BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D.C.  20551

DIVISION OF CONSUMER
AND COMMUNITY AFFAIRS

CA 08-3

July 28, 2008

TO THE OFFICERS AND MANAGERS IN CHARGE OF CONSUMER AFFAIRS SECTIONS AT EACH FEDERAL RESERVE BANK AND TO BANKING ORGANIZATIONS SUPERVISED BY THE FEDERAL RESERVE:

SUBJECT: Updated Examination Procedures for Regulation DD

The Task Force on Consumer Compliance of the Federal Financial Institutions Examination Council recently approved the attached updated examination procedures for Regulation DD (Truth in Savings). The updated procedures incorporate:

1. amendments to the regulation (and staff commentary) related to electronic disclosures (72 Federal Register 63477); and,
2. changes to address recommendations made by the Government Accountability Office (GAO) in a report issued in March 2008 entitled "Bank Fees: Federal Banking Regulators Could Better Ensure That Consumers Have Required Disclosure Documents Prior to Opening Checking or Savings Accounts" (GAO-08-281).

The regulatory amendments withdraw portions of the interim final rules for electronic disclosures issued by the Federal Reserve on March 20, 2001,1 while retaining the provisions allowing disclosures 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). In addition, the amendments include guidance on the electronic delivery of disclosures. For example, when a deposit account advertisement is accessed by a consumer in electronic form, disclosures may be provided to the consumer in electronic form in the advertisement without regard to the consumer consent and other provisions of the E-Sign Act.

The GAO study on bank fees suggests that, despite regulatory disclosure requirements, consumers may find it difficult to obtain information about checking and savings account fees. GAO staff, posing as prospective customers, were unable to obtain comprehensive account information on fees, terms and conditions at over one-fifth of financial institution branches they visited. The GAO report states that, while consumers may consider factors besides costs when shopping for accounts, an inability to obtain information about fees, terms, and conditions hinders their ability to compare account products offered by different institutions.

As a result of the study, the GAO report recommended that the federal banking regulators assess the extent to which customers receive disclosures on fees, terms, and conditions prior to opening an account. It also recommended that the agencies incorporate appropriate steps into their oversight programs to ensure that disclosures continue to be made available. The attached Regulation DD examination procedures contain language supplementing current procedures to emphasize the existing requirement to provide full account disclosure (e.g., fees, terms, and conditions) to a consumer, upon request, whether or not the consumer is an existing or a prospective customer. The revisions highlight that the disclosures should be provided at the time of the request if the consumer makes the request in person, or within 10 days if the consumer is not present when making the request (e.g., a telephone request), consistent with current regulatory requirements. The revisions to the procedures also remind examiners that institutions must maintain evidence of compliance with Regulation DD, including the requirement to provide consumer disclosures upon request. Finally, the revisions to the procedures focus on the need for examiners to make sure that supervised institutions train appropriate employees on these disclosure requirements of Regulation DD.

Federal Reserve Banks are asked to distribute this letter and the accompanying attachment to banking organizations supervised by the Federal Reserve in their districts, as well as to supervisory and examination staff. If you have any questions, please contact Paul Robin, Manager, Oversight and Policy, at (202) 452-3140, or Timothy R. Burniston, Assistant Director, at (202) 452-3488.

Sincerely,
(signed)

Sandra F. Braunstein
Director
Division of Consumer and Community Affairs

Notes:

^1.   The Board withdrew portions of the 2001 interim final rule that restated or cross-referenced provisions of the E-Sign Act, and withdrew other provisions that the Board believed would impose undue burdens on electronic banking and commerce and may be unnecessary for consumer protection. For example, the Board withdrew the requirement in the interim final rule that disclosures be posted on an institution's web site for 90 days. In addition, the Board withdrew the requirement that an institution make a good faith attempt to redeliver electronic disclosures that were returned undelivered, using the address information available in the institution's files.  Return to text

Attachment (revised as of August 27, 2008)

Supercedes: CA 07-7 (October 12, 2007)