnished to the appropriate state official, to the 
Federal authorities responsible for enforcement of the requirements of 
the Act, and to the Attorney General of the United States. The 
revocation shall become effective, and the class of debt collection 
practices affected within that state shall become subject to the 
requirements of sections 803 through 812 of the Act, 90 days after the 
date of publication of the notice in the Federal Register.

Subpart B [Reserved]



PART 1007_S.A.F.E. MORTGAGE LICENSING ACT_FEDERAL REGISTRATION OF 
RESIDENTIAL MORTGAGE LOAN ORIGINATORS (REGULATION G)--Table of Contents



Sec.
1007.101 Authority, purpose, and scope of this part.
1007.102 Definitions applicable to this part.
1007.103 Registration of mortgage loan originators.
1007.104 Policies and procedures.
1007.105 Use of unique identifier.

Appendix A to Part 1007--Examples of Mortgage Loan Originator Activities

    Authority: 12 U.S.C. 5101-5116; 15 U.S.C. 1604(a), 1639b; Pub. L. 
111-203, 124 Stat. 1376.

    Source: 76 FR 78487, Dec. 19, 2011, unless otherwise noted.



Sec. 1007.101  Authority, purpose, and scope.

    (a) Authority. This part, known as Regulation G, is issued by the 
Bureau of Consumer Financial Protection pursuant to the Secure and Fair 
Enforcement for Mortgage Licensing Act of 2008, title V of the Housing 
and Economic Recovery Act of 2008 (S.A.F.E. Act) (Pub. L. 110-289, 122 
Stat. 2654, 12 U.S.C. 5101 et seq.), 12 U.S.C. 5512, 5581, 15 U.S.C. 
1604(a), 1639b.
    (b) Purpose. This part implements the S.A.F.E. Act's Federal 
registration requirement for mortgage loan originators. The S.A.F.E. Act 
provides that the objectives of this registration include aggregating 
and improving the flow of information to and between regulators; 
providing increased accountability and tracking of mortgage loan 
originators; enhancing consumer protections; supporting anti-fraud 
measures; and providing consumers with easily accessible information at 
no charge regarding the employment history of, and publicly adjudicated 
disciplinary and enforcement actions against, mortgage loan originators.
    (c) Scope--(1) In general. This part applies to:
    (i) National banks, Federal branches and agencies of foreign banks, 
their operating subsidiaries (collectively referred to in this part as 
national banks), and their employees who act as mortgage loan 
originators;
    (ii) Member banks of the Federal Reserve System; their respective 
subsidiaries that are not functionally regulated within the meaning of 
section 5(c)(5) of the Bank Holding Company Act, as amended (12 U.S.C. 
1844(c)(5)); branches and agencies of foreign banks; commercial lending 
companies owned or controlled by foreign banks (collectively referred to 
in this part as member banks); and their employees who act as mortgage 
loan originators;
    (iii) Insured state nonmember banks (including state-licensed 
insured

[[Page 236]]

branches of foreign banks), their subsidiaries (except brokers, dealers, 
persons providing insurance, investment companies, and investment 
advisers) (collectively referred to in this part as insured state 
nonmember banks), and employees of such banks or subsidiaries who act as 
mortgage loan originators;
    (iv) Savings associations, their operating subsidiaries 
(collectively referred to in this part as savings associations), and 
their employees who act as mortgage loan originators;
    (v) Farm Credit System lending institutions that actually originate 
residential mortgage loans pursuant to sections 1.9(3), 1.11 or 2.4(a) 
and (b) of the Farm Credit Act of 1971 (collectively referred to in this 
part as Farm Credit System institutions), and their employees who act as 
mortgage loan originators; and
    (vi) Any federally insured credit union and its employees, including 
volunteers, who act as mortgage loan originators. This part also applies 
to non-federally insured credit unions and their employees, including 
volunteers, who act as mortgage loan originators, subject to the 
conditions in paragraph (c)(3) of this section.
    (2) De minimis exception. (i) This part and the requirements of 12 
U.S.C. 5103(a)(1)(A) and (2) of the S.A.F.E. Act do not apply to any 
employee of a national bank, member bank, insured state nonmember bank, 
savings association, Farm Credit System institution, or credit union who 
has never been registered or licensed through the Registry as a mortgage 
loan originator if during the past 12 months the employee acted as a 
mortgage loan originator for 5 or fewer residential mortgage loans.
    (ii) Prior to engaging in mortgage loan origination activity that 
exceeds the exception limit in paragraph (c)(2)(i) of this section, an 
employee must register with the Registry pursuant to this part.
    (iii) Evasion. National banks, member banks, insured state nonmember 
banks, savings associations, Farm Credit System institutions, and credit 
unions are prohibited from engaging in any act or practice to evade the 
limits of the de minimis exception set forth in paragraph (c)(2)(i) of 
this section.
    (3) For non-federally insured credit unions. A non-federally insured 
credit union in a state identified on the National Credit Union 
Administration's Web site (NCUA.gov) as one where the appropriate state 
supervisory authority has executed a Memorandum of Understanding (MOU) 
with the National Credit Union Administration may register under this 
rule provided that any Nationwide Mortgage Licensing System and Registry 
listing of the non-federally insured credit union and its employees 
contains a clear and conspicuous statement that the non-federally 
insured credit union is not insured by the National Credit Union Share 
Insurance Fund, and the state supervisory authority where the non-
federally insured credit union is located maintains an agreement with 
the National Credit Union Administration for this registration process 
and oversight. If the state supervisory authority where the non-
federally insured credit union is located fails to maintain such an 
agreement, the non-federally insured credit union and its employees in 
that state may not register or maintain registration under the Federal 
system. They instead must use the appropriate state licensing and 
registration system, or if the state does not have such a system, the 
licensing and registration system established by the Bureau for mortgage 
loan originators and their employees.



Sec. 1007.102  Definitions applicable to this part.

    For purposes of this part, the following definitions apply:
    Administrative or clerical tasks means the receipt, collection, and 
distribution of information common for the processing or underwriting of 
a loan in the residential mortgage industry and communication with a 
consumer to obtain information necessary for the processing or 
underwriting of a residential mortgage loan.
    Annual renewal period means November 1 through December 31 of each 
year.
    Bureau means the Bureau of Consumer Financial Protection.

[[Page 237]]

