After a creditor wins a lawsuit against a debtor and is awarded a judgment by the court, there is a time limit for collecting that judgment. However, many states allow judgments to be renewed one or more times, which could substantially extend the enforceability of a judgment, if the creditor is vigilant about the renewals. This can potentially result in a permanent legal obligation until it is paid.

(The numbers on this chart indicate years.)

The information above is believed to be accurate at the time of the creation of this page, and is for reference only. Nothing here should be construed as or relied upon as legal advice. If you are concerned about possible lawsuits, you may wish to confirm this with your state’s Civil Code and/or a qualified attorney.

This “Summary of Consumer Credit Laws” is from the U.S. Department of Commerce publication, Credit and Financial Issues: Responsive Business Approaches to Consumer Needs May 1995. For information, contact the Office of Consumer Affairs, U.S. Department of Commerce, Washington, D.C. 20230, Phone: 202-482-6007.

Consumer credit transactions are regulated both at the Federal and the State level. Some of the Federal laws influencing the credit industry are:

Federal Laws Tab 3.1
The below sections are sub tabbed

• Truth in Lending Act Tab 3.1a
• Fair Credit Reporting Act 3.1b
• Equal Credit Opportunity Act 3.1c
• Fair Credit Billing Act 3.1d
• Right to Financial Privacy Act  3.1e
• Consumer Leasing Act  3.1f
• Fair Debt Collection Practices Act  3.1g
• The Bankruptcy Reform Act of 1978  3.1h

While there is considerable variation among State laws governing consumer credit transactions, most are based on Federal laws and various versions of State laws covering several standard areas. Some of those areas are as follows:

State Laws

• The Uniform Consumer Credit Code
• Usury or rate ceiling laws
• Consumer loan acts
• Mortgage lending acts
• Mortgage banker and broker acts
• Secondary mortgage acts
• Retail installment sales acts
• Seller and lender credit card acts
• Home solicitation sales acts
• Home improvement contracts acts
• Rental purchase agreement acts

For a full explanation of the relevant laws in the jurisdiction(s) in which you do business you can consult:

• Legal counsel
• State attorney general office
• State banking commission, consumer credit or financial institutions departments/commissions
• Trade associations, such as the International Credit Association, the Associated Credit Bureaus, local credit associations, national or state bankers associations, savings associations, mortgage banker associations, national and state consumer finance associations, or national or state retail merchants associations.

Note: To help both business and consumers understand consumer credit laws, businesses should encourage financial trade associations and offices of consumer protection to compile and distribute summaries and comparisons of State laws governing consumer credit transactions.

Federal Law Summaries

All consumer credit businesses should be aware of the Federal laws summarized below. These summaries are not, however, intended to serve as a substitute for legal counsel and a thorough understanding of the laws themselves.

Tab 3.1a Truth in Lending Act (TILA) (effective 1969; amended by Unsolicited Credit Card Act, effective 1970; amended by the Truth in Lending Simplification Act, effective 1982; amended by the Home Equity Loan Consumer Protection Act, effective 1989; amended by the Fair Credit and Charge Card Disclosure Act, effective 1989; amended by the Home Ownership and Equity Protection Act, effective October 1995). This act and the acts which amended or added to its provisions were primarily enacted to prevent abuses in consumer credit cost disclosures and to require uniformity in such disclosures throughout the credit industry by making terms of credit known to consumers.

The specific provisions of the act are implemented by Regulation Z. Regulation Z explains in great detail who and what is covered by the regulation and gives the specific disclosure and other requirements that have to be met for open-end and closed-end credit transactions. It should be noted that disclosures of the costs involved in credit card plans offered by mail, telephone or by applications distributed to the general public are subject to the disclosure requirements laid down in Truth in Lending and Regulation Z.

The act covers among others any person who regularly extends credit used primarily for personal, family or household purposes if the credit is subject to a finance charge or payable by a written agreement in more than four installments. The act also covers advertising of such credit transactions. Credit transactions of over $25,000 are exempt from the act (unless there is a security interest taken in real property or a mobile home).
Specific and detailed disclosure requirements exist for all the various types of consumer transactions which fall under the disclosure mandates and prohibitions. For example:

• Open-end credit disclosures cover credit cards, charge cards and open-end consumer credit transactions. Under such circumstances, the act requires certain disclosures before the initial disclosure statement for credit and charge card applications and solicitations and it requires certain early disclosures and prohibits certain practices for home equity lines of credit. In addition, an initial disclosure statement, disclosures on monthly billing statements and sometimes disclosures on subsequent statements are usually required on open end transactions. Each type of statement has its own mandated list of disclosures. Particular provisions also require that a cardholder be given 15-days prior notice of a change in terms. All disclosures must be made clearly, conspicuously and in writing.
• A miscellaneous provision prohibits the issuing of a credit card unless it is in response to an oral or written application or as a card renewal. This does not prohibit creditors from distributing unsolicited applications for credit or from issuing renewals or substitutes for a card previously accepted by the consumer.
• A provision provides for a statutory $50 maximum limit on the amount of money a cardholder is required to pay for the unauthorized use of a card before the card issuer has been notified by the consumer.
• Closed-end credit disclosures are also carefully delineated and regulated under the act and it’s Regulation Z. The law requires disclosures to be made clearly, conspicuously, in writing and in a form that the consumer may keep and read prior to the loan closing. If the disclosures are incorporated into the loan agreement they must be separated from all other loan details; for example, they may be placed in a boxed section on the form or be separated by bold print dividing lines (often referred to as the S Federal Boxy).
• Additional disclosures were mandated in the Home Ownership and Equity Protection Act of 1994 (effective approximately October, 1995). Under this new act, creditors must make additional disclosures and comply with prohibitions against certain practices on closed-end home equity loans meeting specific triggers relating to APR or points and fees.
• The act also requires advertisers of consumer credit to clearly and conspicuously provide certain information if they use specific triggering terms in their credit ads. The act requires that the credit terms advertised actually be available.

Note: The requirements of the Truth in Lending Act and Regulation Z are complex and detailed; therefore, it is recommended that those who are regulated by the act and its regulation refer questions to an attorney who is knowledgeable about the act, all of its provisions, and the regulation.

Real Estate Settlement Procedures Act (RESPA) (effective 1974) requires home mortgage lenders to:

• Provide loan applicants with good faith estimates of the costs of settlement services (costs related to the making of a real estate loan).
• Make disclosures when the lender refers settlement business to a company affiliated with the lender.
• Provide loan applicants with disclosures regarding the possible transfer of the servicing of loans (both the lender and the new servicer must provide notices when servicing is transferred).
• Provide disclosure of actual costs and charges for settlement services at the loan closing.
• Not give any fee or kickback to any person for providing settlement services.

Note: Effective August 1994 RESPA also applies to second mortgage loans.

Federal Trade Commission Rule on Preservation of Consumers’ Claims and Defenses (effective 1976), the Holder-in-Due Course Rules, requires sellers of goods and services to include a clause in certain credit contracts which preserves all the sale related claims and defenses (such as breach of contract, breach of warranty, misrepresentation or fraud) which the consumer could assert against the seller so that such claims and defenses may also be asserted against future holders of the consumer credit contract.

This rule does not apply to cash purchases of consumer goods and services, real estate transactions or purchases by businesses or associations. It also does not govern credit card transactions which are covered by the Fair Credit Billing Act.

Federal Trade Commission Credit Practices Rule (effective 1985) defines certain unfair credit practices for a seller or creditor executing an agreement.

The rule declares it an unfair credit practice to take a contract containing a confession of judgment, a waiver of exemptions granted by state law, a wage assignment or a non-possessory security interest in household goods other than a purchase money security interest. The rule also prohibits certain acts or practices in which the creditor directly (or indirectly) misrepresents the nature or extent of a cosigner’s liability. The rule requires that before a creditor can obligate a co-signer, the co-signer must be informed of the nature of his or her liability as a co-signer. The rule also provides a specific notice to be given to co-signers prior to executing an agreement.

The required notice reads as follows: “You are being asked to guarantee this debt. Think carefully before you do. If the borrower doesn’t pay the debt you will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility.
You may have to pay up to the full amount of the debt if the borrower does not pay. You may also have to pay late fees or collection costs, which increase this amount. The creditor can collect this debt from you without first trying to collect from the borrower. The creditor can use the same collection methods against you that can be used against the borrower such as suing you, garnishing your wages, etc. If this debt is ever in default that fact becomes a part of your credit record.
This notice is not the contract that makes you liable for the debt.”

Note: Creditors are also prohibited from charging multiple late fees for one late payment.

Tab 3.1b Fair Credit Reporting Act (FCRA) (effective 1971, amended 1978, 1989, 1992 and 1994) requires:

• Creditors to notify consumers of the name and address of credit reporting agencies (credit bureaus) whose reports were used as a basis for adverse credit decisions.
• Credit reporting agencies, upon request: To disclose to consumers the nature and substance of information in their credit bureau records; to reinvestigate disputed information and make corrections; and, to allow consumers to file their explanations if reinvestigations do not resolve disputes.
• Credit reporting agencies to notify recent recipients (as specified by the consumer) of the credit reports, of corrections that may have been made, or, in certain instances, the consumer’s side of the story, and to include this material in future reports.
• Credit reporting agencies to exclude from consumer reports adverse credit records more than seven years old (ten years for bankruptcies.)
• Credit reporting agencies to furnish reports only to those who have Permissible purposes for the information.

Note: The FCRA was amended in 1992 and imposes an obligation upon a credit reporting agency to include overdue child support in a consumer report, provided that information is reported to the agency by a party charged with the collection of the child support.

Tab 3.1c Equal Credit Opportunity Act (ECOA) (effective 1975; amended 1977, 1988 and 1991) prohibits creditors from:

• Discriminating against credit applicants because of sex, race, color, national origin, age, marital status, religion or because a consumer’s income comes from a public assistance source (e.g., social security or disability benefits). The act does permit the use of gages as a variable in an empirically derived, statistically sound, credit scoring system provided that the age of an elderly applicant (62 or over) is not assigned a negative factor or value. In addition, creditors may not discount or refuse to consider income because it comes from retirement benefits, part-time employment or alimony/child support.
• Denying credit because the consumer, in good faith, exercised rights under the Consumer Credit Protection Act (such as disputing a credit card bill under the Fair Credit Billing Act or a credit bureau report under the Fair Credit Reporting Act.)
• Failing to provide written notice of adverse action within specified time frames when a consumer’s application is denied or when certain other adverse actions are taken. The notice must either disclose the reasons for the denial or adverse action or inform the consumer of the right to obtain those reasons.

Tab 3.1d Fair Credit Billing Act (FCBA) (effective 1975) applies only to open-end credit transactions. Among other things, the act specifies a step-by step procedure for error resolutions. The procedure is as follows:

• The consumer must give written notice of a billing error, in a letter, within 60 days of receiving the bill in question.
• The creditor must respond within 30 days and resolve the dispute within two billing cycles, but not longer than 90 days. Within 90 days, the creditor must either explain why the bill is correct or correct the error.
• During the resolution period no collection activity is permitted on the disputed amount and no finance charges may be collected as well. The account may not be reported as delinquent, nor can it be closed or restricted because of the consumer’s failure to pay the disputed amount, and/or related charges.
• If the consumer still believes the billing to be in dispute after the resolution period, the consumer must again notify the creditor in writing. During this period, the creditor may not report the account delinquent without also reporting that the amount is in dispute. The creditor must also report to the consumer the name and address of each person to whom the creditor is reporting information about the delinquency.
• The creditor must also report how the matter was resolved, to anyone who received a report on the delinquency.
• Creditors must include an address on periodic statements to which consumer billing inquiries can be addressed.

Tab 3.1e Right to Financial Privacy Act (RFPA) (effective 1979) provides privacy protection to customers of financial institutions when the Federal government is seeking financial record information about an institution’s customers. The act defines a financial institution as any office of a bank, savings bank, other type of regulated financial institution or Card issuers (retailers who issue cards must comply).
The act prohibits government authorities from gaining access to information contained in the financial records of any customer of a financial institution or card-issuer, unless:

• The customer has authorized access to the customer’s records in a written statement as set down in the act.
• The financial records are disclosed in response to an administrative subpoena. The customer must be mailed a copy of the subpoena, giving the customer the right, within 10 days of receiving the notice, of filing a motion to prevent disclosure.
• The financial records are disclosed in response to a search warrant.
• The financial records are disclosed in response to a judicial subpoena. A copy of the subpoena must have been served on the customer on or before the date on which the financial institution was served.
• In the absence of a subpoena, the financial records are disclosed in response to a formal written request which must meet guidelines specified in the act. A government agency may gain access to a consumer’s financial records without notice to the consumer if the agency is investigating the financial institution, not the consumer.

Tab 3.1f Consumer Leasing Act (CLA) (effective 1976) requires certain disclosures about consumer leases. The act requires leasing companies to do the following in writing:

• Give a brief description of the leased property.
• Disclose the total amount of the initial payment required, number of payments, amount of each payment, due dates and total amount of payments.
• Disclose in writing the total amount of payments under the lease, including, the amount of the security deposit (if required), monthly payments and additional charges, such as for licenses or taxes.
• Disclose the total amount of official fees and all other charges, including penalties for late payments or delinquencies.
• Identify any express warranty and the party responsible for the product’s maintenance and service.
• Provide a description of any security interest.
• State whether the customer has the option to purchase the leased property and provide certain related information.
• Disclose early termination rights, if any.
• Disclose the customer’s liability for the difference between the estimated value of the property and its realized value to the lessor at early termination or the end of the lease (plus customer appraisal and other rights).
• Disclose the terms and conditions of the transaction, including guarantees, required insurance and any consumer liability at the end of the lease.
• Limit penalties or other charges for delinquency, default or early termination, to amounts which are reasonable in light of the anticipated or actual harm caused by the delinquency, default or early termination.

Note: The act also requires advertisers of consumer leases to clearly and conspicuously provide certain information if those advertisers use specific triggering terms in their lease ads. The act also requires that the lease terms advertised actually be available.

Tab 3.1g Fair Debt Collection Practices Act (FDCPA) (effective 1978, amended 1986) applies to everyone who collects consumer debts for someone else, including attorneys who collect consumer debts. While creditors collecting their own accounts are excluded from the act, most creditors follow the act’s mandates and prohibitions in the interest of using sound and fair business practices. Debt collection prohibitions under the act include:

• Threatening or using violence.
• Using obscene or profane language.
• Publishing a list of consumers who allegedly refuse to pay their debts.
• Causing a telephone to ring, or engaging a debtor in telephone conversation, repeatedly or continuously.

The act also places the following restrictions on debt collector contacts:

• Contacts should be limited to between 8:00 a.m. and 9:00 p.m.
• A debtor may be contacted at work unless the collector knows or has reason to know that the employer prohibits an employee from receiving such calls or that it is inconvenient for the debtor to receive debt collection calls at work.
• If a debtor is represented by an attorney, a collector cannot communicate with the debtor unless the attorney grants permission or fails to respond to the collector’s communications within a reasonable time.

Note: In addition, the act specifies: which third-parties can be contacted about a debtor for debt collection; how and when collectors can communicate to third-parties for debtor location information; and, what acts are considered to be false, misleading or unfair.

Tab 3.1h The Bankruptcy Reform Act (effective 1979; amended 1984, 1986 and 1994.) This act is known as the Bankruptcy Code and replaces the Bankruptcy Act of 1898. Different types of bankruptcy are named after chapters of the Bankruptcy Code. The most common types of bankruptcy are as follows:

• Chapter 7-a “straight” bankruptcy under which assets are liquidated in order to pay creditors.
• Chapter 11-a chapter which provides primarily for a business bankruptcy, so that a business can reorganize through a plan to pay all or part of its business’ debts to its creditors.
• Chapter 13-a chapter for consumers with a regular income. Under Chapter 13 bankruptcies consumers develop plans to pay all or part of their debts to their creditors over a specified time period.

Note: Upon the filing of a bankruptcy petition, an Automatic Stays provided for by the Bankruptcy Code requires creditors to immediately stop all efforts to collect a debt, take possession of collateral, enforce a lien, set off a debt or collect receivables of a debtor. Any relief from these restrictions must be requested of the bankruptcy court by the creditor. Creditors with further questions on bankruptcy should contact their local attorney or the bankruptcy court.