    Covered financial institution means any national bank, member bank, 
insured state nonmember bank, savings association, Farm Credit System 
institution, or federally insured credit union as any such term is 
defined in Sec. 1007.101(c)(1). Covered financial institution also 
includes a non-federally insured credit union that registers subject to 
the conditions of Sec. 1007.101(c)(3).
    Mortgage loan originator means
    (1) An individual who:
    (i) Takes a residential mortgage loan application; and
    (ii) Offers or negotiates terms of a residential mortgage loan for 
compensation or gain.
    (2)(i) The term mortgage loan originator does not include:
    (A) An individual who performs purely administrative or clerical 
tasks on behalf of an individual who is described as a mortgage loan 
originator in this section;
    (B) An individual who only performs real estate brokerage activities 
(as defined in 12 U.S.C. 5102(4)(D)) and is licensed or registered as a 
real estate broker in accordance with applicable state law, unless the 
individual is compensated by a lender, a mortgage broker, or other 
mortgage loan originator or by any agent of such lender, mortgage 
broker, or other mortgage loan originator, and meets the definition of 
mortgage loan originator in this section; or
    (C) An individual or entity solely involved in extensions of credit 
related to timeshare plans, as that term is defined in 11 U.S.C. 
101(53D).
    (ii) Examples of activities that would, and would not, result in an 
employee meeting the definition of mortgage loan originator are provided 
in appendix A to this part.
    Nationwide Mortgage Licensing System and Registry or Registry means 
the system developed and maintained by the Conference of State Bank 
Supervisors and the American Association of Residential Mortgage 
Regulators for the state licensing and registration of state-licensed 
mortgage loan originators and the registration of mortgage loan 
originators pursuant to 12 U.S.C. 5107.
    Registered mortgage loan originator or registrant means any 
individual who:
    (1) Meets the definition of mortgage loan originator and is an 
employee of a covered financial institution; and
    (2) Is registered pursuant to this part with, and maintains a unique 
identifier through, the Registry.
    Residential mortgage loan means any loan primarily for personal, 
family, or household use that is secured by a mortgage, deed of trust, 
or other equivalent consensual security interest on a dwelling (as 
defined in section 103(v) of the Truth in Lending Act, 15 U.S.C. 
1602(v)) or residential real estate upon which is constructed or 
intended to be constructed a dwelling, and includes refinancings, 
reverse mortgages, home equity lines of credit and other first and 
additional lien loans that meet the qualifications listed in this 
definition. This definition does not amend or supersede 12 CFR 
613.3030(c) with respect to Farm Credit System institutions.
    Unique identifier means a number or other identifier that:
    (1) Permanently identifies a registered mortgage loan originator;
    (2) Is assigned by protocols established by the Nationwide Mortgage 
Licensing System and Registry and the Bureau to facilitate:
    (i) Electronic tracking of mortgage loan originators; and
    (ii) Uniform identification of, and public access to, the employment 
history of and the publicly adjudicated disciplinary and enforcement 
actions against mortgage loan originators; and
    (3) Must not be used for purposes other than those set forth under 
the S.A.F.E. Act.



Sec. 1007.103  Registration of mortgage loan originators.

    (a) Registration requirement--(1) Employee registration. Each 
employee of a covered financial institution who acts as a mortgage loan 
originator must register with the Registry, obtain a unique identifier, 
and maintain this registration in accordance with the requirements of 
this part. Any such employee who is not in compliance with the 
registration and unique identifier requirements set forth in this part 
is in violation of the S.A.F.E. Act and this part.

[[Page 238]]

    (2) Covered financial institution requirement--(i) In general. A 
covered financial institution that employs one or more individuals who 
act as a residential mortgage loan originator must require each such 
employee to register with the Registry, maintain this registration, and 
obtain a unique identifier in accordance with the requirements of this 
part.
    (ii) Prohibition. A covered financial institution must not permit an 
employee who is subject to the registration requirements of this part to 
act as a mortgage loan originator for the covered financial institution 
unless such employee is registered with the Registry pursuant to this 
part.
    (3) [Reserved]
    (4) Employees previously registered or licensed through the 
Registry--(i) In general. If an employee of a covered financial 
institution was registered or licensed through, and obtained a unique 
identifier from, the Registry and has maintained this registration or 
license before the employee becomes subject to this part at the current 
covered financial institution, then the registration requirements of the 
S.A.F.E. Act and this part are deemed to be met, provided that:
    (A) The employment information in paragraphs (d)(1)(i)(C) and 
(d)(1)(ii) of this section is updated and the requirements of paragraph 
(d)(2) of this section are met;
    (B) New fingerprints of the employee are submitted to the Registry 
for a background check, as required by paragraph (d)(1)(ix) of this 
section, unless the employee has fingerprints on file with the Registry 
that are less than 3 years old;
    (C) The covered financial institution information required in 
paragraphs (e)(1)(i) (to the extent the covered financial institution 
has not previously met these requirements) and (e)(2)(i) of this section 
is submitted to the Registry; and
    (D) The registration is maintained pursuant to paragraphs (b) and 
(e)(1)(ii) of this section, as of the date that the employee becomes 
subject to this part.
    (ii) Rule for certain acquisitions, mergers, or reorganizations. 
When registered or licensed mortgage loan originators become covered 
financial institution employees as a result of an acquisition, 
consolidation, merger, or reorganization, only the requirements of 
paragraphs (a)(4)(i)(A), (C), and (D) of this section must be met, and 
these requirements must be met within 60 days from the effective date of 
the acquisition, merger, or reorganization.
    (b) Maintaining registration. (1) A mortgage loan originator who is 
registered with the Registry pursuant to paragraph (a) of this section 
must:
    (i) Except as provided in paragraph (b)(3) of this section, renew 
the registration during the annual renewal period, confirming the 
responses set forth in paragraphs (d)(1)(i) through (viii) of this 
section remain accurate and complete, and updating this information, as 
appropriate; and
    (ii) Update the registration within 30 days of any of the following 
events:
    (A) A change in the name of the registrant;
    (B) The registrant ceases to be an employee of the covered financial 
institution; or
    (C) The information required under paragraphs (d)(1)(iii) through 
(viii) of this section becomes inaccurate, incomplete, or out-of-date.
    (2) A registered mortgage loan originator must maintain his or her 
registration, unless the individual is no longer engaged in the activity 
of a mortgage loan originator.
    (3) The annual registration renewal requirement set forth in 
paragraph (b)(1) of this section does not apply to a registered mortgage 
loan originator who has completed his or her registration with the 
Registry pursuant to paragraph (a)(1) of this section less than 6 months 
prior to the end of the annual renewal period.
    (c) Effective dates--(1) Registration. A registration pursuant to 
paragraph (a)(1) of this section is effective on the date the Registry 
transmits notification to the registrant that the registrant is 
registered.
    (2) Renewals or updates. A renewal or update pursuant to paragraph 
(b) of this section is effective on the date the Registry transmits 
notification to the registrant that the registration has been renewed or 
updated.

[[Page 239]]

    (d) Required employee information--(1) In general. For purposes of 
the registration required by this section, a covered financial 
institution must require each employee who is a mortgage loan originator 
to submit to the Registry, or must submit on behalf of the employee, the 
following categories of information, to the extent this information is 
collected by the Registry:
    (i) Identifying information, including the employee's:
    (A) Name and any other names used;
    (B) Home address and contact information;
    (C) Principal business location address and business contact 
information;
    (D) Social security number;
    (E) Gender; and
    (F) Date and place of birth;
    (ii) Financial services-related employment history for the 10 years 
prior to the date of registration or renewal, including the date the 
employee became an employee of the covered financial institution;
    (iii) Convictions of any criminal offense involving dishonesty, 
breach of trust, or money laundering against the employee or 
organizations controlled by the employee, or agreements to enter into a 
pretrial diversion or similar program in connection with the prosecution 
for such offense(s);
    (iv) Civil judicial actions against the employee in connection with 
financial services-related activities, dismissals with settlements, or 
judicial findings that the employee violated financial services-related 
statutes or regulations, except for actions dismissed without a 
settlement agreement;
    (v) Actions or orders by a state or Federal regulatory agency or 
foreign financial regulatory authority that:
    (A) Found the employee to have made a false statement or omission or 
been dishonest, unfair or unethical; to have been involved in a 
violation of a financial services-related regulation or statute; or to 
have been a cause of a financial services-related business having its 
authorization to do business denied, suspended, revoked, or restricted;
    (B) Are entered against the employee in connection with a financial 
services-related activity;
    (C) Denied, suspended, or revoked the employee's registration or 
license to engage in a financial services-related activity; disciplined 
the employee or otherwise by order prevented the employee from 
associating with a financial services-related business or restricted the 
employee's activities; or
    (D) Barred the employee from association with an entity or its 
officers regulated by the agency or authority or from engaging in a 
financial services-related business;
    (vi) Final orders issued by a state or Federal regulatory agency or 
foreign financial regulatory authority based on violations of any law or 
regulation that prohibits fraudulent, manipulative, or deceptive 
conduct;
    (vii) Revocation or suspension of the employee's authorization to 
act as an attorney, accountant, or state or Federal contractor;
    (viii) Customer-initiated financial services-related arbitration or 
civil action against the employee that required action, including 
settlements, or which resulted in a judgment; and
    (ix) Fingerprints of the employee, in digital form if practicable, 
and any appropriate identifying information for submission to the 
Federal Bureau of Investigation and any governmental agency or entity 
authorized to receive such information in connection with a state and 
national criminal history background check; however, fingerprints 
provided to the Registry that are less than 3 years old may be used to 
satisfy this requirement.
    (2) Employee authorizations and attestation. An employee registering 
as a mortgage loan originator or renewing or updating his or her 
registration under this part, and not the employing covered financial 
institution or other employees of the covered financial institution, 
must:
    (i) Authorize the Registry and the employing institution to obtain 
information related to sanctions or findings in any administrative, 
civil, or criminal action, to which the employee is a party, made by any 
governmental jurisdiction;
    (ii) Attest to the correctness of all information required by 
paragraph (d) of this section, whether submitted by

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the employee or on behalf of the employee by the employing covered 
financial institution; and
    (iii) Authorize the Registry to make available to the public 
information required by paragraphs (d)(1)(i)(A) and (C), and (d)(1)(ii) 
through (viii) of this section.
    (3) Submission of information. A covered financial institution may 
identify one or more employees of the covered financial institution who 
may submit the information required by paragraph (d)(1) of this section 
to the Registry on behalf of the covered financial institution's 
employees provided that this individual, and any employee delegated such 
authority, does not act as a mortgage loan originator, consistent with 
paragraph (e)(1)(i)(F) of this section. In addition, a covered financial 
institution may submit to the Registry some or all of the information 
required by paragraphs (d)(1) and (e)(2) of this section for multiple 
employees in bulk through batch processing in a format to be specified 
by the Registry, to the extent such batch processing is made available 
by the Registry.
    (e) Required covered financial institution information. A covered 
financial institution must submit the following categories of 
information to the Registry:
    (1) Covered financial institution record. (i) In connection with the 
registration of one or more mortgage loan originators:
    (A) Name, main office address, and business contact information;
    (B) Internal Revenue Service Employer Tax Identification Number 
(EIN);
    (C) Research Statistics Supervision and Discount (RSSD) number, as 
issued by the Board of Governors of the Federal Reserve System;
    (D) Identification of its primary Federal regulator;
    (E) Name(s) and contact information of the individual(s) with 
authority to act as the covered financial institution's primary point of 
contact for the Registry;
    (F) Name(s) and contact information of the individual(s) with 
authority to enter the information required by paragraphs (d)(1) and (e) 
of this section to the Registry and who may delegate this authority to 
other individuals. For the purpose of providing information required by 
paragraph (e) of this section, this individual and their delegates must 
not act as mortgage loan originators unless the covered financial 
institution has 10 or fewer full time or equivalent employees and is not 
a subsidiary; and
    (G) If a subsidiary of a national bank, member bank, savings 
association, or insured state nonmember bank, indication that it is a 
subsidiary and the RSSD number of the parent institution; if an 
operating subsidiary of an agricultural credit association, indication 
that it is a subsidiary, and the RSSD number of the parent agricultural 
credit association.
    (ii) Attestation. The individual(s) identified in paragraphs 
(e)(1)(i)(E) and (F) of this section must comply with Registry protocols 
to verify their identity and must attest that they have the authority to 
enter data on behalf of the covered financial institution, that the 
information provided to the Registry pursuant to this paragraph (e) is 
correct, and that the covered financial institution will keep the 
information required by this paragraph (e) current and will file 
accurate supplementary information on a timely basis.
    (iii) A covered financial institution must update the information 
required by this paragraph (e) of this section within 30 days of the 
date that this information becomes inaccurate.
    (iv) A covered financial institution must renew the information 
required by paragraph (e) of this section on an annual basis.
    (2) Employee information. In connection with the registration of 
each employee who acts as a mortgage loan originator:
    (i) After the information required by paragraph (d) of this section 
has been submitted to the Registry, confirmation that it employs the 
registrant; and
    (ii) Within 30 days of the date the registrant ceases to be an 
employee of the covered financial institution, notification that it no 
longer employs the registrant and the date the registrant ceased being 
an employee.

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Sec. 1007.104  Policies and procedures.

    A covered financial institution that employs one or more mortgage 
loan originators must adopt and follow written policies and procedures 
designed to assure compliance with this part. These policies and 
procedures must be appropriate to the nature, size, complexity, and 
scope of the mortgage lending activities of the covered financial 
institution, and apply only to those employees acting within the scope 
of their employment at the covered financial institution. At a minimum, 
these policies and procedures must:
    (a) Establish a process for identifying which employees of the 
covered financial institution are required to be registered mortgage 
loan originators;
    (b) Require that all employees of the covered financial institution 
who are mortgage loan originators be informed of the registration 
requirements of the S.A.F.E. Act and this part and be instructed on how 
to comply with such requirements and procedures;
    (c) Establish procedures to comply with the unique identifier 
requirements in Sec. 1007.105;
    (d) Establish reasonable procedures for confirming the adequacy and 
accuracy of employee registrations, including updates and renewals, by 
comparisons with its own records;
    (e) Establish reasonable procedures and tracking systems for 
monitoring compliance with registration and renewal requirements and 
procedures;
    (f) Provide for independent testing for compliance with this part to 
be conducted at least annually by covered financial institution 
personnel or by an outside party;
    (g) Provide for appropriate action in the case of any employee who 
fails to comply with the registration requirements of the S.A.F.E. Act, 
this part, or the covered financial institution's related policies and 
procedures, including prohibiting such employees from acting as mortgage 
loan originators or other appropriate disciplinary actions;
    (h) Establish a process for reviewing employee criminal history 
background reports received pursuant to this part, taking appropriate 
action consistent with applicable Federal law, including section 19 of 
the Federal Deposit Insurance Act (12 U.S.C. 1829), section 206 of the 
Federal Credit Union Act (12 U.S.C. 1786(i)), and section 5.65(d) of the 
Farm Credit Act of 1971, as amended (12 U.S.C. 2277a-14(d)), and 
implementing regulations with respect to these reports, and maintaining 
records of these reports and actions taken with respect to applicable 
employees; and
    (i) Establish procedures designed to ensure that any third party 
with which the covered financial institution has arrangements related to 
mortgage loan origination has policies and procedures to comply with the 
S.A.F.E. Act, including appropriate licensing and/or registration of 
individuals acting as mortgage loan originators.



Sec. 1007.105  Use of unique identifier.

    (a) The covered financial institution shall make the unique 
identifier(s) of its registered mortgage loan originator(s) available to 
consumers in a manner and method practicable to the institution.
    (b) A registered mortgage loan originator shall provide his or her 
unique identifier to a consumer:
    (1) Upon request;
    (2) Before acting as a mortgage loan originator; and
    (3) Through the originator's initial written communication with a 
consumer, if any, whether on paper or electronically.