Board of Governors of the Federal Reserve System
Washington, D.C. 20551 12th Printing, April 1993

Contents

INTRODUCTION

THE COST OF CREDIT

Shopping Is the First Step
What Laws Apply?
The Finance Charge and Annual Percentage Rate (APR)
A Comparison
Cost of Open-end Credit
Leasing Costs and Terms
Open-end Leases and Balloon Payments
Costs of Settlement on a House

APPLYING FOR CREDIT

Discrimination
What Law Applies?
What Creditors Look For
Information the Creditor Can’t Use
Special Rules
Discrimination against Women
If you’re Turned Down

CREDIT HISTORIES AND RECORDS

Building Up a Good Record
What Laws Apply?
Credit Histories for Women
Keeping Up Credit Records

OTHER ASPECTS OF USING CREDIT

What Laws Apply?
Billing Errors
Defective Goods or Services
Prompt Credit for Payments and Refunds for Credit Balances
Canceling a Mortgage
Lost or Stolen Credit Cards
Unsolicited Cards

ELECTRONIC FUND TRANSFERS

Instant Money
EFT in Operation
What Law Applies?
What Record Will I Have of My Transactions?
How Easily Will I Be Able to Correct Errors?
What about Loss or Theft?
What about Solicitations?
Do I Have to Use EFT?
Special Questions about Preauthorized Plans

COMPLAINING ABOUT CREDIT

Complaining to Federal Enforcement Agencies
Penalties under the Laws

GLOSSARY

SUBJECT INDEX

DIRECTORY OF FEDERAL AGENCIES

FEDERAL RESERVE BANKS

OTHER CONSUMER PAMPHLETS AVAILABLE

INTRODUCTION

The Consumer Credit Protection Act of 1968–which launched Truth in Lending–was a landmark piece of legislation. For the first time, creditors had to state the cost of borrowing in a common language so that you–the customer–could figure out exactly what the charges would
be, compare costs, and shop around for the credit deal best for you.

Since 1968, credit protections have multiplied rapidly. The concepts of
“fair” and “equal” credit have been written into laws that outlaw unfair
discrimination in credit transactions; require that consumers be told
the reason when credit is denied; let borrowers find out about their
credit records; and set up a way to settle billing disputes.

Each law was meant to reduce the problems and confusion surrounding
consumer credit which, as it became more widely used in our economy,
also grew more complex. Together, these laws set a standard for how
individuals are to be treated in their financial dealings.

The laws say, for instance:

– that you cannot be turned down for a credit card just because
you’re a single woman;

– that you can limit your risk if a credit card is lost or stolen;

– that you can straighten out errors in your monthly bill without
damage to your credit rating; and

– that you won’t find credit shut off just because you’ve reached the
age of 65.

But, let the buyer be aware! It is important to know your fights and how
to use them. This handbook explains how the consumer credit laws can
help you shop for credit, apply for it, keep up your credit standing,
and–if need be–complain about an unfair deal. It explains what you
should look for when using credit and what creditors look for before
extending it. It also points out the laws’ solutions to discriminatory
practices that have made it difficult for women and minorities to get
credit in the past.

THE COST OF CREDIT

Shopping is the First Step

You get credit by promising to pay in the future for something you
receive in the present.

Credit is a convenience. It lets you charge a meal on your credit card,
pay for an appliance on the installment plan, take out a loan to buy a
house, or pay for schooling or vacations. With credit, you can enjoy
your purchase while you’re paying for it–or you can make a purchase
when you’re lacking ready cash.

But there are strings attached to credit too. It usually costs
something. And of course what is borrowed must be paid back.

If you are thinking of borrowing or opening a credit account, you’re first
step should be to figure out how much it will cost you and whether you
can afford it. Then you should shop around for the best terms.

What Laws Apply?

Two laws help you compare costs:

TRUTH IN LENDING requires creditors to give you certain basic
information about the cost of buying on credit or taking out a loan.
These “disclosures” can help you shop around for the best deal.

CONSUMER LEASING disclosures can help you compare the cost and terms of
one lease with another and with the cost and terms of buying for cash or
on credit.

The Finance Charge and Annual Percentage Rate (APR)

Credit costs vary. By remembering two terms, you can compare credit
prices from different sources. Under Truth in Lending, the creditor must
tell you–in writing and before you sign any agreement–the finance
charge and the annual percentage rate.

The finance charge is the total dollar amount you pay to use credit. It
includes interest costs, and other costs, such as service charges and
some credit–related insurance premiums.

For example, borrowing $100 for a year might cost you $10 in interest.
If there were also a service charge of $1, the finance charge would be
$11.

The annual percentage rate (APR)is the percentage cost (or relative
cost) of credit on a yearly basis. This is your key to comparing costs,
regardless of the amount of credit or how long you have to repay it:

Again, suppose you borrow $100 for one year and pay a finance charge of
$10. If you can keep the entire $100 for the whole year and then pay
back $110 at the end of the year, you are paying an APR of 10 percent.
But, if you repay the $100 and finance charge (a total of $110) in
twelve equal monthly installments, you don’t really get to use $100 for
the whole year. In fact, you get to use less and less of that $100 each
month. In this case, the $10 charge for credit amounts to an APR of 18
percent.

All creditors–banks, stores, car dealers, credit card companies,
finance companies-must state the cost of their credit in terms of the
finance charge and the APR. Federal law does not set interest rates or
other credit charges. But it does require their disclosure so that you
can compare credit costs. The law says these two pieces of information
must be shown to you before you sign a credit contract or before you use
a credit card.

A Comparison

Even when you understand the terms a creditor is offering, it’s easy to
underestimate the difference in dollars that different terms can make.
Suppose you’re buying a $7,500 car. You put $1,500 down, and need to
borrow $6,000. Compare the three credit arrangements on the next page.

How do these choices stack up? The answer depends partly on what you
need.

The lowest cost loan is available from Creditor A.

If you were looking for lower monthly payments, you could get then by
paying the loan off over a longer period of time. However, you would
have to pay more in total costs. A loan from Creditor B–also at a 14
percent APR, but for four years–will add about $488 to your finance
charge.

If that four-year loan were available only from Creditor C, the APR of
15 percent would add another $145 or so to your finance charges as
compared with Creditor B.

Other terms–such as the size of the down payment–will also make a
difference. Be sure to look at all the terms before you make your
choice.

Cost of Open-end Credit

Open-end credit includes bank and department store credit cards,
gasoline company cards, home equity lines, and check overdraft accounts
that let you write checks for more than your actual balance with the
bank. Open-end credit can be used again and again, generally until you
reach a certain prearranged borrowing limit. Truth in Lending requires
that open-end creditors tell you the terms of the credit plan so that
you can shop and compare the costs involved.

When you’re shopping for an open-end plan, the APR you’re told
represents only the periodic rate that you will be charged–figured on a
yearly basis. (For instance, a creditor that charges 1% percent interest
each month would quote you an APR of 18 percent.) Annual membership
fees, transaction charges, and points, for example, are listed
separately; they are not included in the APR. Keep this in mind and
compare all the costs involved in the plans, not just the APR.

Creditors must tell you when finance charges begin on your account, so
you know how much time you have to pay your bill before a finance charge
is added. Creditors may give you a 25-day grace period, for example, to
pay your balance in full before making you pay a finance charge.

Creditors also must tell you the method they use to figure the balance
on which you pay a finance charge; the interest rate they charge is
applied to this balance to come up with the finance charge. Creditors
use a number of different methods to arrive at the balance. Study them
carefully; they can significantly affect your finance charge.

Some creditors, for instance, take the amount you owed at the beginning
of the billing cycle, and subtract any payments you made during that
cycle. Purchases are not counted. This is called the adjusted balance
method.

Another is the previous balance method. Creditors simply use the amount
owed at the beginning of the billing cycle to come up with the finance
charge.

Under one of the most common methods-the average daily balance
method–creditors add your balances for each day in the billing cycle
and then divide that total by the number of days in the cycle. Payments
made during the cycle are subtracted in arriving at the daily amounts,
and, depending on the plan, new purchases may or may not be included.
Under another method–the two-cycle average daily balance
method–creditors use the average daily balances for two billing cycles
to compute your finance charge. Again, payments will be taken into
account in figuring the balances, but new purchases may or may not be
included.

Be aware that the amount of the finance charge may vary considerably
depending on the method used, even for the same pattern of purchases and
payments.

If you receive a credit card offer or an application, the creditor must
give you information about the APR and other important terms of the plan
at that time. Likewise, with a home equity plan, information must be
given to you with an application.

Truth in Lending does not set the rates or tell the creditor how to
calculate finance charges–it only requires that the creditor tell you
the method that it uses. You should ask for an explanation of any terms
you don’t understand.

Leasing Costs and Terms

Leasing gives you temporary use of property in return for periodic
payments. It has become a popular alternative to buying–under certain
circumstances. For instance, you might consider leasing furniture for an
apartment you’ll use only for a year. The Consumer Leasing law requires
leasing companies to give you the facts about the costs and terms of
their contracts, to help you decide whether leasing is a good idea.

The law applies to personal property leased to you for more than four
months for personal, family, or household use. It covers, for example,
long-term rentals of cars, furniture, and appliances, but not daily car
rentals or leases for apartments.

Before you agree to a lease, the leasing company must give you a written
statement of costs, including the amount of any security deposit, the
amount of your monthly payments, and the amount you must pay for
licensing, registration, taxes, and maintenance.

The company must also give you a written statement about terms,
including any insurance you need, any guarantees, information about whom
is responsible for servicing the property, any standards for its wear
and tear, and whether or not you have an option to buy the property.

Open-end Leases and Balloon Payments

Your costs will depend on whether you choose an open-end lease or a
closed-end lease. Open-end leases usually mean lower monthly payments
than closed-end leases, but you may owe a large extra payment–often
called a balloon payment–based on the value of the property when you
return it.

Suppose you lease a car under a three-year open-end lease. The leasing
company estimates the car will be worth $4,000 after three years of
normal use. If you bring back the car in a condition that makes it worth
only $3,500, you may owe a balloon payment of $500.

The leasing company must tell you whether you may owe a balloon payment
and how it will be calculated. You should also know that:

– you have the right to an independent appraisal of the properties
worth at the end of the lease. You must pay the appraiser’s fee,
however.

– a balloon payment is usually limited to no more than three times
the average monthly payment. If your monthly payment is $ 200, your
balloon payment wouldn’t be more than $600–unless, for example,
the property has received more than average wear and tear (for
instance, if you drove a car more than average mileage).

Closed-end leases usually have higher monthly payment than open-end
leases, but there is no balloon payment at the end of the lease.

Costs of Settlement on a House

A house is probably the single largest credit purchase for most
consumers–and one of the most complicated. The Real Estate Settlement
Procedures Act, like Truth in Lending, is a disclosure law. The Act,
administered by the Department of Housing and Urban Development,
requires the lender to give you, in advance, certain information about
the costs you will pay when you close the loan.

This event is called settlement or closing, and the law helps you shop
for lower settlement costs. To find out more about it, write to:

Deputy Assistant Secretary for Housing Attention:
RESPA Enforcement U.S. Department of Housing and Urban Development
451 Seventh Street, S.W. Room 5241
Washington, D.C. 20410

Should you need to phone:
(202) 708-4560

A Federal Reserve pamphlet, entitled “A Consumer’s Guide to Mortgage
Closing Costs,” also contains useful information for consumers.

APPLYING FOR CREDIT

Discrimination

When you’re ready to apply for credit, you should know what creditors
think is important in deciding whether you’re creditworthy. You should
also know what they cannot legally consider in their decisions.

What Law Applies?

EQUAL CREDIT OPPORTUNITY ACT requires that all credit applicants be
considered on the basis of their actual qualifications for credit and
not be turned away because of certain personal characteristics.

What Creditors Look For

The Three C’s. Creditors look for an ability to repay debt and a
willingness to do so–and sometimes for a little extra security to
protect their loans. They speak of the three C’s of credit-capacity,
character, and collateral.

Capacity. Can you repay the debt? Creditors ask for employment
information: your occupation, how long you’ve worked, and how much you
earn. They also want to know your expenses: how many dependents you
have, whether you pay alimony or child support, and the amount of your
other obligations.

Character. Will you repay the debt? Creditors will look at your credit
history (see chapter on Credit Histories and Records): how much you owe,
how often you borrow, whether you pay bills on time, and whether you
live within your means. They also look for signs of stability: how long
you’ve lived at your present address, whether you own or rent, and
length of your present employment.

Collateral. Is the creditor fully protected if you fail to repay?
Creditors want to know what you may have that could be used to back up
or secure your loan, and what sources you have for repaying debt other
than income, such as savings, investments, or property.

Creditors use different combinations of these facts in reaching their
decisions. Some set unusually high standards and other simply do not
make certain kinds of loans. Creditors also use different kinds of
rating systems. Some rely strictly on their own instinct and experience.
Others use a “credit-scoring” or statistical system to predict whether
you’re a good credit risk. They assign a certain number of points to
each of the various characteristics that have proved to be reliable
signs that a borrower will repay. Then, they rate you on this scale.

And so, different creditors may reach different conclusions based on the
same set of facts. One may find you an acceptable risk, while another
may deny you a loan.

Information the Creditor Can’t Use

The Equal Credit Opportunity Act does not guarantee that you will get
credit. You must still pass the creditor’s tests of creditworthiness.
But the creditor must apply these tests fairly, impartially, and without
discriminating against you on any of the following grounds: age, gender,
marital status, race, color, religion, national origin, because you
receive public income such as veteran’s benefits, welfare or Social
Security, or because you exercise your rights under Federal credit laws
such as filing a billing error notice with a creditor. This means that a
creditor may not use any of those grounds as a reason to:

– discourage you from applying for a loan;

– refuse you a loan if you quality; or

– lend you money on terms different from those granted another person
with similar income, expenses, credit history, and collateral.

Special Rules

Age. In the past, many older persons have complained about being denied
credit just because they were over a certain age. Or when they retired,
they often found their credit suddenly cut off or reduced. So the law is
very specific about how a person’s age may be used in credit decisions.

A creditor may ask your age, but if you’re old enough to sign a binding
contract (usually 18 or 21 years old depending on state law), a creditor
may not:

– turn you down or offer you less credit just because of your age;

– ignore your retirement income in rating your application;

– close your credit account or require you to reapply for it just
because you reach a certain age or retire; or

– deny you credit or close your account because credit life insurance
or other credit-related insurance is not available to persons your
age.

Creditors may “score” your age in a credit scoring system, but:

– if you are 62 or older you must be given at least as many points
for age as any person under 62.

Because individuals’ financial situations can change at different ages,
the law lets creditors consider certain information related to age–such
as how long until you retire or how long your income will continue. An
older applicant might not qualify for a large loan with a 5 percent down
payment on a risky venture, but might qualify for a smaller loan–with a
bigger down payment–secured by good collateral. Remember that while
declining income may be a handicap if you are older, you can usually
offer a solid credit history to your advantage. The creditor has to look
at all the facts and apply the usual standards of creditworthiness to
your particular situation.

Public Assistance. You may not be denied credit just because you receive
Social Security or public assistance (such as Aid to Families with
Dependent Children). But–as is the case with age–certain information
related to this source of income could clearly affect creditworthiness.
So, a creditor may consider such things as:

– how old your dependents are (because you may lose benefits when
they reach a certain age); or

– whether you will continue to meet the residency requirements for
receiving benefits.

This information helps the creditor determine the likelihood that your
public assistance income will continue.

Housing Loans. The Equal Credit Opportunity Act covers your application
for a mortgage or home improvement loan. It bans discrimination because
of such characteristics as your race, color, gender, or because of the
race or national origin of the people in the neighborhood where you live
or want to buy your home. Nor may creditors use any appraisal of the
value of the property that considers the race of the people in the
neighborhood.

In addition, you are entitled to receive a copy of an appraisal report
that you paid for in connection with an application for credit, if a you
make a written request for the report.

Discrimination Against Women

Both men and women are protected from discrimination based on gender or
marital status. But many of the law’s provisions were designed to stop
particular abuses that generally made if difficult for women to get
credit. For example, the idea that single women ignore their debts when
they marry, or that a woman’s income “doesn’t count” because she’ll
leave work to have children, now is unlawful in credit transactions.

The general rule is that you may not be denied credit just because you
are a woman, or just because you are married, single, widowed, divorced,
or separated. Here are some important protections:

Gender and Marital Status. Usually, creditors may not ask your gender on
an application form (one exception is on a loan to buy or build a home).

You do not have to use Miss, Mrs., or Ms. with your name on a credit
application. But, in some cases, a creditor may ask whether you are
married, unmarried, or separated (unmarried includes single, divorced,
and widowed).