   Sec. Appendix A to Part 1007--Examples of Mortgage Loan Originator 
                               Activities

    This appendix provides examples to aid in the understanding of 
activities that would cause an employee of a covered financial 
institution to fall within or outside the definition of mortgage loan 
originator. The examples in this Appendix are not all-inclusive. They 
illustrate only the issue described and do not illustrate any other 
issues that may arise under this part. For purposes of the examples 
below, the term ``loan'' refers to a residential mortgage loan.
    (a) Taking a loan application. The following examples illustrate 
when an employee takes, or does not take, a loan application.
    (1) Taking an application includes: receiving information provided 
in connection with a request for a loan to be used to determine whether 
the consumer qualifies for a loan, even if the employee:

[[Page 242]]

    (i) Has received the consumer's information indirectly in order to 
make an offer or negotiate a loan;
    (ii) Is not responsible for verifying information;
    (iii) Is inputting information into an online application or other 
automated system on behalf of the consumer; or
    (iv) Is not engaged in approval of the loan, including determining 
whether the consumer qualifies for the loan.
    (2) Taking an application does not include any of the following 
activities performed solely or in combination:
    (i) Contacting a consumer to verify the information in the loan 
application by obtaining documentation, such as tax returns or payroll 
receipts;
    (ii) Receiving a loan application through the mail and forwarding 
it, without review, to loan approval personnel;
    (iii) Assisting a consumer who is filling out an application by 
clarifying what type of information is necessary for the application or 
otherwise explaining the qualifications or criteria necessary to obtain 
a loan product;
    (iv) Describing the steps that a consumer would need to take to 
provide information to be used to determine whether the consumer 
qualifies for a loan or otherwise explaining the loan application 
process;
    (v) In response to an inquiry regarding a prequalified offer that a 
consumer has received from a covered financial institution, collecting 
only basic identifying information about the consumer and forwarding the 
consumer to a mortgage loan originator; or
    (vi) Receiving information in connection with a modification to the 
terms of an existing loan to a borrower as part of the covered financial 
institution's loss mitigation efforts when the borrower is reasonably 
likely to default.
    (b) Offering or negotiating terms of a loan. The following examples 
are designed to illustrate when an employee offers or negotiates terms 
of a loan, and conversely, what does not constitute offering or 
negotiating terms of a loan.
    (1) Offering or negotiating the terms of a loan includes:
    (i) Presenting a loan offer to a consumer for acceptance, either 
verbally or in writing, including, but not limited to, providing a 
disclosure of the loan terms after application under the Truth in 
Lending Act, even if:
    (A) Further verification of information is necessary;
    (B) The offer is conditional;
    (C) Other individuals must complete the loan process; or
    (D) Only the rate approved by the covered financial institution's 
loan approval mechanism function for a specific loan product is 
communicated without authority to negotiate the rate.
    (ii) Responding to a consumer's request for a lower rate or lower 
points on a pending loan application by presenting to the consumer a 
revised loan offer, either verbally or in writing, that includes a lower 
interest rate or lower points than the original offer.
    (2) Offering or negotiating terms of a loan does not include solely 
or in combination:
    (i) Providing general explanations or descriptions in response to 
consumer queries regarding qualification for a specific loan product, 
such as explaining loan terminology (e.g., debt-to-income ratio); 
lending policies (e.g., the loan-to-value ratio policy of the covered 
financial institution); or product-related services;
    (ii) In response to a consumer's request, informing a consumer of 
the loan rates that are publicly available, such as on the covered 
financial institution's Web site, for specific types of loan products 
without communicating to the consumer whether qualifications are met for 
that loan product;
    (iii) Collecting information about a consumer in order to provide 
the consumer with information on loan products for which the consumer 
generally may qualify, without presenting a specific loan offer to the 
consumer for acceptance, either verbally or in writing;
    (iv) Arranging the loan closing or other aspects of the loan 
process, including communicating with a consumer about those 
arrangements, provided that communication with the consumer only 
verifies loan terms already offered or negotiated;
    (v) Providing a consumer with information unrelated to loan terms, 
such as the best days of the month for scheduling loan closings at the 
covered financial institution;
    (vi) Making an underwriting decision about whether the consumer 
qualifies for a loan;
    (vii) Explaining or describing the steps or process that a consumer 
would need to take in order to obtain a loan offer, including 
qualifications or criteria that would need to be met without providing 
guidance specific to that consumer's circumstances; or
    (viii) Communicating on behalf of a mortgage loan originator that a 
written offer, including disclosures provided pursuant to the Truth in 
Lending Act, has been sent to a consumer without providing any details 
of that offer.
    (c) Offering or negotiating a loan for compensation or gain. The 
following examples illustrate when an employee does or does not offer or 
negotiate terms of a loan ``for compensation or gain.''
    (1) Offering or negotiating terms of a loan for compensation or gain 
includes engaging in any of the activities in paragraph (b)(1) of this 
appendix in the course of carrying out employment duties, even if the 
employee does not receive a referral fee or commission or other special 
compensation for the loan.

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    (2) Offering or negotiating terms of a loan for compensation or gain 
does not include engaging in a seller-financed transaction for the 
employee's personal property that does not involve the covered financial 
institution.



PART 1008_S.A.F.E. MORTGAGE LICENSING ACT_STATE COMPLIANCE AND BUREAU
REGISTRATION SYSTEM (REGULATION H)--Table of Contents



Sec.
1008.1 Purpose.
1008.3 Confidentiality of information.

                            Subpart A_General

1008.20 Scope of this subpart.
1008.23 Definitions.

    Subpart B_Determination of State Compliance With the S.A.F.E. Act

1008.101 Scope of this subpart.
1008.103 Individuals required to be licensed by states.
1008.105 Minimum loan originator license requirements.
1008.107 Minimum annual license renewal requirements.
1008.109 Effective date of state requirements imposed on individuals.
1008.111 Other minimum requirements for state licensing systems.
1008.113 Performance standards.
1008.115 Determination of noncompliance.

 Subpart C_The Bureau's Loan Originator Licensing System and Nationwide 
                 Mortgage Licensing and Registry System

1008.201 Scope of this subpart.
1008.203 The Bureau's establishment of loan originator licensing system.
1008.205 The Bureau's establishment of nationwide mortgage licensing 
          system and registry.

     Subpart D_Minimum Requirements for Administration of the NMLSR

1008.301 Scope of this subpart.
1008.303 Financial reporting.
1008.305 Data security.
1008.307 Fees.
1008.309 Absence of liability for good-faith administration.

         Subpart E_Enforcement of the Bureau's Licensing System

1008.401 Bureau's authority to examine loan originator records.
1008.403 [Reserved]
1008.405 [Reserved]

Appendix A to Part 1008--Examples of Mortgage Loan Originator Activities
Appendix B to Part 1008--Engaging in the Business of a Loan Originator: 
          Commercial Context and Habitualness
Appendix C to Part 1008--Independent Contractors and Loan Processor and 
          Underwriter Activities That Require a State Mortgage Loan 
          Originator License
Appendix D to Part 1008--Attorneys: Circumstances That Require a State 
          Mortgage Loan Originator License

    Authority: 12 U.S.C. 5101-5116; Pub. L. 111-203, 124 Stat. 1376.

    Source: 76 FR 78487, Dec. 19, 2011, unless otherwise noted.



Sec. 1008.1  Purpose.

    (a) Authority. This part, known as Regulation H, is issued by the 
Bureau of Consumer Financial Protection to implement the Secure and Fair 
Enforcement for Mortgage Licensing Act of 2008, title V of the Housing 
and Economic Recovery Act of 2008 (S.A.F.E. Act) (Pub. L. 110-289, 122 
Stat. 2654, 12 U.S.C. 5101 et seq.).
    (b) Purpose. The purpose of this part is to enhance consumer 
protection and reduce fraud by directing states to adopt minimum uniform 
standards for the licensing and registration of residential mortgage 
loan originators and to participate in a nationwide mortgage licensing 
system and registry database of residential mortgage loan originators. 
Under the S.A.F.E. Act, if the Bureau determines that a state's loan 
origination licensing system does not meet the minimum requirements of 
the S.A.F.E. Act, the Bureau is charged with establishing and 
implementing a system for all loan originators in that state. 
Additionally, if at any time the Bureau determines that the nationwide 
mortgage licensing system and registry is failing to meet the S.A.F.E. 
Act's requirements, the Bureau is charged with establishing and 
maintaining a licensing and registry database for loan originators.
    (c) Organization. The regulation is divided into subparts and 
appendices as follows:
    (1) Subpart A establishes the definitions applicable to this part.
    (2) Subpart B provides the minimum standards that a state must meet 
in licensing loan originators, including

[[Page 244]]

standards for whom a state must require to be licensed, and sets forth 
the Bureau's procedure for determining a state's compliance with the 
minimum standards.
    (3) Subpart C provides the requirements that the Bureau will apply 
in any state that the Bureau determines has not established a licensing 
and registration system in compliance with the minimum standards of the 
S.A.F.E. Act.
    (4) Subpart D provides minimum requirements for the administration 
of the Nationwide Mortgage Licensing System and Registry.
    (5) Subpart E clarifies the Bureau's enforcement authority in states 
in which it operates a state licensing system.
    (6) Appendices A through D set forth examples to aid in the 
understanding and application of the regulations.



Sec. 1008.3  Confidentiality of information.

    (a) Except as otherwise provided in this part, any requirement under 
Federal or state law regarding the privacy or confidentiality of any 
information or material provided to the Nationwide Mortgage Licensing 
System and Registry or a system established by the Director under this 
part, and any privilege arising under Federal or state law (including 
the rules of any Federal or state court) with respect to such 
information or material, shall continue to apply to such information or 
material after the information or material has been disclosed to the 
system. Such information and material may be shared with all state and 
Federal regulatory officials with mortgage industry oversight authority 
without the loss of privilege or the loss of confidentiality protections 
provided by Federal and state laws.
    (b) Information or material that is subject to a privilege or 
confidentiality under paragraph (a) of this section shall not be subject 
to:
    (1) Disclosure under any Federal or state law governing the 
disclosure to the public of information held by an officer or an agency 
of the Federal Government or the respective state; or
    (2) Subpoena or discovery, or admission into evidence, in any 
private civil action or administrative process, unless with respect to 
any privilege held by the Nationwide Mortgage Licensing System and 
Registry or by the Director with respect to such information or 
material, the person to whom such information or material pertains, 
waives, in whole or in part, in the discretion of such person, that 
privilege.
    (c) Any state law, including any state open record law, relating to 
the disclosure of confidential supervisory information or any 
information or material described in paragraph (a) of this section that 
is inconsistent with paragraph (a), shall be superseded by the 
requirements of such provision to the extent that state law provides 
less confidentiality or a weaker privilege.
    (d) This section shall not apply with respect to the information or 
material relating to the employment history of, and any publicly 
adjudicated disciplinary and enforcement action against, any loan 
originator that is included in the Nationwide Mortgage Licensing System 
and Registry for access by the public.



                            Subpart A_General



Sec. 1008.20  Scope of this subpart.

    This subpart provides the definitions applicable to this part, and 
other general requirements applicable to this part.



Sec. 1008.23  Definitions.

    Terms that are defined in the S.A.F.E. Act and used in this part 
have the same meaning as in the S.A.F.E. Act, unless otherwise provided 
in this section.
    Administrative or clerical tasks means the receipt, collection, and 
distribution of information common for the processing or underwriting of 
a loan in the mortgage industry and communication with a consumer to 
obtain information necessary for the processing or underwriting of a 
residential mortgage loan.
    American Association of Residential Mortgage Regulators (AARMR) is 
the national association of executives and employees of the various 
states who are charged with the responsibility for administration and 
regulation of residential mortgage lending, servicing, and brokering, 
and dedicated to the goals described at www.aarmr.org.

[[Page 245]]

    Application means a request, in any form, for an offer (or a 
response to a solicitation of an offer) of residential mortgage loan 
terms, and the information about the borrower or prospective borrower 
that is customary or necessary in a decision on whether to make such an 
offer.
    Bureau means the Bureau of Consumer Financial Protection.
    Clerical or support duties:
    (1) Include:
    (i) The receipt, collection, distribution, and analysis of 
information common for the processing or underwriting of a residential 
mortgage loan; and
    (ii) Communicating with a consumer to obtain the information 
necessary for the processing or underwriting of a loan, to the extent 
that such communication does not include offering or negotiating loan 
rates or terms, or counseling consumers about residential mortgage loan 
rates or terms; and
    (2) Does not include:
    (i) Taking a residential mortgage loan application; or
    (ii) Offering or negotiating terms of a residential mortgage loan.
    Conference of State Bank Supervisors (CSBS) is the national 
organization composed of state bank supervisors dedicated to maintaining 
the state banking system and state regulation of financial services in 
accordance with the CSBS statement of principles described at 
www.csbs.org.
    Director means the Director of the Bureau of Consumer Financial 
Protection.
    Employee means an individual:
    (1) Whose manner and means of performance of work are subject to the 
right of control of, or are controlled by, a person, and
    (2) Whose compensation for Federal income tax purposes is reported, 
or required to be reported, on a W-2 form issued by the controlling 
person.
    Farm Credit Administration means the independent Federal agency, 
authorized by the Farm Credit Act of 1971, that examines and regulates 
the Farm Credit System.
    For compensation or gain. See Sec. 1008.103(c)(2)(ii).
    Independent contractor means an individual who performs his or her 
duties other than at the direction of and subject to the supervision and 
instruction of an individual who is licensed and registered in 
accordance with Sec. 1008.103(a), or is not required to be licensed, in 
accordance with Sec. 1008.103(e)(5), (6), or (7).
    Loan originator. See Sec. 1008.103.
    Loan processor or underwriter, for purposes of this part, means an 
individual who, with respect to the origination of a residential 
mortgage loan, performs clerical or support duties at the direction of 
and subject to the supervision and instruction of:
    (1) A state-licensed loan originator; or
    (2) A registered loan originator.
    Nationwide Mortgage Licensing System and Registry or NMLSR means the 
mortgage licensing system developed and maintained by the Conference of 
State Bank Supervisors and the American Association of Residential 
Mortgage Regulators for the licensing and registration of loan 
originators and the registration of registered loan originators or any 
system established by the Director, as provided in subpart D of this 
part.
    Nontraditional mortgage product means any mortgage product other 
than a 30-year fixed-rate mortgage.
    Origination of a residential mortgage loan, for purposes of the 
definition of loan processor or underwriter, means all residential 
mortgage loan-related activities from the taking of a residential 
mortgage loan application through the completion of all required loan 
closing documents and funding of the residential mortgage loan.
    Real estate brokerage activities mean any activity that involves 
offering or providing real estate brokerage services to the public 
including--
    (1) Acting as a real estate agent or real estate broker for a buyer, 
seller, lessor, or lessee of real property;
    (2) Bringing together parties interested in the sale, purchase, 
lease, rental, or exchange of real property;
    (3) Negotiating, on behalf of any party, any portion of a contract 
relating to the sale, purchase, lease, rental, or exchange of real 
property (other than in connection with providing financing with respect 
to any such transaction);