Child-bearing Plans. Creditors may not ask about your birth control
practices or whether you plan to have children, and they may not assume
anything about those plans.

Income and Alimony. The creditor must count all of your income, even
income from part-time employment.

Child support and alimony payments are a primary source of income for
many women. You don’t have to disclose these kinds of income, but if you
do, creditors must count them.

Telephones. Creditors may not consider whether you have a telephone
listing in your name because this would discriminate against many
married women. (You may be asked if there’s a telephone in your home.)

A creditor may consider whether income is steady and reliable, so be
prepared to show that you can count on uninterrupted
income–particularly if the source is alimony payments or part-time
wages.

Your Own Accounts. Many married women used to be turned down when they
asked for credit in their own name. Or, a husband had to cosign an
account–agree to pay if the wife didn’t–even when a woman’s own income
could easily repay the loan. Single women couldn’t get loans because
they were thought to be somehow less reliable than other applicants. You
now have a fight to your own credit, based on your own credit records
and earnings. Your own credit means a separate account or loan in your
own name–not a joint account with your husband or a duplicate card on
his account. Here are the rules:

– Creditors may not refuse to open an account just because of your
gender or marital status.

– You can choose to use your first name and maiden name (Mary Smith);
your first name and husband’s last name (Mary Jones); or a combined
last name (Mary Smith-Jones).

– If you’re creditworthy, a creditor may not ask your husband to
cosign your account, with certain exceptions when property rights
are involved.

– Creditors may not ask for information about your husband or
ex-husband when you apply for your own credit based on your own
income–unless that income is alimony, child support, or separate
maintenance payments from your spouse or former spouse.

This last rule, of course, does not apply if your husband is going to
use your account or be responsible for paying your debts on the account,
or if you live in a community property state. (Community property states
are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas,
Washington and Wisconsin.)

Change in Marital Status. Married women have sometimes faced severe
hardships when cut off from credit after their husbands died. Single
women have had accounts closed when they married, and married women have
had accounts closed after a divorce. The law says that creditors may not
make you reapply for credit just because you marry or become widowed or
divorced. Nor may they close your account or change the terms of your
account on these grounds. There must be some sign that your
creditworthiness has changed. For example, creditors may ask you to
reapply if you relied on your ex-husband’s income to get credit in the
first place.

Setting up your own account protects you by giving you your own history
of how you handle debt, to rely on if your financial situation changes
because you are widowed or divorced. If you’re getting married and plan
to take your husband’s surname, write to your creditors and tell them if
you want to keep a separate account.

If You’re Turned Down

Remember, your gender or race may not be used to discourage you from
applying for a loan. And creditors may not hold up or otherwise delay
your application on those grounds. Under the Equal Credit Opportunity
Act, you must be notified within 30 days after your application has been
completed whether your loan has been approved or not. If credit is
denied, this notice must be in writing and it must explain the specific
reasons why you were denied credit or tell you of your right to ask for
an explanation. You have the same rights if an account you have had is
closed.

If you are denied credit, be sure to find out why. Remember, you may
have to ask the creditors for this explanation. It may be that the
creditor thinks you have requested more money than you can repay on your
income. It may be that you have not been employed or lived long enough
in the community. You can discuss terms with the creditor and ways to
improve your creditworthiness. The next chapter explains how to improve
your ability to get credit.

If you think you have been discriminated against, cite the law to the
lender. If the lender still says no without a satisfactory explanation,
you may contact a Federal enforcement agency for assistance or bring
legal action as described in the last chapter of this handbook.

CREDIT HISTORIES AND RECORDS

Building Up a Good Record

On your first attempt to get credit, you may face a common frustration:
sometimes it seems you have to already have credit to get credit. Some
creditors will look only at your salary and job and the other financial
information you put on your application. But most also want to know
about your track record in handling credit–how reliably you’ve repaid
past debts. They turn to the records kept by credit bureaus or credit
reporting agencies whose business is to collect and store information
about borrowers that is routinely supplied by many lenders. These
records include the amount of credit you have received and how
faithfully you’ve paid it back.

Here are several ways you can begin to build up a good credit history:

– Open a checking account or a savings account, or both. These do not
begin your credit file, but may be checked as evidence that you
have money and know how to manage it. Cancelled checks can be used
to show you pay utility bills or rent regularly, a sign of
reliability.

– Apply for a department store credit card. Repaying credit card
bills on time are a plus in credit histories.

– Ask whether you may deposit funds with a financial institution to
serve as collateral for a credit card; some institutions will issue
a credit card with a credit limit usually no greater than the
amount on deposit.

– If you’re new in town, write for a summary of any credit record
kept by a credit bureau in your former town. (Ask the bank or
department store in your old hometown for the name of the agency it
reports to.)

– If you don’t qualify on the basis of your own credit standing,
offer to have someone cosign your application.

– If you’re turned down, find out why and try to clear up any
misunderstandings.

What Laws Apply?

The following laws can help you start your credit history and keep your
record accurate:

THE EQUAL CREDIT OPPORTUNITY ACT gives women a way to start their own
credit history and identity.

THE FAIR CREDIT REPORTING ACT sets up a procedure for correcting
mistakes on your credit record.

Credit Histories for Women

Under the Equal Credit Opportunity Act, reports to credit bureaus must
be made in the names of both husband and wife if both use an account or
are responsible for repaying the debt. Some women who are divorced or
widowed might not have separate credit histories because in the past
credit accounts were listed in their husband’s name only. But they can
still benefit from this record. Under the Equal Credit Opportunity Act,
creditors must consider the credit history of accounts women have held
jointly with their husbands. Creditors must also look at the record of
any account held only in the husband’s name if a woman can show it also
reflects her own creditworthiness. If the record is unfavorable–if an
ex-husband was a bad credit risk–she can try to show that the record
does not reflect her own reputation. Remember that a wife may also open
her own account to be sure of starting her own credit history.

Here’s an example:

Mary Jones, when married to John Jones, always paid their credit card
bills on time and from their joint checking account. But the card was
issued in John’s name, and the credit bureau kept all records in John’s
name. Now Mary is a widow and wants to take out a new card, but she’s
told she has no credit history. To benefit from the good credit record
already on the books in John’s name, Mary should point out that she
handled all accounts properly when she was married and those bills were
paid by checks from their joint checking account.

Keeping Up Credit Records

Mistakes on your credit record–sometimes mistaken identities–can cloud
your credit future. Your credit rating is important, so be sure credit
bureau records are complete and accurate.

The Fair Credit Reporting Act says that you must be told what’s in your
credit file and have any errors corrected.

Negative Information. If a lender refuses you credit because of
unfavorable information in your credit report, you have a right to the
name and address of the agency that keeps your report. Then, you may
either request information from the credit bureau by mail or in person.
You will not get an exact copy of the file, but you will at least learn
what’s in the report. The law also says that the credit bureau must help
you interpret the data–because it’s raw data that takes experience to
analyze. If you’re questioning a credit refusal made within the past 30
days, the bureau is not allowed to charge a fee for giving you
information.

Any error that you find must be investigated by the credit bureau with
the creditor who supplied the data. The bureau will remove from your
credit files any errors the creditor admits are there. If you disagree
with the findings, you can file a short statement in your record giving
your side of the story. Future reports to creditors must include this
statement or a summary of it.

Old Information. Sometimes credit information is too old to give a good
picture of your financial reputation. There is a limit on how long
certain kinds of information may be kept in your file:

– Bankruptcies must be taken off your credit history after 10 years.

– Suits and judgments, tax liens, arrest records, and most other
kinds of unfavorable information must be dropped after 7 years.

Your credit record may not be given to anyone who does not have a
legitimate business need for it. Stores to which you are applying for
credit or prospective employers may examine your record; curious
neighbors may not.

Billing Mistakes. In the next chapter, you will find the steps to take
if there’s an error on your bill. By following these steps, you can
protect your credit rating.

OTHER ASPECTS OF USING CREDIT

The best way to keep up your credit standing is to repay all debts on
time. But there may be complications. To protect your credit rating, you
should learn how to correct mistakes and misunderstandings that can
tangle up your credit accounts.

When there’s a snag, first try to deal directly with the creditor. The
credit laws can help you settle your complaints without a hassle.

What Laws Apply?

FAIR CREDIT BILLING ACT sets up procedures requiring creditors to
promptly correct billing mistakes; allowing you to withhold payments on
defective goods; and requiring creditors to promptly credit your
payments.

IN LENDING gives you three days to change your mind about certain credit
transactions that use your home as collateral; it also limits your risk
on lost or stolen credit cards.

Billing Errors

Month after month John Jones was billed for a lawn mower he never
ordered and never got. Finally, he tore up his bill and mailed back the
pieces–just to try to explain things to a person instead of a computer.

There’s a more effective, easier way to straighten out these errors. The
Fair Credit Billing Act requires creditors to correct errors promptly
and without damage to your credit rating.

A Case of Error. The law defines a billing error as any charge:

– for something you didn’t buy or for a purchase made by someone not
authorized to use your account;

– that is not properly identified on your bill or is for an amount
different from the actual purchase price or was entered on a date
different from the purchase date; or

– for something that you did not accept on delivery or that was not
delivered according to agreement.

Billing errors also include:

– errors in arithmetic;

– failure to show a payment or other credit to your account;

– failure to mail the bill to your current address, if you told the
creditor about an address change at least 20 days before the end of
the billing period; or

– a questionable item, or an item for which you need more
information.

In Case of Error: If you think your bill is wrong, or want more
information about it, follow these steps:

1. Notify the creditor in writing within 60 days after the first bill
was mailed that showed the error. Be sure to write to the address
the creditor lists for billing inquiries and to tell the creditor:

– your name and account number;

– that you believe the bill contains an error and why you
believe it is wrong; and

– the date and suspected amount of the error or the item you
want explained.

2. Pay all parts of the bill that are not in dispute. But, while
waiting for an answer, you do not have to pay the amount in
question (the “disputed amount”) or any minimum payments or finance
charges that apply to it.

The creditor must acknowledge your letter within 30 days, unless
the problem can be resolved within that time. Within two billing
periods–but in no case longer than 90 days–either your account
must be corrected or you must be told why the creditor believes the
bill is correct.

If the creditor made a mistake, you do not pay any finance charges
on the disputed amount. Your account must be corrected, and you
must be sent an explanation of any amount you still owe.

If no error is found, the creditor must send you an explanation of
the reasons for that finding and promptly send a statement of what
you owe, which may include any finance charges that have
accumulated and any minimum payments you missed while you were
questioning the bill. You then have the time usually given on your
type of account to pay any balance, but not less that 10 days.

3. If you still are not satisfied, you should notify the creditor in
writing within the time allowed to pay your bill.

Maintaining Your Credit Rating. A creditor may not threaten your
credit rating while you’re resolving a billing dispute.

Once you have written about a possible error, a creditor must not
give out information to other creditors or credit bureaus that
would hurt your credit reputation. And, until your complaint is
answered, the creditor also may not take any action to collect the
disputed amount.

After the creditor has explained the bill, if you do not pay in the
time allowed, you may be reported as delinquent on the amount in
dispute and the creditor may take action to collect. Even so, you
can still disagree in writing. Then the creditor must report that
you have challenged your bill and give you the name and address of
each person who has received information about your account. When
the matter is settled, the creditor must report the outcome to each
person who has received information. Remember that you may also
place your own side of the story in your credit record.

Defective Goods or Services

Your new sofa arrives with only three legs. You try to return it; no
luck. You ask the merchant to repair or replace it; still no luck. The
Fair Credit Billing Act allows you to withhold payment on any damaged or
poor quality goods or services purchased with a credit card, as long as
you have made a real attempt to solve the problem with the merchant.

This right may be limited if the card was a bank or travel and
entertainment card or any card not issued by the store where you made
your purchase. In such cases, the sale:

– must have been for more than $50; and

– must have taken place in your home state or within 100 miles of
your home address.

Prompt Credit for Payments and Refunds for Credit Balances

Some creditors will not charge a finance charge if you pay your account
within a certain period of time. In this case, it is especially
important that you get your bills, and get credit for paying them,
promptly. Check your statements to make sure your creditor follows these
rules:

Billing. Look at the date on the postmark. If your account is one on
which no finance or other charge is added before a certain due date,
then creditors must mail their statements at least 14 days before
payment is due.

Crediting. Look at the payment date entered on the statement. Creditors
must credit payments on the day they arrive, as long as you pay
according to payment instructions. This means, for example, sending your
payment to the address listed on the bill.

Credit Balances. If a credit balance results on your account (for
example, because you pay more than the amount you owe, or you return a
purchase and the purchase price is credited to your account), the
creditor must make a refund to you. The refund must be made within seven
business days after your written request, or automatically if the credit
balance is still in existence after six months.

Canceling a Mortgage

Truth in Lending gives you a chance to change your mind on one important
kind of transaction–when you use your home as security for a credit
transaction. For example, when you are financing a major repair or
remodeling and use your home as security, you have three business days,
usually after you sign a contract, to think about the transaction and to
cancel it if you wish. The creditor must give you written notice of your
right to cancel, and, if you decide to cancel, you must notify the
creditor in writing within the three-day period. The creditor must then
return all fees paid and cancel the security interest in your home. No
contractor may start work on your home, and no lender may pay you or the
contractor until the three days are up. If you must have the credit
immediately to meet a financial emergency, you may give up your right to
cancel by providing a written explanation of the circumstances.

The right to cancel (or right of rescission) was provided to protect you
against hasty decisions–or decisions made under pressure–that might
put your home at risk if you are unable to repay the loan. The law does
not apply to a mortgage to finance the purchase of your home; for that,
you commit yourself as soon as you sign the mortgage contract. And, if
you use your home to secure an open-end credit line–a home equity line,
for instance–you have the right the cancel when you open the account or
when your security interest or credit limit is increased. (In the case
of an increase, only the increase would be cancelled.)

Lost or Stolen Credit Cards

If your wallet is stolen, your greatest cost may be inconvenience,
because your liability on lost or stolen cards is limited under Truth in
Lending.

You do not have to pay for any unauthorized charges made after you
notify the card company of loss or theft of your card. So keep a list of
your credit card numbers and notify card issuers immediately if your
card is lost or stolen. The most you will have to pay for unauthorized
charges is $50 on each card–even if someone runs up several hundred
dollars worth of charges before you report a card missing.

Unsolicited Cards

It is illegal for card issuers to send you a credit card unless you ask
for or agree to receive one. However, a card issuer may send, without
your request, a new card to replace an expiring one.

ELECTRONIC FUND TRANSFERS

Instant Money

On his way home last Friday night, John Jones realized he had no cash
for the weekend. The bank was closed, but John had his bank debit card
and the code to use it. He inserted the card into an automated teller
machine outside the front door of the bank; then, using a number
keyboard, he entered his code and pressed the buttons for a withdrawal
of $50. John’s cash was dispensed automatically from the machine, and
his bank account was electronically debited for the $50 cash withdrawal.

John’s debit card is just one way to use electronic fund transfer (EFT)
systems that allow payment between parties by substituting an electronic
signal for cash or checks.

Are we heading for a check less society? Probably not. But a dent in the
number of paper checks in the country’s banking system–or a reduction
in the rate at which that number has been growing–is clearly one
advantage to electronic banking.

Today, the cost of moving checks through the banking system is estimated
to be approximately 80 cents per check, including the costs of paper,
printing and mailing. Moreover, checks–except your own check presented
at your own bank–take time to cash: time for delivery, endorsement,
presentation to another person’s bank, and winding through various
stations in the check clearing system. Technology now can lower the
costs of the payment mechanism and make it more efficient and convenient
by reducing paperwork.

EFT in Operation

The national payment mechanism moves money between accounts in a fast,
paperless way. These are some examples of EFT systems in operation:

Teller Machines (ATMs). Consumers can do their banking without the
assistance of a teller, as john Jones did to get cash, or to make
deposits, pay bills, or transfer funds from one account to another
electronically. These machines are used with a debit or EFT card and a
code, which is often called a personal identification number or “PIN.”

(POS) Transactions. Some EFT cards can be used when shopping to allow
the transfer of funds from the consumer’s account to the merchant’s. To
pay for a purchase, the consumer presents an EFT card instead of a check
or cash. Money is taken out of the consumer’s account and put into the
merchant’s account electronically.

Preauthorized Transfers. This is a method of automatically depositing to
or withdrawing funds from an individual’s account, when the account
holder authorizes the bank or a third party (such as an employer) to do
so. For example, consumers can authorize direct electronic deposit of
wages, Social Security or dividend payments to their accounts. Or, they
can authorize financial institutions to make regular, ongoing payments
of insurance, mortgage, utility or other bills.