[[Page 246]]

    (4) Engaging in any activity for which a person engaged in the 
activity is required to be registered as a real estate agent or real 
estate broker under any applicable law; and
    (5) Offering to engage in any activity, or act in any capacity, 
described in paragraphs (1), (2), (3), or (4) of this definition.
    Residential mortgage loan means any loan primarily for personal, 
family, or household use that is secured by a mortgage, deed of trust, 
or other equivalent consensual security interest on a dwelling (as 
defined in section 103(w) of the Truth in Lending Act) or residential 
real estate upon which is constructed or intended to be constructed a 
dwelling (as so defined).
    State means any state of the United States, the District of 
Columbia, any territory of the United States, Puerto Rico, Guam, 
American Samoa, the Virgin Islands, and the Commonwealth of the Northern 
Mariana Islands.
    Unique identifier means a number or other identifier that:
    (1) Permanently identifies a loan originator;
    (2) Is assigned by protocols established by the Nationwide Mortgage 
Licensing System and Registry and the Bureau to facilitate electronic 
tracking of loan originators and uniform identification of, and public 
access to, the employment history of and the publicly adjudicated 
disciplinary and enforcement actions against loan originators; and
    (3) Shall not be used for purposes other than those set forth under 
the S.A.F.E. Act.



    Subpart B_Determination of State Compliance With the S.A.F.E. Act



Sec. 1008.101  Scope of this subpart.

    This subpart describes the minimum standards of the S.A.F.E. Act 
that apply to a state's licensing and registering of loan originators. 
This subpart also provides the procedures that the Bureau follows to 
determine that a state does not have in place a system for licensing and 
registering mortgage loan originators that complies with the minimum 
standards. Upon making such a determination, the Bureau will impose the 
requirements and exercise the enforcement authorities described in 
subparts C and E of this part.



Sec. 1008.103  Individuals required to be licensed by states.

    (a) Except as provided in paragraph (e) of this section, in order to 
operate a S.A.F.E.-compliant program, a state must prohibit an 
individual from engaging in the business of a loan originator with 
respect to any dwelling or residential real estate in the state, unless 
the individual first:
    (1) Registers as a loan originator through and obtains a unique 
identifier from the NMLSR, and
    (2) Obtains and maintains a valid loan originator license from the 
state.
    (b) An individual engages in the business of a loan originator if 
the individual, in a commercial context and habitually or repeatedly:
    (1)(i) Takes a residential mortgage loan application; and
    (ii) Offers or negotiates terms of a residential mortgage loan for 
compensation or gain; or
    (2) Represents to the public, through advertising or other means of 
communicating or providing information (including the use of business 
cards, stationery, brochures, signs, rate lists, or other promotional 
items), that such individual can or will perform the activities 
described in paragraph (b)(1) of this section.
    (c)(1) An individual ``takes a residential mortgage loan 
application'' if the individual receives a residential mortgage loan 
application for the purpose of facilitating a decision whether to extend 
an offer of residential mortgage loan terms to a borrower or prospective 
borrower (or to accept the terms offered by a borrower or prospective 
borrower in response to a solicitation), whether the application is 
received directly or indirectly from the borrower or prospective 
borrower.
    (2) An individual ``offers or negotiates terms of a residential 
mortgage loan for compensation or gain'' if the individual:
    (i)(A) Presents for consideration by a borrower or prospective 
borrower particular residential mortgage loan terms;
    (B) Communicates directly or indirectly with a borrower, or 
prospective

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borrower for the purpose of reaching a mutual understanding about 
prospective residential mortgage loan terms; or
    (C) Recommends, refers, or steers a borrower or prospective borrower 
to a particular lender or set of residential mortgage loan terms, in 
accordance with a duty to or incentive from any person other than the 
borrower or prospective borrower; and
    (ii) Receives or expects to receive payment of money or anything of 
value in connection with the activities described in paragraph (c)(2)(i) 
of this section or as a result of any residential mortgage loan terms 
entered into as a result of such activities.
    (d)(1) Except as provided in paragraph (e) of this section, a state 
must prohibit an individual who is an independent contractor from 
engaging in residential mortgage loan origination activities as a loan 
processor or underwriter with respect to any dwelling or residential 
real estate in the state, unless the individual first:
    (i) Registers as a loan originator through and obtains a unique 
identifier from the NMLSR, and
    (ii) Obtains and maintains a valid loan originator license from the 
state.
    (2) An individual ``engage[s] in residential mortgage loan 
origination activities as a loan processor or underwriter'' if, with 
respect to a residential mortgage loan application, the individual 
performs clerical or support duties.
    (e) A state is not required to impose the prohibitions required 
under paragraphs (a) and (d) of this section on the following 
individuals:
    (1) An individual who performs only real estate brokerage activities 
and is licensed or registered in accordance with applicable state law, 
unless the individual is compensated directly or indirectly by a lender, 
mortgage broker, or other loan originator or by an agent of such lender, 
mortgage broker, or other loan originator;
    (2) An individual who is involved only in extensions of credit 
relating to timeshare plans, as that term is defined in 11 U.S.C. 
101(53D);
    (3) An individual who performs only clerical or support duties and:
    (i) Who does so at the direction of and subject to the supervision 
and instruction of an individual who:
    (A) Is licensed and registered in accordance with paragraph (a) of 
this section, or
    (B) Is not required to be licensed in accordance with paragraph 
(e)(5); or
    (ii) Who performs such duties solely with respect to transactions 
for which the individual who acts as a loan originator is not required 
to be licensed, in accordance with paragraph (e)(2), (6), or (7) of this 
section;
    (4) An individual who performs only purely administrative or 
clerical tasks on behalf of a loan originator;
    (5) An individual who is lawfully registered with, and maintains a 
unique identifier through, the Nationwide Mortgage Licensing System and 
Registry, and who is an employee of a covered financial institution, as 
that term is defined in 12 CFR part 1007.
    (6)(i) An individual who is an employee of a Federal, state, or 
local government agency or housing finance agency and who acts as a loan 
originator only pursuant to his or her official duties as an employee of 
the Federal, state, or local government agency or housing finance 
agency.
    (ii) For purposes of this paragraph (e)(6), the term employee has 
the meaning provided in paragraph (1) of the definition of employee in 
Sec. 1008.23 and excludes the meaning provided in paragraph (2) of the 
definition.
    (iii) For purposes of this paragraph (e)(6), the term housing 
finance agency means any authority:
    (A) That is chartered by a state to help meet the affordable housing 
needs of the residents of the state;
    (B) That is supervised directly or indirectly by the state 
government;
    (C) That is subject to audit and review by the state in which it 
operates; and
    (D) Whose activities make it eligible to be a member of the National 
Council of State Housing Agencies.
    (7)(i) An employee of a bona fide nonprofit organization who acts as 
a loan originator only with respect to his or her work duties to the 
bona fide nonprofit organization, and who acts as a loan originator only 
with respect to