Telephone Transfers. Consumers can transfer funds from one account to
another–from savings to checking, for example–or can order payment of
specific bills by phone.

What Law Applies?

THE ELECTRONIC FUND TRANSFER ACT gives consumers answers to several
basic questions about using EFT services.

A check is a piece of paper with information that authorizes a bank to
withdraw a certain amount of money from one person’s account and pay
that amount to another person. Most consumer questions center on the
fact that EFT systems transmit the information without the paper. Thus,
they ask:

– What record–what evidence–will I have of my transactions?

– How easily will I be able to correct errors?

– What if someone steals money from my account?

– What about solicitations?

– Do I have to use EFT services?

Here are the answers the EFT Act gives to consumer questions about these
systems.

What Record Will I Have of My Transactions?

A cancelled check is permanent proof that a payment has been made. Is
proof of payment available with EFT services?

The answer is yes. If you use an ATM to withdraw money or make deposits,
or a point-of-sale terminal to pay for a purchase, you can get a written
receipt–much like the sales receipt you get with a cash
purchase–showing the amount of the transfer, the date it was made, and
other information. This receipt is your record of transfers initiated at
an electronic terminal.

Your periodic bank statement must also show all electronic transfers to
and from your account, including those made with debit cards, by a
preauthorized arrangement, or under a telephone transfer plan. It will
also name the party to whom payment has been made and show any fees for
EFT services (or the total amount charged for account maintenance) and
your opening and closing balances.

Your monthly statement is proof of payment to another person, your
record for tax or other purposes, and your way of checking and
reconciling EFT transactions with your bank balance.

How Easily Will I Be Able to Correct Errors?

The way to report errors is somewhat different with EFT services than it
is with credit cards (see page 22 for correcting credit billing errors).
But, as with credit cards, financial institutions must investigate and
correct promptly any EFT errors you report.

If you believe there has been an error in an electronic fund transfer
relating to your account:

1. Write or call your financial institution immediately if possible,
but no later than 60 days from the date the first statement that
you think shows an error was mailed to you. Give your name and
account number and explain why you believe there is an error, what
kind of error, and the dollar amount and date in question. If you
call, you may be asked to send this information in writing within
10 business days.

2. The financial institution must promptly investigate an error and
resolve it within 45 days. However, if the financial institution
takes longer than 10 business days to complete its investigation,
generally it must put back into your account the amount in question
while it finishes the investigation. (The time periods are longer
for POS debit card transactions and for any EFT transaction
initiated outside the United States.) In the meantime, you will
have full use of the funds in question.

3. The financial institution must notify you of the results of its
investigation. If there was an error, the institution must correct
it promptly–for example, by making a recredit final.

If it finds no error, the financial institution must explain in
writing why it believes no error occurred and let you know that it
has deducted any amount recredited during the investigation. You
may ask for copies of documents relied on in the investigation.

What About Loss or Theft?

It’s important to be aware of the potential risk in using an EFT card,
which differs from the risk on a credit card.

On lost or stolen credit cards, your loss is limited to $50 per card
(see page 25). On an EFT card, your liability for an unauthorized
withdrawal can vary:

– Your loss is limited to $50 if you notify the financial institution
within two business days after learning of loss or theft of your
card or code.

– But, you could lose as much as $500 if you do not tell the card
issuer within two business days after learning of the loss or
theft.

– If you do not report an unauthorized transfer that appears on your
statement within 60 days after the statement is mailed to you, you
risk unlimited loss on transfers made after the 60-day period. That
means you could lose all the money in your account plus your
maximum overdraft line of credit.

Example:

On Monday, john’s debit card and secret code were stolen. On Tuesday,
the thief withdrew $250, all the money John had in his checking account.
Five days later, the thief withdrew another $500, triggering John’s
overdraft line of credit. John did not realize his card was stolen until
he received a statement from the bank, showing withdrawals of $750 he
did not make. He called the bank right away. John’s liability is $50.

Now suppose that when john got his bank statement he didn’t look at it
and didn’t call the bank. Seventy days after the statement was mailed to
john, the thief withdrew another $1,000, reaching the limit on John’s
line of credit. In this case, John would be liable for $1,050 ($50 for
transfers before the end of the 60 days; $1,000 for transfers made more
than 60 days after the statement was mailed).

What About Solicitations?

A financial institution may send you an EFT card that is VALID FOR USE
only if you ask for one, or to replace or renew an expiring card. The
financial institution must also give you the following information about
your rights and responsibilities:

– A notice of your liability in case the card is lost or stolen;

– A telephone number for reporting loss or theft of the card or an
unauthorized transfer;

– A description of its error resolution procedures;

– The kinds of electronic fund transfers you may make and any limits
on the frequency or dollar amounts of such transfers;

– Any charge by the institution for using EFT services;

– Your right to receive records of electronic fund transfers;

– How to stop payment of a preauthorized transfer;

– The financial institution’s liability to you for any failure to
make or to stop transfers; and

– The conditions under which a financial institution will give
information to third parties about your account.

Generally, you must also get advance notice of any change in the account
that would increase your costs or liability, or limit transfers.

A financial institution may send you a card you did not request only if
the card is NOT VALID FOR USE. An “unsolicited” card can be validated
only at your request and only after the institution makes sure that you
are the person whose name is on the card. It must also be sent with
instructions on how to dispose of an unwanted card.

Do I Have to Use EFT?

The EFT Act forbids a creditor from requiring you to repay a loan or
other credit by EFT, except in the case of overdraft checking plans.
And, although your employer or a government agency can require you to
receive your salary or a government benefit by electronic transfer, you
have the right to choose the financial institution that will receive
your funds.

Special Questions About Preauthorized Plans

Q. How will I know a preauthorized credit has been made?

A. There are various ways you may be notified. Notice may be given
by your employer (or whoever is sending the funds) that the
deposit has been sent to your financial institution. Otherwise,
a financial institution may provide notice when it has received
the credit or will send you a notice only when it has not
received the funds. Financial institutions also have the option
of giving you a telephone number you can call to check on a
preauthorized credit.

Q. How do I stop a preauthorized payment?

A. You may stop any preauthorized payment by calling or writing the
financial institution, so that your order is received at least
three business days before the payment date. Written
confirmation of a telephone notice to stop payment may be
required.

Q. If the payments I preauthorize vary in amount from month to
month, how will I know how much will be transferred out of my
account?

A. You have the right to be notified of all varying payments at
least 10 days in advance.

Or, you may choose to specify a range of amounts and to be
told only when a transfer falls outside that range. You may
also choose to be told only when a transfer differs by a
certain amount from the previous payment to the same company.

Q. Do the EFT Act protections apply to all preauthorized plans?

A. No. They do not apply to automatic transfers from your account
to the institution that holds your account or vice versa. For
example, they do not apply to automatic payments made on a
mortgage held by the financial institution where you have your
EFT account. The EFT Act also does not apply to automatic
transfers among your accounts at one financial institution.

COMPLAINING ABOUT CREDIT

Complaining to Federal Enforcement Agencies

First try to solve your problem directly with a creditor. Only if that
fails should you bring more formal complaint procedures. Here’s the way
to file a complaint with the Federal agencies responsible for carrying
out consumer credit protection laws.

Complaints About Banks. If you have a complaint about a bank in
connection with any of the Federal credit laws–or if you think any part
of your business with a bank has been handled in an unfair or deceptive
way–you may get advice and help from the Federal Reserve. The practice
you complain about does not have to be covered by Federal law.
Furthermore, you don’t have to be a customer of the bank to file a
complaint.

You should submit your complaint–in writing whenever possible–to the
Division of Consumer and Community Affairs, Board of Governors of the
Federal Reserve System, Washington, D.C. 20551, or to the Reserve Bank
nearest you, as listed on page 43 of this handbook. Be sure to describe
the bank practice you are complaining about and give the name and
address of the bank involved.

The Federal Reserve will write back within 15 days–sometimes with an
answer, sometimes telling you that more time is needed to handle your
complaint. The additional time is required when complex issues are
involved or when the complaint will be investigated by a Federal Reserve
Bank. When this is the case, the Federal Reserve will try to keep you
informed about the progress being made.

The Board supervises only state–chartered banks that are members of the
Federal Reserve System. It will refer complaints about other
institutions to the appropriate Federal regulatory agency and let you
know where your complaint has been referred. Or you may use the listing
on page 42 of this booklet to write directly to the appropriate agency.

Complaints About Other Institutions. On page 42 of this booklet, you
will also find the names of the regulatory agencies for other financial
institutions and for businesses other than banks. Many of these agencies
do not handle individual complaints; however, they will use information
about your credit experiences to help enforce the credit laws.

Penalties Under the Laws

You may also take legal action against a creditor. If you decide to
bring a lawsuit; here are the penalties a creditor must pay if you win.

Truth in Lending and Consumer Leasing Acts. If any creditor fails to
disclose information required under these Acts, or gives inaccurate
information, or does not comply with the rules about credit cards or the
right to cancel certain home–secured loans, you as an individual may
sue for actual damages–any money loss you suffer. In addition, you can
sue for twice the finance charge in the case of certain credit
disclosures, or, if a lease is concerned, 25 percent of total monthly
payments. In either case, the least the court may award you if you win
is $100, and the most is $1,000. In any lawsuit that you win, you are
entitled to reimbursement for court costs and attorney’s fees.

Class action suits are also permitted. A class action suit is one filed
on behalf of a group of people with similar claims.

Equal Credit Opportunity Act. If you think you can prove that a creditor
has discriminated against you for any reason prohibited by the Act, you
as an individual may sue for actual damages plus punitive damages–that
is, damages for the fact that the law has been violated–of up to
$10,000. In a successful lawsuit, the court will award you court costs
and a reasonable amount for attorney’s fees. Class action suits are also
permitted.

Fair Credit Billing Act. A creditor who breaks the rules for the
correction of billing errors automatically loses the amount owed on the
item in question and any finance charges on it, up to a combined total
of $50–even if the bill was correct. You as an individual may also sue
for actual damages plus twice the amount of any finance charges, but in
any case not less than $100 or more than $1,000. You are also entitled
to court costs and attorney’s fees in a successful lawsuit. Class action
suits are also permitted.

Fair Credit Reporting Act. You may sue any credit reporting agency or
creditor for breaking the rules about who may see your credit records or
for not correcting errors in your file. Again, you are entitled to
actual damages, plus punitive damages that the court may allow if the
violation is proved to have been intentional. In any successful lawsuit,
you will also be awarded court costs and attorney’s fees. A person who
obtains a credit report without proper authorization–or an employee of
a credit reporting agency who gives a credit report to unauthorized
persons–may be fined up to $5,000 or imprisoned for one year, or both.

Electronic Fund Transfer Act. If a financial institution does not follow
the provisions of the EFT Act, you may sue for actual damages (or in
certain cases when the institution fails to correct an error or recredit
an account, for three times actual damages) plus punitive damages of not
less than $100 or more than $1,000. You are also entitled to court
costs and attorney’s fees in a successful lawsuit. Class action suits
are also permitted.

If an institution fails to make an electronic fund transfer, or to stop
payment of a preauthorized transfer when properly instructed by you to
do so; you may sue for all damages that result from the failure.

Glossary

Annual Percentage Rate (APR) — The cost of credit as a yearly rate.

Appraisal Fee — The charge for estimating the value of property offered
as security.

Asset — Property that can be used to repay debt, such as stocks and
bonds or a car.

Automated Teller Machines (ATMs) — Electronic terminals located on bank
premises or elsewhere, through which customers of financial institutions
may make deposits, withdrawals, or other transactions as they would
through a bank teller.

Balloon Payment — A large extra payment that may be charged at the end
of a loan or lease.

Billing Error — Any mistake in your monthly statement as defined by the
Fair Credit Billing Act.

Business Days — Check with your institution to find out what days it
counts as business days under the Truth in Lending and Electronic Fund
Transfer Acts.

Collateral — Property offered to support a loan and subject to seizure
if you default.

Cosigner — Another person who signs your loan and assumes equal
responsibility for it.

Credit — The right granted by a creditor to pay in the future in order
to buy or borrow in the present; a sum of money due a person or
business.

Credit Bureau — An agency that keeps your credit record.

Credit Card — Any card, plate, or coupon book used from time to time or
over and over again to borrow money or buy goods or services on credit.

Credit History — The record of how you’ve borrowed and repaid debts.

Creditor — A person or business from whom you borrow or to whom you owe
money.

Credit-related Insurance — Health, life, or accident insurance designed
to pay the outstanding balance of debt.

Credit Scoring System — A statistical system used to rate credit
applicants according to various characteristics relevant to
creditworthiness.

Creditworthiness — Past and future ability to repay debts.

Debit Card (EFT Card) — A plastic card, looks similar to a credit card,
that consumers may use to make purchases, withdrawals, or other types of
electronic fund transfers.

Default — Failure to repay a loan or otherwise meet the terms of your
credit agreement.

Disclosures — Information that must be given to consumers about their
financial dealings.

Elderly Applicant — As defined in the Equal Credit Opportunity Act, a
person 62 or older.

Electronic Fund Transfer (EFT) Systems — A variety of systems and
technologies for transferring funds electronically rather than by check.

Finance Charge — The total dollar amount credit will cost.

Home Equity Line of Credit — A form of open-end credit in which the home
serves as collateral.

Joint Account — A credit account held by two or more people so that all
can use the account and all assume legal responsibility to repay.

Late Payment — A payment made later than agreed upon in a credit
contract and on which additional charges may be imposed.

Lessee — A person who signs a lease to get temporary use of property.

Lessor — A company that provides temporary use of property usually in
return for periodic payment.

Liability on an Account — Legal responsibility to repay debt.

Open-End Credit — A line of credit that may be used over and over
again, including credit cards, overdraft credit accounts, and home
equity lines.

Open-End Lease — A lease which may involve a balloon payment based on
the value of the property when it is returned.

Overdraft Checking — A line of credit that allows you to write checks
or draw funds by means of an EFT card for more than your actual balance,
with an interest charge on the overdraft.

Point-of-Sale (POS) — A method by which consumers can pay for purchases
by having their deposit accounts debited electronically without the use
of checks.

Points and Origination Fees — Points are finance charges paid at the
beginning of a mortgage in addition to monthly interest. One point
equals one percent of the loan amount. An origination fee covers the
lender’s work in preparing your mortgage loan.

Punitive Damages — Damages awarded by a court above actual damages as
punishment for a violation of law.

Rescission — The cancellation or “unwinding” of a contract.

Security — Property pledged to the creditor in case of a default on a
loan; see collateral.

Security Interest — The creditor’s right to take property or a portion
of property offered as security.

Service Charge — A component of some finance charges, such as the fee
for triggering an overdraft checking account into use.

Subject Index

Age
APR
Balloon Payment
Cancellation (Rescission)
Complaints
Credit Applications
Credit Bureaus
Credit Cards
Billing Errors
Liability for Loss or Theft
Credit Laws
Consumer Leasing
Electronic Fund Transfers
Equal Credit Opportunity
Fair Credit Billing
Fair Credit Reporting
Truth in Lending
Credit Records
Confidentiality
Correcting Errors
Women
Credit Records
Time Limits on Information
Credit Scoring
Crediting of Payments
Creditworthiness
Debit Cards
Defective Merchandise
Denials of Credit
Discrimination
Division of Consumer and Community Affairs
EFT
Errors on Account
Liability for Loss or Theft
Preauthorized Transfers
Record of Transaction
Enforcement Agencies
Finance Charge
Housing Loans
Leasing
Open-end Credit
Penalties
Point-of-Sale
Public Assistance
Reserve Banks
Settlement Costs
Women
Alimony and Support Payments
Change in Marital Status
Cosigners
Credit Histories
Information About Spouse
Separate Accounts

Directory of Federal Agencies

National Banks
Compliance Management
Office of the Comptroller of the Currency
250 E Street, S.W.
Mail Stop 7-5
Washington, D.C. 20219
(202) 874-4820

State Member Banks of the Federal Reserve System
Division of Consumer and Community Affairs
Federal Reserve Board
Washington, D.C. 20551
(202) 452-3693

Nonmember Federally Insured State Banks
Office of Consumer Programs
Federal Deposit Insurance Corp.
Washington, D.C. 20456
(202) 898-3536 or (800) 934-FDIC

Savings and Loan Associations
Division of Consumer and Civil Rights
Office of Community Investment
Office of Thrift Supervision
1700 G Street, N.W.
Washington, D.C. 20552
(202) 906-6237

Federal Credit Unions
Office of Public and Congressional Affairs
Office of Consumer Programs
National Credit Union Administration
1776 G Street, N.W.
Washington, D.C. 20456
(202) 682-9640

Other Lenders
Division of Credit Practices
Bureau of Consumer Protection
Federal Trade Commission
Washington, D.C. 20580
(202) 326-3233

Department of Justice
Civil Division
Office of Consumer Litigation
550 11th St., N.W.
The Todd Building
Room No. 6114
Washington, D.C. 20530
(202) 514-6786

Federal Reserve Banks

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Publication Services MS-138
Washington, DC 20551
(202) 452-3000

ATLANTA, Georgia
Public Affairs Department
104 Marietta Street, N.W.
ZIP 30303-2713
(404) 521-8500

BOSTON, Massachusetts
Public Services Department
P.O. Box 2076
ZIP 02106-2076
(617) 973-3000

CHICAGO, Illinois
Public Information Center
230 South LaSalle Street
P.O. Box 834
ZIP 60690-0834
(312) 322-5322

CLEVELAND, Ohio
Public Affairs Department
P.O. Box 6387
ZIP 44101-1387
(216) 579-2000

DALLAS, Texas
Public Affairs Department
2200 North Pearl Street
Zip 75201
(214) 922-6000

KANSAS CITY, Missouri
Public Affairs Department
925 Grand Avenue
ZIP 64198-0001
(816) 881-2000

MINNEAPOLIS, Minnesota
Public Affairs Department
250 Marquette Avenue
ZIP 55401-0291
(612) 340-2345

NEW YORK, New York
Public Information Department
33 Liberty Street
ZIP 10045
(212) 720-5000

PHILADELPHIA, Pennsylvania
Public Information Department
P.O. Box 66
ZIP 19105
(215) 574-6000

RICHMOND, Virginia
Public Services Department
P.O. Box 27622
ZIP 23261
(804) 697-8000

ST. LOUIS, Missouri
Public Information Office
P.O. Box 442
ZIP 63166
(314) 444-8444

SAN FRANCISCO, California
Public Information Department
P.O. Box 7702
ZIP 94120
(415) 974-2000

Other Consumer Pamphlets Available

Consumer Handbook of Adjustable Rate Mortgages

A Consumer’s Guide to Mortgage Closing Costs

A Consumer’s Guide to Mortgage Lock-Ins

A Consumer’s Guide to Mortgage Refinancing

A Guide to Business Credit for Women, Minorities, and Small Businesses

Home Mortgages: Understanding the Process and Your Right to Fair Lending

A Guide to Federal Reserve Regulations

How To File a Consumer Credit Complaint

Making Deposits: When Will Your Money Be Available?

When Your Home is on the Line: What You Should Know About Home
Equity Lines of Credit

Copies of this handbook and other consumer pamphlets are available upon
request from Publications Services, Division of Support Services, Board
of Governors of the Federal Reserve System, Washington, D.C. 20551

SEC. 2451. REGULATION OF CREDIT REPAIR ORGANIZATIONS. .(1)

Title IV of the Consumer Credit Protection Act (Public Law 90-321, 82 Stat. 164) is amended to read as follows:

TITLE IV–CREDIT REPAIR ORGANIZATIONS”
Sec.
401. Short title.
402. Findings and purposes.
403. Definitions.
404. Prohibited practices.
405. Disclosures.
406. Credit repair organizations contracts.
407. Right to cancel contract.
408. Noncompliance with this title.
409. Civil liability.
410. Administrative enforcement.
411. Statute of limitations.
412. Relation to State law.
413. Effective date.

SEC. 401. SHORT TITLE.

This title may be cited as the ‘Credit Repair Organizations Act’.

SEC. 402. FINDINGS AND PURPOSES.(2)

(a) Findings.–The Congress makes the following findings:
(1) Consumers have a vital interest in establishing and maintaining their credit worthiness and credit standing in order to obtain and use credit. As a result, consumers who have experienced credit problems may seek assistance from credit repair organizations which offer to improve the credit standing of such consumers.
(2) Certain advertising and business practices of some companies engaged in the business of credit repair services have worked a financial hardship upon consumers, particularly those of limited economic means and who are inexperienced in credit matters.
(b) Purposes.–The purposes of this title are–
(1) to ensure that prospective buyers of the services of credit repair organizations are provided with the information necessary to make an informed decision regarding the purchase of such services; and
(2) to protect the public from unfair or deceptive advertising and business practices by credit repair organizations.

SEC. 403. DEFINITIONS.(3)

For purposes of this title, the following definitions apply:
(1) Consumer. — The term ‘consumer’ means an individual.
(2) Consumer credit transaction. — The term ‘consumer credit transaction’ means any transaction in which credit is offered or extended to an individual for personal, family, or household purposes.
(3) Credit repair organization. — The term ‘credit repair organization’–
(A) means any person who uses any instrumentality of interstate commerce or the mails to sell, provide, or perform (or represent that such person can or will sell, provide, or perform) any service, in return for the payment of money or other valuable consideration, for the express or implied purpose of–
(i) improving any consumer’s credit record, credit history, or credit rating; or
(ii) providing advice or assistance to any consumer with regard to any activity or service described in clause (i); and
(B) does not include–
(i) any nonprofit organization which is exempt from taxation under section 501(c)(3) of the Internal Revenue Code of 1986;
(ii) any creditor (as defined in section 103 of the Truth in Lending Act),(4) with respect to any consumer, to the extent the creditor is assisting the consumer to restructure any debt owed by the consumer to the creditor; or
(iii) any depository institution (as that term is defined in section 3 of the Federal Deposit Insurance Act) or any Federal or State credit union (as those terms are defined in section 101 of the Federal Credit Union Act), or any affiliate or subsidiary of such a depository institution or credit union.
(4) Credit.–The term ‘credit’ has the meaning given to such term in section 103(e) of this Act.(5)

SEC. 404. PROHIBITED PRACTICES.(6)

(a) In General.–No person may–
(1) make any statement, or counsel or advise any consumer to make any statement, which is untrue or misleading (or which, upon the exercise of reasonable care, should be known by the credit repair organization, officer, employee, agent, or other person to be untrue or misleading) with respect to any consumer’s credit worthiness, credit standing, or credit capacity to–
(A) any consumer reporting agency (as defined in section 603(f) of this Act);(7) or
(B) any person–
(i) who has extended credit to the consumer; or
(ii) to whom the consumer has applied or is applying for an extension of credit;
(2) make any statement, or counsel or advise any consumer to make any statement, the intended effect of which is to alter the consumer’s identification to prevent the display of the consumer’s credit record, history, or rating for the purpose of concealing adverse information that is accurate and not obsolete to–
(A) any consumer reporting agency;
(B) any person–
(i) who has extended credit to the consumer; or
(ii) to whom the consumer has applied or is applying for an extension of credit;
(3) make or use any untrue or misleading representation of the services of the credit repair organization; or
(4) engage, directly or indirectly, in any act, practice, or course of business that constitutes or results in the commission of, or an attempt to commit, a fraud or deception on any person in connection with the offer or sale of the services of the credit repair organization.
(b) Payment in Advance.–No credit repair organization may charge or receive any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully performed.

SEC. 405. DISCLOSURES.(8)

(a) Disclosure Required.–Any credit repair organization shall provide any consumer with the following written statement before any contract or agreement between the consumer and the credit repair organization is executed:
‘Consumer Credit File Rights Under State and Federal Law
You have a right to dispute inaccurate information in your credit report by contacting the credit bureau directly. However, neither you nor any ”credit repair” company or credit repair organization has the right to have accurate, current, and verifiable information removed from your credit report. The credit bureau must remove accurate, negative information from your report only if it is over 7 years old. Bankruptcy information can be reported for 10 years.
You have a right to obtain a copy of your credit report from a credit bureau. You may be charged a reasonable fee. There is no fee, however, if you have been turned down for credit, employment, insurance, or a rental dwelling because of information in your credit report within the preceding 60 days. The credit bureau must provide someone to help you interpret the information in your credit file. You are entitled to receive a free copy of your credit report if you are unemployed and intend to apply for employment in the next 60 days, if you are a recipient of public welfare assistance, or if you have reason to believe that there is inaccurate information in your credit report due to fraud.
You have a right to sue a credit repair organization that violates the Credit Repair Organization Act. This law prohibits deceptive practices by credit repair organizations.
You have the right to cancel your contract with any credit repair organization for any reason within 3 business days from the date you signed it.
Credit bureaus are required to follow reasonable procedures to ensure that the information they report is accurate. However, mistakes may occur.
You may, on your own, notify a credit bureau in writing that you dispute the accuracy of information in your credit file. The credit bureau must then reinvestigate and modify or remove inaccurate or incomplete information. The credit bureau may not charge any fee for this service. Any pertinent information and copies of all documents you have concerning an error should be given to the credit bureau.
If the credit bureau’s reinvestigation does not resolve the dispute to your satisfaction, you may send a brief statement to the credit bureau, to be kept in your file, explaining why you think the record is inaccurate. The credit bureau must include a summary of your statement about disputed information with any report it issues about you.
The Federal Trade Commission regulates credit bureaus and credit repair organizations. For more information contact:
The Public Reference Branch
Federal Trade Commission
Washington, D.C. 20580′.
(b) Separate Statement Requirement.–The written statement required under this section shall be provided as a document which is separate from any written contract or other agreement between the credit repair organization and the consumer or any other written material provided to the consumer.
(c) Retention of Compliance Records.–
(1) In general.–The credit repair organization shall maintain a copy of the statement signed by the consumer acknowledging receipt of the statement.
(2) Maintenance for 2 years.–The copy of any consumer’s statement shall be maintained in the organization’s files for 2 years after the date on which the statement is signed by the consumer.

SEC. 406. CREDIT REPAIR ORGANIZATIONS CONTRACTS.(9)

(a) Written Contracts Required.–No services may be provided by any credit repair organization for any consumer–
(1) unless a written and dated contract (for the purchase of such services) which meets the requirements of subsection (b) has been signed by the consumer; or
(2) before the end of the 3-business-day period beginning on the date the contract is signed.
(b) Terms and Conditions of Contract.–No contract referred to in subsection (a) meets the requirements of this subsection unless such contract includes (in writing)–
(1) the terms and conditions of payment, including the total amount of all payments to be made by the consumer to the credit repair organization or to any other person;
(2) a full and detailed description of the services to be performed by the credit repair organization for the consumer, including–
(A) all guarantees of performance; and
(B) an estimate of–
(i) the date by which the performance of the services (to be performed by the credit repair organization or any other person) will be complete; or
(ii) the length of the period necessary to perform such services;
(3) the credit repair organization’s name and principal business address; and
(4) a conspicuous statement in bold face type, in immediate proximity to the space reserved for the consumer’s signature on the contract, which reads as follows: ‘You may cancel this contract without penalty or obligation at any time before midnight of the 3rd business day after the date on which you signed the contract. See the attached notice of cancellation form for an explanation of this right.

SEC. 407. RIGHT TO CANCEL CONTRACT.(10)

(a) In General. — Any consumer may cancel any contract with any credit repair organization without penalty or obligation by notifying the credit repair organization of the consumer’s intention to do so at any time before midnight of the 3rd business day which begins after the date on which the contract or agreement between the consumer and the credit repair organization is executed or would, but for this subsection, become enforceable against the parties.
(b) Cancellation Form and Other Information. — Each contract shall be accompanied by a form, in duplicate, which has the heading ‘Notice of Cancellation’ and contains in bold face type the following statement:
‘You may cancel this contract, without any penalty or obligation, at any time before midnight of the 3rd day which begins after the date the contract is signed by you.
To cancel this contract, mail or deliver a signed, dated copy of this cancellation notice, or any other written notice to (name of credit repair organization) at (address of credit repair organization) before midnight on (date)
I hereby cancel this transaction,
( date )
(purchaser’s signature).’
(c) Consumer Copy of Contract Required.–Any consumer who enters into any contract with any credit repair organization shall be given, by the organization–
(1) a copy of the completed contract and the disclosure statement required under section 405; and
(2) a copy of any other document the credit repair organization requires the consumer to sign, at the time the contract or the other document is signed.

SEC. 408. NONCOMPLIANCE WITH THIS TITLE.(11)

(a) Consumer Waivers Invalid.–Any waiver by any consumer of any protection provided by or any right of the consumer under this title–
(1) shall be treated as void; and
(2) may not be enforced by any Federal or State court or any other person.
(b) Attempt To Obtain Waiver.–Any attempt by any person to obtain a waiver from any consumer of any protection provided by or any right of the consumer under this title shall be treated as a violation of this title.
(c) Contracts Not in Compliance.–Any contract for services which does not comply with the applicable provisions of this title–
(1) shall be treated as void; and
(2) may not be enforced by any Federal or State court or any other person.

SEC. 409. CIVIL LIABILITY.(12)

(a) Liability Established.–Any person who fails to comply with any provision of this title with respect to any other person shall be liable to such person in an amount equal to the sum of the amounts determined under each of the following paragraphs:
(1) Actual damages.–The greater of–
(A) the amount of any actual damage sustained by such person as a result of such failure; or
(B) any amount paid by the person to the credit repair organization.
(2) Punitive damages.–
(A) Individual actions.–In the case of any action by an individual, such additional amount as the court may allow.
(B) Class actions.–In the case of a class action, the sum of–
(i) the aggregate of the amount which the court may allow for each named plaintiff; and
(ii) the aggregate of the amount which the court may allow for each other class member, without regard to any minimum individual recovery.
(3) Attorneys’ fees.–In the case of any successful action to enforce any liability under paragraph (1) or (2), the costs of the action, together with reasonable attorneys’ fees.
(b) Factors to Be Considered in Awarding Punitive Damages.–In determining the amount of any liability of any credit repair organization under subsection (a)(2), the court shall consider, among other relevant factors–
(1) the frequency and persistence of noncompliance by the credit repair organization;
(2) the nature of the noncompliance;
(3) the extent to which such noncompliance was intentional; and
(4) in the case of any class action, the number of consumers adversely affected.

SEC. 410. ADMINISTRATIVE ENFORCEMENT.(13)

(a) In General.–Compliance with the requirements imposed under this title with respect to credit repair organizations shall be enforced under the Federal Trade Commission Act by the Federal Trade Commission.
(b) Violations of This Title Treated as Violations of Federal Trade Commission Act.–
(1) In general. — For the purpose of the exercise by the Federal Trade Commission of the Commission’s functions and powers under the Federal Trade Commission Act, any violation of any requirement or prohibition imposed under this title with respect to credit repair organizations shall constitute an unfair or deceptive act or practice in commerce in violation of section 5(a) of the Federal Trade Commission Act.
(2) Enforcement authority under other law. — All functions and powers of the Federal Trade Commission under the Federal Trade Commission Act shall be available to the Commission to enforce compliance with this title by any person subject to enforcement by the Federal Trade Commission pursuant to this subsection, including the power to enforce the provisions of this title in the same manner as if the violation had been a violation of any Federal Trade Commission trade regulation rule, without regard to whether the credit repair organization–
(A) is engaged in commerce; or
(B) meets any other jurisdictional tests in the Federal Trade Commission Act.
(c) State Action for Violations.–
(1) Authority of states. — In addition to such other remedies as are provided under State law, whenever the chief law enforcement officer of a State, or an official or agency designated by a State, has reason to believe that any person has violated or is violating this title, the State–
(A) may bring an action to enjoin such violation;
(B) may bring an action on behalf of its residents to recover damages for which the person is liable to such residents under section 409 as a result of the violation; and
(C) in the case of any successful action under subparagraph (A) or (B), shall be awarded the costs of the action and reasonable attorney fees as determined by the court.
(2) Rights of commission.–
(A) Notice to commission.–The State shall serve prior written notice of any civil action under paragraph (1) upon the Federal Trade Commission and provide the Commission with a copy of its complaint, except in any case where such prior notice is not feasible, in which case the State shall serve such notice immediately upon instituting such action.
(B) Intervention.–The Commission shall have the right–
(i) to intervene in any action referred to in subparagraph (A);
(ii) upon so intervening, to be heard on all matters arising in the action; and
(iii) to file petitions for appeal.
(3) Investigatory powers. — For purposes of bringing any action under this subsection, nothing in this subsection shall prevent the chief law enforcement officer, or an official or agency designated by a State, from exercising the powers conferred on the chief law enforcement officer or such official by the laws of such State to conduct investigations or to administer oaths or affirmations or to compel the attendance of witnesses or the production of documentary and other evidence.
(4) Limitation. – Whenever the Federal Trade Commission has instituted a civil action for violation of this title, no State may, during the pendency of such action, bring an action under this section against any defendant named in the complaint of the Commission for any violation of this title that is alleged in that complaint.