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residential mortgage loans with terms that are favorable to the 
borrower.
    (ii) For an organization to be considered a bona fide nonprofit 
organization under this paragraph, a state supervisory authority that 
opts not to require licensing of the employee must determine, under 
criteria and pursuant to processes established by the state, that the 
organization:
    (A) Has the status of a tax-exempt organization under section 
501(c)(3) of the Internal Revenue Code of 1986;
    (B) Promotes affordable housing or provides homeownership education, 
or similar services;
    (C) Conducts its activities in a manner that serves public or 
charitable purposes, rather than commercial purposes;
    (D) Receives funding and revenue and charges fees in a manner that 
does not incentivize it or its employees to act other than in the best 
interests of its clients;
    (E) Compensates its employees in a manner that does not incentivize 
employees to act other than in the best interests of its clients;
    (F) Provides or identifies for the borrower residential mortgage 
loans with terms favorable to the borrower and comparable to mortgage 
loans and housing assistance provided under government housing 
assistance programs; and
    (G) Meets other standards that the state determines are appropriate.
    (iii) A state must periodically examine the books and activities of 
an organization it determines is a bona fide nonprofit organization and 
revoke its status as a bona fide nonprofit organization if it does not 
continue to meet the criteria under paragraph (e)(7)(ii) of this 
section;
    (iv) For residential mortgage loans to have terms that are favorable 
to the borrower, a state must determine that the terms are consistent 
with loan origination in a public or charitable context, rather than a 
commercial context.
    (f) A state must require an individual licensed in accordance with 
paragraphs (a) or (d) of this section to renew the loan originator 
license no less often than annually.



Sec. 1008.105  Minimum loan originator license requirements.

    For an individual to be eligible for a loan originator license 
required under Sec. 1008.103(a) and (d), a state must require and find, 
at a minimum, that an individual:
    (a) Has never had a loan originator license revoked in any 
governmental jurisdiction, except that a formally vacated revocation 
shall not be deemed a revocation;
    (b)(1) Has never been convicted of, or pled guilty or nolo 
contendere to, a felony in a domestic, foreign, or military court:
    (i) During the 7-year period preceding the date of the application 
for licensing; or
    (ii) At any time preceding such date of application, if such felony 
involved an act of fraud, dishonesty, a breach of trust, or money 
laundering.
    (2) For purposes of this paragraph (b):
    (i) Expunged convictions and pardoned convictions do not, in 
themselves, affect the eligibility of the individual; and
    (ii) Whether a particular crime is classified as a felony is 
determined by the law of the jurisdiction in which an individual is 
convicted.
    (c) Has demonstrated financial responsibility, character, and 
general fitness, such as to command the confidence of the community and 
to warrant a determination that the loan originator will operate 
honestly, fairly, and efficiently, under reasonable standards 
established by the individual state.
    (d) Completed at least 20 hours of pre-licensing education that has 
been reviewed and approved by the Nationwide Mortgage Licensing System 
and Registry. The pre-licensing education completed by the individual 
must include at least:
    (1) 3 hours of Federal law and regulations;
    (2) 3 hours of ethics, which must include instruction on fraud, 
consumer protection, and fair lending issues; and
    (3) 2 hours of training on lending standards for the nontraditional 
mortgage product marketplace.
    (e)(1) Achieved a test score of not less than 75 percent correct 
answers on a

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written test developed by the NMLSR in accordance with 12 U.S.C. 
5105(d).
    (2) To satisfy the requirement under paragraph (e)(1) of this 
section, an individual may take a test three consecutive times, with 
each retest occurring at least 30 days after the preceding test. If an 
individual fails three consecutive tests, the individual must wait at 
least 6 months before taking the test again.
    (3) If a formerly state-licensed loan originator fails to maintain a 
valid license for 5 years or longer, not taking into account any time 
during which such individual is a registered loan originator, the 
individual must retake the test and achieve a test score of not less 
than 75 percent correct answers.
    (f) Be covered by either a net worth or surety bond requirement, or 
pays into a state fund, as required by the state loan originator 
supervisory authority.
    (g) Has submitted to the NMLSR fingerprints for submission to the 
Federal Bureau of Investigation and to any government agency for a state 
and national criminal history background check; and
    (h) Has submitted to the NMLSR personal history and experience, 
which must include authorization for the NMLSR to obtain:
    (1) Information related to any administrative, civil, or criminal 
findings by any governmental jurisdiction; and
    (2) An independent credit report.



Sec. 1008.107  Minimum annual license renewal requirements.

    (a) For an individual to be eligible to renew a loan originator 
license as required under Sec. 1008.103(f), a state must require the 
individual:
    (1) To continue to meet the minimum standards for license issuance 
provided in Sec. 1008.105; and
    (2) To satisfy annual continuing education requirements, which must 
include at least 8 hours of education approved by the NMLSR. The 8 hours 
of annual continuing education must include at least:
    (i) 3 hours of Federal law and regulations;
    (ii) 2 hours of ethics (including instruction on fraud, consumer 
protection, and fair lending issues); and
    (iii) 2 hours of training related to lending standards for the 
nontraditional mortgage product marketplace.
    (b) A state must provide that a state-licensed loan originator may 
only receive credit for a continuing education course in the year in 
which the course is taken, and that a state-licensed loan originator may 
not apply credits for education courses taken in one year to meet the 
continuing education requirements of subsequent years. A state must 
provide that an individual may not meet the annual requirements for 
continuing education by taking an approved course more than one time in 
the same year or in successive years.
    (c) An individual who is an instructor of an approved continuing 
education course may receive credit for the individual's own annual 
continuing education requirement at the rate of 2 hours credit for every 
one hour taught.



Sec. 1008.109  Effective date of state requirements imposed on 
individuals.

    (a) Except as provided in paragraphs (b) and (c) of this section, a 
state must provide that the effective date for requirements it imposes 
in accordance with Sec. Sec. 1008.103, 1008.105, and 1008.107 is no 
later than August 29, 2011.
    (b) For an individual who was permitted to perform residential 
mortgage loan originations under state legislation or regulations 
enacted or promulgated prior to the state's enactment or promulgation of 
a licensing system that complies with this subpart, a state may delay 
the effective date for requirements it imposes in accordance with 
Sec. Sec. 1008.103, 1008.105, and 1008.107 to no later than August 29, 
2011. For purposes of this paragraph (b), an individual was permitted to 
perform residential mortgage loan originations only if prior state law 
required the individual to be licensed, authorized, registered, or 
otherwise granted a form of affirmative and revocable government 
permission for individuals as a condition of performing residential 
mortgage loan originations.
    (c) The Bureau may approve a later effective date only upon a 
state's demonstration that substantial numbers of loan originators (or 
of a class of loan originators) who require a state license face unusual 
hardship, through no fault

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of their own or of the state government, in complying with the standards 
required by the S.A.F.E. Act and in obtaining state licenses within one 
year.



Sec. 1008.111  Other minimum requirements for state licensing systems.

    (a) General. A state must maintain a loan originator licensing, 
supervisory, and oversight authority (supervisory authority) that 
provides effective supervision and enforcement, in accordance with the 
minimum standards provided in this section and in Sec. 1008.113.
    (b) Authorities. A supervisory authority must have the legal 
authority and mechanisms:
    (1) To examine any books, papers, records, or other data of any loan 
originator operating in the state;
    (2) To summon any loan originator operating in the state, or any 
person having possession, custody, or care of the reports and records 
relating to such a loan originator, to appear before the supervisory 
authority at a time and place named in the summons and to produce such 
books, papers, records, or other data, and to give testimony, under 
oath, as may be relevant or material to an investigation of such loan 
originator for compliance with the requirements of the S.A.F.E. Act;
    (3) To administer oaths and affirmations and examine and take and 
preserve testimony under oath as to any matter in respect to the affairs 
of any such loan originator;
    (4) To enter an order requiring any individual or person that is, 
was, or would be a cause of a violation of the S.A.F.E. Act as 
implemented by the state, due to an act or omission the person knew or 
should have known would contribute to such violation, to cease and 
desist from committing or causing such violation and any future 
violation of the same requirement;
    (5) To suspend, terminate, and refuse renewal of a loan originator 
license for violation of state or Federal law; and
    (6) To impose civil money penalties for individuals acting as loan 
originators, or representing themselves to the public as loan 
originators, in the state without a valid license or registration.
    (c) A supervisory authority must have established processes in place 
to verify that individuals subject to the requirement described in Sec. 
1008.103(a)(1) and (d)(1) are registered with the NMLSR.
    (d) The supervisory authority must be required under state law to 
regularly report violations of such law, as well as enforcement actions 
and other relevant information, to the NMLSR.
    (e) The supervisory authority must have a process in place for 
challenging information contained in the NMLSR.
    (f) The supervisory authority must require a loan originator to 
ensure that all residential mortgage loans that close as a result of the 
loan originator engaging in activities described in Sec. 1008.103(b)(1) 
are included in reports of condition submitted to the NMLSR. Such 
reports of condition shall be in such form, shall contain such 
information, and shall be submitted with such frequency and by such 
dates as the NMLSR may reasonably require.



Sec. 1008.113  Performance standards.

    (a) For the Bureau to determine that a state is providing effective 
supervision and enforcement, a supervisory authority must meet the 
following performance standards:
    (1) The supervisory authority must participate in the NMLSR;
    (2) The supervisory authority must approve or deny loan originator 
license applications and must renew or refuse to renew existing loan 
originator licenses for violations of state or Federal law;
    (3) The supervisory authority must discipline loan originator 
licensees with appropriate enforcement actions, such as license 
suspensions or revocations, cease-and-desist orders, civil money 
penalties, and consumer refunds for violations of state or Federal law;
    (4) The supervisory authority must examine or investigate loan 
originator licensees in a systematic manner based on identified risk 
factors or on a periodic schedule.
    (b) A supervisory authority that is accredited under the Conference 
of State Bank Supervisors-American Association of Residential Mortgage 
Regulators Mortgage Accreditation Program will be presumed by the Bureau 
to be compliant with the requirements of this section.

[[Page 251]]



Sec. 1008.115  Determination of noncompliance.

    (a) Evidence of compliance. Any time a state enacts legislation that 
affects its compliance with the S.A.F.E. Act, it must notify the Bureau. 
Upon request from the Bureau, a state must provide evidence that it is 
in compliance with the requirements of the S.A.F.E. Act and this part, 
including citations to applicable state law and regulations; 
descriptions of processes followed by the state's supervisory authority; 
and data concerning examination, investigation, and enforcement actions.
    (b) Initial determination of noncompliance. If the Bureau makes an 
initial determination that a state is not in compliance with the 
S.A.F.E. Act, the Bureau will notify the state and will publish, in the 
Federal Register, a notice providing the Bureau's initial determination 
and presenting the opportunity for public comment for a period of no 
less than 30 days. This public comment period will allow the residents 
of the state and other interested members of the public to comment on 
the Bureau's initial determination.
    (c) Final determination of noncompliance. In making a final 
determination of noncompliance, the Bureau will review additional 
information that may be offered by a state and the comments submitted 
during the public comment period described in paragraph (b) of this 
section. If the Bureau makes a final determination that a state does not 
have in place by law or regulation a system that complies with the 
minimum requirements of the S.A.F.E. Act, as described in this part, the 
Bureau will publish that final determination in the Federal Register.
    (d) Good-faith effort to comply. If the Bureau makes the final 
determination described in paragraph (c) of this section, but the Bureau 
finds that the state is making a good-faith effort to meet the 
requirements of 12 U.S.C. 5104, 5105, 5107(d), and this subpart, the 
Bureau may grant the state a period of not more than 24 months to comply 
with these requirements. If an extension is granted to the state in 
accordance with this paragraph (d), then the Bureau will provide an 
additional initial and final determination process before it determines 
that the state is not in compliance and is subject to subparts C and E 
of this part.
    (e) Effective date of subparts C and E. The provisions of subparts C 
and E of this part will become effective with respect to a state for 
which a final determination of noncompliance has been made upon:
    (1) The effective date of the Bureau's final determination with 
respect to the state, pursuant to paragraph (c) of this section, unless 
an extension had been granted to the state in accordance with paragraph 
(d) of this section; or
    (2) If an extension had been granted to the state in accordance with 
paragraph (d) of this section, the effective date of the Bureau's 
subsequent final determination with respect to the state following the 
expiration of the period of time granted pursuant to paragraph (d) of 
this section.



 Subpart C_The Bureau's Loan Originator Licensing System and Nationwide 
                 Mortgage Licensing and Registry System



Sec. 1008.201  Scope of this subpart.

    The S.A.F.E. Act provides the Bureau with ``backup authority'' to 
establish a loan originator licensing system for any state that is 
determined by the Bureau not to be in compliance with the minimum 
standards of the S.A.F.E. Act. The provisions of this subpart become 
applicable to individuals in a state as provided in Sec. 1008.115(e). 
The S.A.F.E. Act also authorizes the Bureau to establish and maintain a 
nationwide mortgage licensing system and registry if the Bureau 
determines that the NMLSR is failing to meet the purposes and 
requirements of the S.A.F.E. Act for a comprehensive licensing, 
supervisory, and tracking system for loan originators.



Sec. 1008.203  The Bureau's establishment of loan originator licensing
system.

    If the Bureau determines, in accordance with Sec. 1008.115(e), that 
a state has not established a licensing and registration system in 
compliance with the minimum standards of the S.A.F.E. Act, the Bureau 
shall apply to individuals in that state the minimum standards of the 
S.A.F.E. Act, as specified in

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subpart B, which provides the minimum requirements that a state must 
meet to be in compliance with the S.A.F.E. Act, and as may be further 
specified in this part.



Sec. 1008.205  The Bureau's establishment of nationwide mortgage 
licensing system and registry.

    If the Bureau determines that the NMLSR established by CSBS and 
AARMR does not meet the minimum requirements of subpart D of this part, 
the Bureau will establish and maintain a nationwide mortgage licensing 
system and registry.



     Subpart D_Minimum Requirements for Administration of the NMLSR



Sec. 1008.301  Scope of this subpart.

    This subpart establishes minimum requirements that apply to 
administration of the NMLSR by the Conference of State Bank Supervisors 
or by the Bureau. The NMLSR must accomplish the following objectives:
    (a) Provide uniform license applications and reporting requirements 
for state-licensed loan originators.
    (b) Provide a comprehensive licensing and supervisory database.
    (c) Aggregate and improve the flow of information to and between 
regulators.
    (d) Provide increased accountability and tracking of loan 
originators.
    (e) Streamline the licensing process and reduce the regulatory 
burden.
    (f) Enhance consumer protections and support anti-fraud meas