SEC. 411. STATUTE OF LIMITATIONS.(14)

Any action to enforce any liability under this title may be brought before the later of–
(1) the end of the 5-year period beginning on the date of the occurrence of the violation involved; or
(2) in any case in which any credit repair organization has materially and willfully misrepresented any information which–
(A) the credit repair organization is required, by any provision of this title, to disclose to any consumer; and
(B) is material to the establishment of the credit repair organization’s liability to the consumer under this title, the end of the 5-year period beginning on the date of the discovery by the consumer of the misrepresentation.

SEC. 412. RELATION TO STATE LAW.(15)

This title shall not annul, alter, affect, or exempt any person subject to the provisions of this title from complying with any law of any State except to the extent that such law is inconsistent with any provision of this title, and then only to the extent of the inconsistency.

SEC. 413. EFFECTIVE DATE.(16)

This title shall apply after the end of the 6-month period beginning on the date of the enactment of the Credit Repair Organizations Act,(17) except with respect to contracts entered into by a credit repair organization before the end of such period.

1. Pub. L. No. 104-208, 110 Stat. 3009 (Sept. 30, 1996). The amendments to the credit statutes are in Title II of the Act, entitled “Economic Growth and Regulatory Paperwork Reduction.” Section 401 is not codified in U.S. Code. The footnotes in this copy of the Act are not part of the Act, but are cross-references inserted by the FTC staff for the convenience of the reader.
2. 15 U.S.C. § 1679.
3. 15 U.S.C. § 1679a.
4. Truth in Lending Act § 103(f) states in pertinent part: “The term ‘creditor’ refers only to creditors who regularly extend, or arrange for the extension of, credit which is payable by agreement in more than four installments or for which the payment of a finance charge is or may be required, whether in connection with loans, sales pf property or services, or otherwise. . . .”
5. TILA § 103(e) states: “The term ‘credit’ means the right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment.”
6. 15 U.S.C. § 1679b.
7. Fair Credit Reporting Act (FCRA) § 603(f) states: “The term ‘consumer reporting agency’ means any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports.”
8. 15 U.S.C. § 1679c.
9. 15 U.S.C. § 1679d.
10. 15 U.S.C. § 1679e.
11. 15 U.S.C. § 1679f.
12. 15 U.S.C. § 1679g.
13. 15 U.S.C. § 1679h.
14. 15 U.S.C. § 1679i.
15. U.S.C. § 1679j.
16. Not codified in United States Code. Cite to Pub. L. 104-28, Div. A, title II, § 2451, Section 413, 110 Stat. 3009.
17. The statute was signed by the President on September 30, 1996.

Regulation B – Equal Credit Opportunity

Section 202.1 – Authority, scope and purpose
Section 202.2 – Definitions
Section 202.3 – Limited exceptions for certain classes of transactions
Section 202.4 – General rule prohibiting discrimination.
Section 202.5 – Rules concerning taking of applications.
Section 202.ba – Rules on providing appraisal reports.
Section 202.6 – Rules concerning evaluation of applications.
Section 202.7 – Rules concerning extensions of credit.
Section 202.8 – Special purpose credit programs.
Section 202.9 – Notifications.
Sec. 202.10 – Furnishing of credit information. Sec. 202.11 – Relation to state law.
Sec. 202.12 – Record retention.
Sec. 202.13 – Information for monitoring purposes.
Sec. 202.14 – Enforcement, penalties and liabilities.
Sec. 202.15 – Incentives for self-testing and self-correction.

Sec. 202.1 Authority, scope and purpose.

(a) Authority and scope. This regulation is issued by the Board of Governors of the Federal Reserve System 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, the regulation applies to all persons who are creditors, as defined in Sec. 202.2(1). Information collection requirements contained in this regulation 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 control number 7100-0201.
(b) Purpose. The purpose of this regulation 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. 202.2 Definitions.

For the purposes of this regulation, 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 a substantial portion of a class of the creditor’s accounts; or
(iii) A refusal to increase the amount of credit available to an applicant who 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 a 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 a substantial portion 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. 202.7(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 established by a creditor for the type of credit requested. The term 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. 202.3 (a), (b), and (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 therefore.
(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 the decision of whether or not to extend credit. The term includes a creditor’s assignee, transferee, or subrogee who so participates. For purposes of Secs. 202.4 and 202.5(a), the term 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 regulation 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.
(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 noncredit worthy 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 paragraphs (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 under which a creditor may permit an applicant to make purchases or obtain loans from time to 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 Board.
(aa) State means any State, the District of Columbia, the Commonwealth of Puerto Rico, or any territory or possession of the United States.

Sec. 202.3 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 regulation do not apply to public utilities credit:
(i) Section 202.5(d)(1) concerning information about marital status;
(ii) Section 202.10 relating to furnishing of credit information; and
(iii) Section 202.12(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 regulation do not apply to securities credit:
(i) Section 202.5(c) concerning information about a spouse or former spouse;
(ii) Section 202.5(d)(1) concerning information about marital status;
(iii) Section 202.5(d)(3) concerning information about the sex of an applicant;
(iv) Section 202.7(b) relating to designation of name, but only to the extent necessary to prevent violation of rules regarding an account in which a broker or dealer has an interest, or rules necessitating the aggregation of accounts of spouses for the purpose of determining controlling interests, beneficial interests, beneficial ownership, or purchase limitations and restrictions;
(v) Section 202.7(c) relating to action concerning open-end accounts, but only to the extent the action taken is on the basis of a change of name or marital status;
(vi) Section 202.7(d) relating to the signature of a spouse or other person;
(vii) Section 202.10 relating to furnishing of credit information; and
(viii) Section 202.12(b) relating to record retention.
(c) Incidental credit.
(1) Definition. Incidental credit refers to extensions of consumer credit other than credit of 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 226.4); and
(iii) That are not payable by agreement in more than four installments.
(2) Exceptions. The following provisions of this regulation do not apply to incidental credit:
(i) Section 202.5(c) concerning information about a spouse or former spouse;
(ii) Section 202.5(d)(1) concerning information about marital status;
(iii) Section 202.5(d)(2) concerning information about income derived from alimony, child support, or separate maintenance payments;
(iv) Section 202.5(d)(3) concerning information about the sex of an applicant, but only to the extent necessary for medical records or similar purposes;
(v) Section 202.7(d) relating to the signature of a spouse or other person;
(vi) Section 202.9 relating to notifications;
(vii) Section 202.10 relating to furnishing of credit information; and
(viii) Section 202.12(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. 202.4, the general rule prohibiting discrimination on a prohibited basis, the requirements of this regulation do not apply to government credit.

Sec. 202.4 General rule prohibiting discrimination.

A creditor shall not discriminate against an applicant on a prohibited basis regarding any aspect of a credit transaction.

Sec. 202.5 Rules concerning taking of applications.

(a) Discouraging applications. 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.
(b) General rules concerning requests for information.
(1) Except as provided in paragraphs (c) and (d) of this section, a creditor may request any information in connection with an application. 1
(2) Required collection of information. Notwithstanding paragraphs (c) and (d) of this section, a creditor shall request information for monitoring purposes as required by Sec. 202.13 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 regulation, or other federal or state statute or regulation.
(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. 202.8 (c) and (d).
(c) Information about a spouse or former spouse.
(1) 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 property on which the applicant is relying as a basis for repayment of the credit requested is located in such a state; 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 an applicant to list any account upon which the applicant is liable and to provide the name and address in which the account is carried. A creditor may also ask the names in which an 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) Sex. A creditor shall not inquire about the sex of an applicant. 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.
(4) 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.
(5) Race, color, religion, national origin. A creditor shall not inquire about the race, color, religion, or national origin of an applicant or any other person in connection with a credit transaction. A creditor may inquire about an applicant’s permanent residence and immigration status.
(e) Written applications. A creditor shall take written applications for the types of credit covered by Sec. 202.13(a), but need not take written applications for other types of credit.

Sec. 202.5a Rules on providing appraisal reports.

(a) Providing appraisals. A creditor shall provide a copy of the 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 the 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.
(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. 202.9 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. 202.9 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 appraisals 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. 202.6 Rules concerning evaluation of applications.

(a) General rule concerning use of information. Except as otherwise provided in the Act and this regulation, a creditor may consider any information obtained, so long as the information is not used to discriminate against an applicant on a prohibited basis. 2
(b) Specific rules concerning use of information.
(1) Except as provided in the act and this regulation, 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 (b)(2), 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 use assumptions or aggregate statistics relating to the likelihood that any group 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 that 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 whether an applicant is a permanent resident of the United States, the applicant’s immigration status, and any additional information that may be necessary to ascertain the creditor’s rights and remedies regarding repayment.
(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 regulation.

Sec. 202.7 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.
(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 property upon which the applicant is relying is 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 amount of credit requested under the creditor’s standards of creditworthiness; and
(ii) The applicant does not have sufficient separate property to qualify for the amount of credit requested without regard to community property.
(4) Secured credit. If an applicant requests secured credit, a creditor may 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 extension of the credit requested, a creditor may request a cosigner, guarantor, or the like. 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. 202.8 Special purpose credit programs.

(a) Standards for programs. Subject to the provisions of paragraph (b) of this section, the act and this regulation 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 of the provisions of this regulation apply to each of the special purpose credit programs described in paragraph (a) of this section unless 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 regulation.
(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 program described in paragraph (a) of this section, the creditor may request and consider, in determining an applicant’s eligibility for the program, information regarding the applicant’s martial 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 program if the signature is required by Federal or State law.

Sec. 202.9 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 a written request for confirmation from the applicant.
(3) Notification to business credit applicants. For business credit, a creditor shall comply with the requirements of this paragraph in the following manner:
(i) With regard to a business that had gross revenues of $1,000,000 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 is in a form the applicant may retain and 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 solely by telephone, a creditor satisfies the requirements of this paragraph 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 $1,000,000 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, orally or in writing, within a reasonable time 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 being notified of the adverse action.
(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 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 of this regulation).
(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 failed to achieve the qualifying score on the creditor’s credit scoring system are insufficient.
(c) Incomplete applications–
(1) Notice alternatives. Within 30 days after receiving 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; but 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. The requirements of this section (including statements of specific reasons) are satisfied by oral notifications in the case of any creditor that did not receive more than 150 applications during the preceding calendar year.
(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 any 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 identify of each creditor on whose behalf the notice is given.

Sec. 202.10 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. 202.11 Relation to state law.

(a) Inconsistent state laws. Except as otherwise provided in this section, this regulation alters, affects, or preempts only those state laws that are inconsistent with the act and this regulation 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 regulation 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 regulation;
(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 regulation;
(iv) Prohibits asking 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 as special purpose credit program as defined by Sec. 202.8.
(2) A creditor, state, or other interested party may request the Board to determine whether a state law is inconsistent with the requirements of the Act and this regulation.
(c) Laws on finance charges, loan ceilings. If married applicants voluntarily apply for and obtained 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 Board for an exemption from the requirements of the Act and this regulation for any class of credit transactions within the state. The Board will grant such an exemption if the Board determines that:
(i) The class of credit transactions is subject to state law requirements substantially similar to the Act and this regulation 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 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 regulation.

Sec. 202.12 Record retention.

(a) Retention of prohibited information. A creditor may retain in its files information that is prohibited by the Act or this regulation in evaluating applications, without violating the Act or this regulation, 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 regulation or other Federal or state statutes or regulations.
(b) Preservation of records–
(1) Applications. For 25 months (12 months for business credit) 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 regulation 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 regulation.
(2) Existing accounts. For 25 months (12 months for business credit) 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 regulation.
(3) Other applications. For 25 months (12 months for business credit) after the date that a creditor receives an application for which the creditor is not required to comply with the notification requirements of Sec. 202.9, 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 specified in this section beyond 25 months (12 months for business credit) if it has actual notice that it is under investigation or is subject to an enforcement proceeding for an alleged violation of the act or this regulation 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 regulation, or if it has been served with notice of an action filed pursuant to section 706 of the Act and Sec. 202.14 of this regulation. 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 with gross revenues in excess of $1,000,000 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 § 202.15) has 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.

Sec. 202.13 Information for monitoring purposes.

(a) Information to be requested. 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):
(1) Race or national origin, using the categories American Indian or Alaskan Native; Asian or Pacific Islander; Black; White; Hispanic; Other (Specify);
(2) Sex;
(3) Marital status, using the categories married, unmarried, and separated; and
(4) Age.
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 of information. Questions regarding race or national origin, 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 race or national origin 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 race or national origin, 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 note to provide the information, the creditor is required to note the race or national origin 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).

Sec. 202.14 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 regulation 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, Office of Thrift Supervision, National Credit Union Administration, Interstate Commerce Commission, Secretary of Agriculture, Farm Credit Administration, Securities and Exchange Commission, Small Business Administration, and Secretary of Transportation.
(2) Except to the extent that administrative enforcement is specifically assigned to other authorities, compliance with the requirements imposed under the act and this regulation is enforced by the Federal Trade Commission.
(b) Penalties and liabilities. (1) Sections 706 (a) and (b) and 702(g) of the Act provide that any creditor that fails to comply with a requirement imposed by the Act or this regulation is subject to civil liability for actual and punitive damages in individual or class actions. Pursuant to sections 704 (b), (c), and (d) and 702(g) of the Act, violations of the Act or regulations also constitute violations of other Federal laws. Liability for punitive damages is restricted 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), a civil action under the Act or this regulation 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 two 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 two 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. In addition, if the Board, the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, or the National Credit Union Administration has reason to believe that one or more creditors 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. Furthermore, the agency may refer a matter to the Attorney General if the agency has reason to believe that one or more creditors violated section 701(a) of the act.
(4) On referral, or whenever the Attorney General has reason to believe that one or more creditors engaged in a pattern or practice in violation of the act or this regulation, 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 Board, the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, or the National Credit Union Administration has reason to believe (as a result of a consumer complaint, conducting a consumer compliance examination, or otherwise) 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 notify:
(i) The Secretary of Housing and Urban Development; and
(ii) The applicant that the Secretary of Housing and Urban Development has been notified and that remedies for the violation may be available under the Fair Housing Act.
(c) Failure of compliance. A creditor’s failure to comply with Secs. 202.6(b)(6), 202.9, 202.10, 202.12 or 202.13 is not a violation if it results from an inadvertent error. On discovering an error under Secs. 202.9 and 202.10, the creditor shall correct it as soon as possible. If a creditor inadvertently obtains the monitoring information regarding the race or national origin and sex of the applicant in a dwelling-related transaction not covered by Sec. 202.13, the creditor may act on and retain the application without violating the regulation.

Sec. 202.15 – Incentives for self-testing and self-correction.

(a) General rules-(1) Voluntary self-testing and correction. The report or results of the 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 regulation; 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 work papers 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 it 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
(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)(1) Scope of privilege. 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 regulation; or
(ii) By a government agency or an applicant (including a prospective applicant who alleges a violation of § 202.5(a)) in any proceeding or civil action in which a violation of the act or this regulation 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 § 202.12(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 § 202.12.
(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 regulation 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.

This version of the FCRA is complete as of July 1999. It includes the amendments to the FCRA set forth in the Consumer Credit Reporting Reform Act of 1996 (Public Law 104-208, the Omnibus Consolidated Appropriations Act for Fiscal Year 1997, Title II, Subtitle D, Chapter 1), Section 311 of the Intelligence Authorization for Fiscal Year 1998 (Public Law 105-107), and the Consumer Reporting Employment Clarification Act of 1998 (Public Law 105-347).

Table of Contents
§ 601 Short title
§ 602 Congressional findings and statement of purpose
§ 603 Definitions; rules of construction
§ 604 Permissible purposes of consumer reports
§ 605 Requirements relating to information contained in consumer reports
§ 606 Disclosure of investigative consumer reports
§ 607 Compliance procedures
§ 608 Disclosures to governmental agencies
§ 609 Disclosures to consumers
§ 610 Conditions and form of disclosure to consumers
§ 611 Procedure in case of disputed accuracy
§ 612 Charges for certain disclosures
§ 613 Public record information for employment purposes
§ 614 Restrictions on investigative consumer reports
§ 615 Requirements on users of consumer reports
§ 616 Civil liability for willful noncompliance
§ 617 Civil liability for negligent noncompliance
§ 618 Jurisdiction of courts; limitation of actions
§ 619 Obtaining information under false pretenses
§ 620 Unauthorized disclosures by officers or employees
§ 621 Administrative enforcement
§ 622 Information on overdue child support obligations
§ 623 Responsibilities of furnishers of information to consumer reporting agencies
§ 624 Relation to State laws
§ 625 Disclosures to FBI for counterintelligence purposes

§ 601. Short title
This title may be cited as the Fair Credit Reporting Act.
§ 602. Congressional findings and statement of purpose [15 U.S.C. § 1681]
(a) Accuracy and fairness of credit reporting. The Congress makes the following findings:
(1) The banking system is dependent upon fair and accurate credit reporting. Inaccurate credit reports directly impair the efficiency of the banking system, and unfair credit reporting methods undermine the public confidence which is essential to the continued functioning of the banking system.

(2) An elaborate mechanism has been developed for investigating and evaluating the credit worthiness, credit standing, credit capacity, character, and general reputation of consumers.

(3) Consumer reporting agencies have assumed a vital role in assembling and evaluating consumer credit and other information on consumers.

(4) There is a need to insure that consumer reporting agencies exercise their grave responsibilities with fairness, impartiality, and a respect for the consumer’s right to privacy.
(b) Reasonable procedures. It is the purpose of this title to require that consumer reporting agencies adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information in accordance with the requirements of this title.
§ 603. Definitions; rules of construction [15 U.S.C. § 1681a]
(a) Definitions and rules of construction set forth in this section are applicable for the purposes of this title.
(b) The term “person” means any individual, partnership, corporation, trust, estate, cooperative, association, government or governmental subdivision or agency, or other entity.
(c) The term “consumer” means an individual.
(d) Consumer report.
(1) In general. The term “consumer report” means any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer’s eligibility for

(A) credit or insurance to be used primarily for personal, family, or household purposes;
(B) employment purposes; or
(C) any other purpose authorized under section 604 [§ 1681b].
(2) Exclusions. The term “consumer report” does not include

(A) any
(i) report containing information solely as to transactions or experiences between the consumer and the person making the report;
(ii) communication of that information among persons related by common ownership or affiliated by corporate control; or
(iii) communication of other information among persons related by common ownership or affiliated by corporate control, if it is clearly and conspicuously disclosed to the consumer that the information may be communicated among such persons and the consumer is given the opportunity, before the time that the information is initially communicated, to direct that such information not be communicated among such persons;
(B) any authorization or approval of a specific extension of credit directly or indirectly by the issuer of a credit card or similar device;
(C) any report in which a person who has been requested by a third party to make a specific extension of credit directly or indirectly to a consumer conveys his or her decision with respect to such request, if the third party advises the consumer of the name and address of the person to whom the request was made, and such person makes the disclosures to the consumer required under section 615 [§ 1681m]; or
(D) a communication described in subsection (o).
(e) The term “investigative consumer report” means a consumer report or portion thereof in which information on a consumer’s character, general reputation, personal characteristics, or mode of living is obtained through personal interviews with neighbors, friends, or associates of the consumer reported on or with others with whom he is acquainted or who may have knowledge concerning any such items of information. However, such information shall not include specific factual information on a consumer’s credit record obtained directly from a creditor of the consumer or from a consumer reporting agency when such information was obtained directly from a creditor of the consumer or from the consumer.
(f) The term “consumer reporting agency” means any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports.
(g) The term “file,” when used in connection with information on any consumer, means all of the information on that consumer recorded and retained by a consumer reporting agency regardless of how the information is stored.
(h) The term “employment purposes” when used in connection with a consumer report means a report used for the purpose of evaluating a consumer for employment, promotion, reassignment or retention as an employee.
(i) The term “medical information” means information or records obtained, with the consent of the individual to whom it relates, from licensed physicians or medical practitioners, hospitals, clinics, or other medical or medically related facilities.
(j) Definitions relating to child support obligations.
(1) Overdue support. The term “overdue support” has the meaning given to such term in section 666(e) of title 42 [Social Security Act, 42 U.S.C. § 666(e)].

(2) State or local child support enforcement agency. The term “State or local child support enforcement agency” means a State or local agency which administers a State or local program for establishing and enforcing child support obligations.
(k) Adverse action.
(1) Actions included. The term “adverse action”

(A) has the same meaning as in section 701(d)(6) of the Equal Credit Opportunity Act; and
(B) means
(i) a denial or cancellation of, an increase in any charge for, or a reduction or other adverse or unfavorable change in the terms of coverage or amount of, any insurance, existing or applied for, in connection with the underwriting of insurance;
(ii) a denial of employment or any other decision for employment purposes that adversely affects any current or prospective employee;
(iii) a denial or cancellation of, an increase in any charge for, or any other adverse or unfavorable change in the terms of, any license or benefit described in section 604(a)(3)(D) [§ 1681b]; and
(iv) an action taken or determination that is
(I) made in connection with an application that was made by, or a transaction that was initiated by, any consumer, or in connection with a review of an account under section 604(a)(3)(F)(ii)[§ 1681b]; and
(II) adverse to the interests of the consumer.
(2) Applicable findings, decisions, commentary, and orders. For purposes of any determination of whether an action is an adverse action under paragraph (1)(A), all appropriate final findings, decisions, commentary, and orders issued under section 701(d)(6) of the Equal Credit Opportunity Act by the Board of Governors of the Federal Reserve System or any court shall apply.
(l) Firm offer of credit or insurance. The term “firm offer of credit or insurance” means any offer of credit or insurance to a consumer that will be honored if the consumer is determined, based on information in a consumer report on the consumer, to meet the specific criteria used to select the consumer for the offer, except that the offer may be further conditioned on one or more of the following:
(1) The consumer being determined, based on information in the consumer’s application for the credit or insurance, to meet specific criteria bearing on credit worthiness or insurability, as applicable, that are established

(A) before selection of the consumer for the offer; and
(B) for the purpose of determining whether to extend credit or insurance pursuant to the offer.
(2) Verification

(A) that the consumer continues to meet the specific criteria used to select the consumer for the offer, by using information in a consumer report on the consumer, information in the consumer’s application for the credit or insurance, or other information bearing on the credit worthiness or insurability of the consumer; or
(B) of the information in the consumer’s application for the credit or insurance, to determine that the consumer meets the specific criteria bearing on credit worthiness or insurability.
(3) The consumer furnishing any collateral that is a requirement for the extension of the credit or insurance that was

(A) established before selection of the consumer for the offer of credit or insurance; and
(B) disclosed to the consumer in the offer of credit or insurance.
(m) Credit or insurance transaction that is not initiated by the consumer. The term “credit or insurance transaction that is not initiated by the consumer” does not include the use of a consumer report by a person with which the consumer has an account or insurance policy, for purposes of
(1) reviewing the account or insurance policy; or

(2) collecting the account.
(n) State. The term “State” means any State, the Commonwealth of Puerto Rico, the District of Columbia, and any territory or possession of the United States.
(o) Excluded communications. A communication is described in this subsection if it is a communication
(1) that, but for subsection (d)(2)(D), would be an investigative consumer report;

(2) that is made to a prospective employer for the purpose of

(A) procuring an employee for the employer; or

(B) procuring an opportunity for a natural person to work for the employer;

(3) that is made by a person who regularly performs such procurement;

(4) that is not used by any person for any purpose other than a purpose described in subparagraph (A) or (B) of paragraph (2); and

(5) with respect to which

(A) the consumer who is the subject of the communication

(i) consents orally or in writing to the nature and scope of the communication, before the collection of any information for the purpose of making the communication;

(ii) consents orally or in writing to the making of the communication to a prospective employer, before the making of the communication; and

(iii) in the case of consent under clause (i) or (ii) given orally, is provided written confirmation of that consent by the person making the communication, not later than 3 business days after the receipt of the consent by that person;

(B) the person who makes the communication does not, for the purpose of making the communication, make any inquiry that if made by a prospective employer of the consumer who is the subject of the communication would violate any applicable Federal or State equal employment opportunity law or regulation; and

(C) the person who makes the communication

(i) discloses in writing to the consumer who is the subject of the communication, not later than 5 business days after receiving any request from the consumer for such disclosure, the nature and substance of all information in the consumer’s file at the time of the request, except that the sources of any information that is acquired solely for use in making the communication and is actually used for no other purpose, need not be disclosed other than under appropriate discovery procedures in any court of competent jurisdiction in which an action is brought; and
(ii) notifies the consumer who is the subject of the communication, in writing, of the consumer’s right to request the information described in clause (i).
(p) Consumer reporting agency that compiles and maintains files on consumers on a nationwide basis. The term “consumer reporting agency that compiles and maintains files on consumers on a nationwide basis” means a consumer reporting agency that regularly engages in the practice of assembling or evaluating, and maintaining, for the purpose of furnishing consumer reports to third parties bearing on a consumer’s credit worthiness, credit standing, or credit capacity, each of the following regarding consumers residing nationwide:
(1) Public record information.

(2) Credit account information from persons who furnish that information regularly and in the ordinary course of business.
§ 604. Permissible purposes of consumer reports [15 U.S.C. § 1681b]
(a) In general. Subject to subsection (c), any consumer reporting agency may furnish a consumer report under the following circumstances and no other:
(1) In response to the order of a court having jurisdiction to issue such an order, or a subpoena issued in connection with proceedings before a Federal grand jury.

(2) In accordance with the written instructions of the consumer to whom it relates.

(3) To a person which it has reason to believe

(A) intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer; or

(B) intends to use the information for employment purposes; or

(C) intends to use the information in connection with the underwriting of insurance involving the consumer; or

(D) intends to use the information in connection with a determination of the consumer’s eligibility for a license or other benefit granted by a governmental instrumentality required by law to consider an applicant’s financial responsibility or status; or

(E) intends to use the information, as a potential investor or servicer, or current insurer, in connection with a valuation of, or an assessment of the credit or prepayment risks associated with, an existing credit obligation; or

(F) otherwise has a legitimate business need for the information

(i) in connection with a business transaction that is initiated by the consumer; or

(ii) to review an account to determine whether the consumer continues to meet the terms of the account.

(4) In response to a request by the head of a State or local child support enforcement agency (or a State or local government official authorized by the head of such an agency), if the person making the request certifies to the consumer reporting agency that

(A) the consumer report is needed for the purpose of establishing an individual’s capacity to make child support payments or determining the appropriate level of such payments;

(B) the paternity of the consumer for the child to which the obligation relates has been established or acknowledged by the consumer in accordance with State laws under which the obligation arises (if required by those laws);

(C) the person has provided at least 10 days’ prior notice to the consumer whose report is requested, by certified or registered mail to the last known address of the consumer, that the report will be requested; and

(D) the consumer report will be kept confidential, will be used solely for a purpose described in subparagraph (A), and will not be used in connection with any other civil, administrative, or criminal proceeding, or for any other purpose.

(5) To an agency administering a State plan under Section 454 of the Social Security Act (42 U.S.C. § 654) for use to set an initial or modified child support award.
(b) Conditions for furnishing and using consumer reports for employment purposes.
(1) Certification from user. A consumer reporting agency may furnish a consumer report for employment purposes only if

(A) the person who obtains such report from the agency certifies to the agency that

(i) the person has complied with paragraph (2) with respect to the consumer report, and the person will comply with paragraph (3) with respect to the consumer report if paragraph (3) becomes applicable; and
(ii) information from the consumer report will not be used in violation of any applicable Federal or State equal employment opportunity law or regulation; and
(B) the consumer reporting agency provides with the report, or has previously provided, a summary of the consumer’s rights under this title, as prescribed by the Federal Trade Commission under section 609(c)(3) [§ 1681g].

(2) Disclosure to consumer.

(A) In general. Except as provided in subparagraph (B), a person may not procure a consumer report, or cause a consumer report to be procured, for employment purposes with respect to any consumer, unless–

(i) a clear and conspicuous disclosure has been made in writing to the consumer at any time before the report is procured or caused to be procured, in a document that consists solely of the disclosure, that a consumer report may be obtained for employment purposes; and

(ii) the consumer has authorized in writing (which authorization may be made on the document referred to in clause (i)) the procurement of the report by that person.

(B) Application by mail, telephone, computer, or other similar means. If a consumer described in subparagraph (C) applies for employment by mail, telephone, computer, or other similar means, at any time before a consumer report is procured or caused to be procured in connection with that application–

(i) the person who procures the consumer report on the consumer for employment purposes shall provide to the consumer, by oral, written, or electronic means, notice that a consumer report may be obtained for employment purposes, and a summary of the consumer’s rights under section 615(a)(3); and

(ii) the consumer shall have consented, orally, in writing, or electronically to the procurement of the report by that person.

(C) Scope. Subparagraph (B) shall apply to a person procuring a consumer report on a consumer in connection with the consumer’s application for employment only if–

(i) the consumer is applying for a position over which the Secretary of Transportation has the power to establish qualifications and maximum hours of service pursuant to the provisions of section 31502 of title 49, or a position subject to safety regulation by a State transportation agency; and

(ii) as of the time at which the person procures the report or causes the report to be procured the only interaction between the consumer and the person in connection with that employment application has been by mail, telephone, computer, or other similar means.

(3) Conditions on use for adverse actions.

(A) In general. Except as provided in subparagraph (B), in using a consumer report for employment purposes, before taking any adverse action based in whole or in part on the report, the person intending to take such adverse action shall provide to the consumer to whom the report relates–

(i) a copy of the report; and

(ii) a description in writing of the rights of the consumer under this title, as prescribed by the Federal Trade Commission under section 609(c) (3).

(B) Application by mail, telephone, computer, or other similar means.

(i) If a consumer described in subparagraph (C) applies for employment by mail, telephone, computer, or other similar means, and if a person who has procured a consumer report on the consumer for employment purposes takes adverse action on the employment application based in whole or in part on the report, then the person must provide to the consumer to whom the report relates, in lieu of the notices required under subparagraph (A) of this section and under section 615(a), within 3 business days of taking such action, an oral, written or electronic notification–
(I) that adverse action has been taken based in whole or in part on a consumer report received from a consumer reporting agency;
(II) of the name, address and telephone number of the consumer reporting agency that furnished the consumer report (including a toll-free telephone number established by the agency if the agency compiles and maintains files on consumers on a nationwide basis);
(III) that the consumer reporting agency did not make the decision to take the adverse action and is unable to provide to the consumer the specific reasons why the adverse action was taken; and
(IV) that the consumer may, upon providing proper identification, request a free copy of a report and may dispute with the consumer reporting agency the accuracy or completeness of any information in a report.
(ii) If, under clause (B) (i) (IV), the consumer requests a copy of a consumer report from the person who procured the report, then, within 3 business days of receiving the consumer’s request, together with proper identification, the person must send or provide to the consumer a copy of a report and a copy of the consumer’s rights as prescribed by the Federal Trade Commission under section 609(c) (3).
(C) Scope. Subparagraph (B) shall apply to a person procuring a consumer report on a consumer in connection with the consumer’s application for employment only if–

(i) the consumer is applying for a position over which the Secretary of Transportation has the power to establish qualifications and maximum hours of service pursuant to the provisions of section 31502 of title 49, or a position subject to safety regulation by a State transportation agency; and

(ii) as of the time at which the person procures the report or causes the report to be procured the only interaction between the consumer and the person in connection with that employment application has been by mail, telephone, computer, or other similar means.

(4) Exception for national security investigations.

(A) In general. In the case of an agency or department of the United States Government which seeks to obtain and use a consumer report for employment purposes, paragraph (3) shall not apply to any adverse action by such agency or department which is based in part on such consumer report, if the head of such agency or department makes a written finding that–

(i) the consumer report is relevant to a national security investigation of such agency or department;

(ii) the investigation is within the jurisdiction of such agency or department;

(iii) there is reason to believe that compliance with paragraph (3) will–

(I) endanger the life or physical safety of any person;

(II) result in flight from prosecution;

(III) result in the destruction of, or tampering with, evidence relevant to the investigation;

(IV) result in the intimidation of a potential witness relevant to the investigation;

(V) result in the compromise of classified information; or

(VI) otherwise seriously jeopardize or unduly delay the investigation or another official proceeding.

(B) Notification of consumer upon conclusion of investigation. Upon the conclusion of a national security investigation described in subparagraph (A), or upon the determination that the exception under subparagraph (A) is no longer required for the reasons set forth in such subparagraph, the official exercising the authority in such subparagraph shall provide to the consumer who is the subject of the consumer report with regard to which such finding was made–

(i) a copy of such consumer report with any classified information redacted as necessary;

(ii) notice of any adverse action which is based, in part, on the consumer report; and

(iii) the identification with reasonable specificity of the nature of the investigation for which the consumer report was sought.

(C) Delegation by head of agency or department. For purposes of subparagraphs (A) and (B), the head of any agency or department of the United States Government may delegate his or her authorities under this paragraph to an official of such agency or department who has personnel security responsibilities and is a member of the Senior Executive Service or equivalent civilian or military rank.

(D) Report to the congress. Not later than January 31 of each year, the head of each agency and department of the United States Government that exercised authority under this paragraph during the preceding year shall submit a report to the Congress on the number of times the department or agency exercised such authority during the year.

(E) Definitions. For purposes of this paragraph, the following definitions shall apply:

(i) Classified information. The term `classified information’ means information that is protected from unauthorized disclosure under Executive Order No. 12958 or successor orders.

(ii) National security investigation. The term ‘national security investigation’ means any official inquiry by an agency or department of the United States Government to determine the eligibility of a consumer to receive access or continued access to classified information or to determine whether classified information has been lost or compromised.
(c) Furnishing reports in connection with credit or insurance transactions that are not initiated by the consumer.
(1) In general. A consumer reporting agency may furnish a consumer report relating to any consumer pursuant to subparagraph (A) or (C) of subsection (a) (3) in connection with any credit or insurance transaction that is not initiated by the consumer only if

(A) the consumer authorizes the agency to provide such report to such person; or

(B) (i) the transaction consists of a firm offer of credit or insurance;

(ii) the consumer reporting agency has complied with subsection (e); and

(iii) there is not in effect an election by the consumer, made in accordance with subsection (e), to have the consumer’s name and address excluded from lists of names provided by the agency pursuant to this paragraph.

(2) Limits on information received under paragraph (1) (B). A person may receive pursuant to paragraph (1) (B) only

(A) the name and address of a consumer;

(B) an identifier that is not unique to the consumer and that is used by the person solely for the purpose of verifying the identity of the consumer; and

(C) other information pertaining to a consumer that does not identify the relationship or experience of the consumer with respect to a particular creditor or other entity.

(3) Information regarding inquiries. Except as provided in section 609(a)(5) [§ 1681g], a consumer reporting agency shall not furnish to any person a record of inquiries in connection with a credit or insurance transaction that is not initiated by a consumer.
(d) Reserved.
(e) Election of consumer to be excluded from lists.
(1) In general. A consumer may elect to have the consumer’s name and address excluded from any list provided by a consumer reporting agency under subsection (c) (1) (B) in connection with a credit or insurance transaction that is not initiated by the consumer, by notifying the agency in accordance with paragraph (2) that the consumer does not consent to any use of a consumer report relating to the consumer in connection with any credit or insurance transaction that is not initiated by the consumer.

(2) Manner of notification. A consumer shall notify a consumer reporting agency under paragraph (1)

(A) through the notification system maintained by the agency under paragraph (5); or

(B) by submitting to the agency a signed notice of election form issued by the agency for purposes of this subparagraph.

(3) Response of agency after notification through system. Upon receipt of notification of the election of a consumer under paragraph (1) through the notification system maintained by the agency under paragraph (5), a consumer reporting agency shall

(A) inform the consumer that the election is effective only for the 2-year period following the election if the consumer does not submit to the agency a signed notice of election form issued by the agency for purposes of paragraph (2)(B); and

(B) provide to the consumer a notice of election form, if requested by the consumer, not later than 5 business days after receipt of the notification of the election through the system established under paragraph (5), in the case of a request made at the time the consumer provides notification through the system.

(4) Effectiveness of election. An election of a consumer under paragraph (1)

(A) shall be effective with respect to a consumer reporting agency beginning 5 business days after the date on which the consumer notifies the agency in accordance with paragraph (2);

(B) shall be effective with respect to a consumer reporting agency

(i) subject to subparagraph (C), during the 2-year period beginning 5 business days after the date on which the consumer notifies the agency of the election, in the case of an election for which a consumer notifies the agency only in accordance with paragraph (2)(A); or

(ii) until the consumer notifies the agency under subparagraph (C), in the case of an election for which a consumer notifies the agency in accordance with paragraph (2) (B);

(C) shall not be effective after the date on which the consumer notifies the agency, through the notification system established by the agency under paragraph (5), that the election is no longer effective; and

(D) shall be effective with respect to each affiliate of the agency.

(5) Notification system.

(A) In general. Each consumer reporting agency that, under subsection (c) (1) (B), furnishes a consumer report in connection with a credit or insurance transaction that is not initiated by a consumer, shall

(i) establish and maintain a notification system, including a toll-free telephone number, which permits any consumer whose consumer report is maintained by the agency to notify the agency, with appropriate identification, of the consumer’s election to have the consumer’s name and address excluded from any such list of names and addresses provided by the agency for such a transaction; and

(ii) publish by not later than 365 days after the date of enactment of the Consumer Credit Reporting Reform Act of 1996, and not less than annually thereafter, in a publication of general circulation in the area served by the agency

(I) a notification that information in consumer files maintained by the agency may be used in connection with such transactions; and

(II) the address and toll-free telephone number for consumers to use to notify the agency of the consumer’s election under clause (I).

(B) Establishment and maintenance as compliance. Establishment and maintenance of a notification system (including a toll-free telephone number) and publication by a consumer reporting agency on the agency’s own behalf and on behalf of any of its affiliates in accordance with this paragraph is deemed to be compliance with this paragraph by each of those affiliates.

(6) Notification system by agencies that operate nationwide. Each consumer reporting agency that compiles and maintains files on consumers on a nationwide basis shall establish and maintain a notification system for purposes of paragraph (5) jointly with other such consumer reporting agencies.
(f) Certain use or obtaining of information prohibited. A person shall not use or obtain a consumer report for any purpose unless
(1) the consumer report is obtained for a purpose for which the consumer report is authorized to be furnished under this section; and

(2) the purpose is certified in accordance with section 607 [§ 1681e] by a prospective user of the report through a general or specific certification.
(g) Furnishing reports containing medical information. A consumer reporting agency shall not furnish for employment purposes, or in connection with a credit or insurance transaction, a consumer report that contains medical information about a consumer, unless the consumer consents to the furnishing of the report.
§ 605. Requirements relating to information contained in consumer reports [15 U.S.C. § 1681c]
(a) Information excluded from consumer reports. Except as authorized under subsection (b) of this section, no consumer reporting agency may make any consumer report containing any of the following items of information:
(1) Cases under title 11 [United States Code] or under the Bankruptcy Act that, from the date of entry of the order for relief or the date of adjudication, as the case may be, antedate the report by more than 10 years.

(2) Civil suits, civil judgments, and records of arrest that from date of entry, antedate the report by more than seven years or until the governing statute of limitations has expired, whichever is the longer period.

(3) Paid tax liens which, from date of payment, antedate the report by more than seven years.

(4) Accounts placed for collection or charged to profit and loss which antedate the report by more than seven years.(1)

(5) Any other adverse item of information, other than records of convictions of crimes which antedates the report by more than seven years.1
(b) Exempted cases. The provisions of subsection (a) of this section are not applicable in the case of any consumer credit report to be used in connection with
(1) a credit transaction involving, or which may reasonably be expected to involve, a principal amount of $150,000 or more;

(2) the underwriting of life insurance involving, or which may reasonably be expected to involve, a face amount of $150,000 or more; or

(3) the employment of any individual at an annual salary which equals, or which may reasonably be expected to equal $75,000, or more.
(c) Running of reporting period.
(1) In general. The 7-year period referred to in paragraphs (4) and (6) ** of subsection (a) shall begin, with respect to any delinquent account that is placed for collection (internally or by referral to a third party, whichever is earlier), charged to profit and loss, or subjected to any similar action, upon the expiration of the 180-day period beginning on the date of the commencement of the delinquency which immediately preceded the collection activity, charge to profit and loss, or similar action.

(2) Effective date. Paragraph (1) shall apply only to items of information added to the file of a consumer on or after the date that is 455 days after the date of enactment of the Consumer Credit Reporting Reform Act of 1996.
(d) Information required to be disclosed. Any consumer reporting agency that furnishes a consumer report that contains information regarding any case involving the consumer that arises under title 11, United States Code, shall include in the report an identification of the chapter of such title 11 under which such case arises if provided by the source of the information. If any case arising or filed under title 11, United States Code, is withdrawn by the consumer before a final judgment, the consumer reporting agency shall include in the report that such case or filing was withdrawn upon receipt of documentation certifying such withdrawal.
(e) Indication of closure of account by consumer. If a consumer reporting agency is notified pursuant to section 623(a)(4) [§ 1681s-2] that a credit account of a consumer was voluntarily closed by the consumer, the agency shall indicate that fact in any consumer report that includes information related to the account.
(f) Indication of dispute by consumer. If a consumer reporting agency is notified pursuant to section 623(a) (3) [§ 1681s-2] that information regarding a consumer who was furnished to the agency is disputed by the consumer, the agency shall indicate that fact in each consumer report that includes the disputed information.
§ 606. Disclosure of investigative consumer reports [15 U.S.C. § 1681d]
(a) Disclosure of fact of preparation. A person may not procure or cause to be prepared an investigative consumer report on any consumer unless
(1) it is clearly and accurately disclosed to the consumer that an investigative consumer report including information as to his character, general reputation, personal characteristics and mode of living, whichever are applicable, may be made, and such disclosure

(A) is made in a writing mailed, or otherwise delivered, to the consumer, not later than three days after the date on which the report was first requested, and

(B) includes a statement informing the consumer of his right to request the additional disclosures provided for under subsection (b) of this section and the written summary of the rights of the consumer prepared pursuant to section 609(c) [§ 1681g]; and

(2) the person certifies or has certified to the consumer reporting agency that

(A) the person has made the disclosures to the consumer required by paragraph (1); and

(B) the person will comply with subsection (b).
(b) Disclosure on request of nature and scope of investigation. Any person who procures or causes to be prepared an investigative consumer report on any consumer shall, upon written request made by the consumer within a reasonable period of time after the receipt by him of the disclosure required by subsection (a) (1) of this section, make a complete and accurate disclosure of the nature and scope of the investigation requested. This disclosure shall be made in a writing mailed, or otherwise delivered, to the consumer not later than five days after the date on which the request for such disclosure was received from the consumer or such report was first requested, whichever is the later.
(c) Limitation on liability upon showing of reasonable procedures for compliance with provisions. No person may be held liable for any violation of subsection (a) or (b) of this section if he shows by a preponderance of the evidence that at the time of the violation he maintained reasonable procedures to assure compliance with subsection (a) or (b) of this section.
(d) Prohibitions.
(1) Certification. A consumer reporting agency shall not prepare or furnish investigative consumer report unless the agency has received a certification under subsection (a) (2) from the person who requested the report.

(2) Inquiries. A consumer reporting agency shall not make an inquiry for the purpose of preparing an investigative consumer report on a consumer for employment purposes if the making of the inquiry by an employer or prospective employer of the consumer would violate any applicable Federal or State equal employment opportunity law or regulation.

(3) Certain public record information. Except as otherwise provided in section 613 [§ 1681k], a consumer reporting agency shall not furnish an investigative consumer report that includes information that is a matter of public record and that relates to an arrest, indictment, conviction, civil judicial action, tax lien, or outstanding judgment, unless the agency has verified the accuracy of the information during the 30-day period ending on the date on which the report is furnished.

(4) Certain adverse information. A consumer reporting agency shall not prepare or furnish an investigative consumer report on a consumer that contains information that is adverse to the interest of the consumer and that is obtained through a personal interview with a neighbor, friend, or associate of the consumer or with another person with whom the consumer is acquainted or who has knowledge of such item of information, unless

(A) the agency has followed reasonable procedures to obtain confirmation of the information, from an additional source that has independent and direct knowledge of the information; or

(B) the person interviewed is the best possible source of the information.
§ 607. Compliance procedures [15 U.S.C. § 1681e]
(a) Identity and purposes of credit users. Every consumer reporting agency shall maintain reasonable procedures designed to avoid violations of section 605 [§ 1681c] and to limit the furnishing of consumer reports to the purposes listed under section 604 [§ 1681b] of this title. These procedures shall require that prospective users of the information identify themselves, certify the purposes for which the information is sought, and certify that the information will be used for no other purpose. Every consumer reporting agency shall make a reasonable effort to verify the identity of a new prospective user and the uses certified by such prospective user prior to furnishing such user a consumer report. No consumer reporting agency may furnish a consumer report to any person if it has reasonable grounds for believing that the consumer report will not be used for a purpose listed in section 604 [§ 1681b] of this title.
(b) Accuracy of report. Whenever a consumer reporting agency prepares a consumer report it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.
(c) Disclosure of consumer reports by users allowed. A consumer reporting agency may not prohibit a user of a consumer report furnished by the agency on a consumer from disclosing the contents of the report to the consumer, if adverse action against the consumer has been taken by the user based in whole or in part on the report.
(d) Notice to users and furnishers of information.
(1) Notice requirement. A consumer reporting agency shall provide to any person

(A) who regularly and in the ordinary course of business furnishes information to the agency with respect to any consumer; or

(B) to whom a consumer report is provided by the agency;

a notice of such person’s responsibilities under this title.

(2) Content of notice. The Federal Trade Commission shall prescribe the content of notices under paragraph (1), and a consumer reporting agency shall be in compliance with this subsection if it provides a notice under paragraph (1) that is substantially similar to the Federal Trade Commission prescription under this paragraph.
(e) Procurement of consumer report for resale.
(1) Disclosure. A person may not procure a consumer report for purposes of reselling the report (or any information in the report) unless the person discloses to the consumer reporting agency that originally furnishes the report

(A) the identity of the end-user of the report (or information); and

(B) each permissible purpose under section 604 [§ 1681b] for which the report is furnished to the end-user of the report (or information).

(2) Responsibilities of procurers for resale. A person who procures a consumer report for purposes of reselling the report (or any information in the report) shall

(A) establish and comply with reasonable procedures designed to ensure that the report (or information) is resold by the person only for a purpose for which the report may be furnished under section 604 [§ 1681b], including by requiring that each person to which the report (or information) is resold and that resells or provides the report (or information) to any other person

(i) identifies each end user of the resold report (or information);

(ii) certifies each purpose for which the report (or information) will be used; and

(iii) certifies that the report (or information) will be used for no other purpose; and

(B) before reselling the report, make reasonable efforts to verify the identifications and certifications made under subparagraph (A).
(3) Resale of consumer report to a federal agency or department. Notwithstanding paragraph (1) or (2), a person who procures a consumer report for purposes of reselling the report (or any information in the report) shall not disclose the identity of the end-user of the report under paragraph (1) or (2) if –
(A) the end user is an agency or department of the United States Government which procures the report from the person for purposes of determining the eligibility of the consumer concerned to receive access or continued access to classified information (as defined in section 604(b)(4)(E)(i)); and

(B) the agency or department certifies in writing to the person reselling the report that nondisclosure is necessary to protect classified information or the safety of persons employed by or contracting with, or undergoing investigation for work or contracting with the agency or department.
§ 608. Disclosures to governmental agencies [15 U.S.C. § 1681f]
Notwithstanding the provisions of section 604 [§ 1681b] of this title, a consumer reporting agency may furnish identifying information respecting any consumer, limited to his name, address, former addresses, places of employment, or former places of employment, to a governmental agency.
§ 609. Disclosures to consumers [15 U.S.C. § 1681g]
(a) Information on file; sources; report recipients. Every consumer reporting agency shall, upon request, and subject to 610(a) (1) [§ 1681h], clearly and accurately disclose to the consumer:
(1) All information in the consumer’s file at the time of the request, except that nothing in this paragraph shall be construed to require a consumer reporting agency to disclose to a consumer any information concerning credit scores or any other risk scores or predictors relating to the consumer.

(2) The sources of the information; except that the sources of information acquired solely for use in preparing an investigative consumer report and actually used for no other purpose need not be disclosed: Provided, That in the event an action is brought under this title, such sources shall be available to the plaintiff under appropriate discovery procedures in the court in which the action is brought.

(3) (A) Identification of each person (including each end-user identified under section 607(e) (1) [§ 1681e]) that procured a consumer report

(i) for employment purposes, during the 2-year period preceding the date on which the request is made; or
(ii) for any other purpose, during the 1-year period preceding the date on which the request is made.
(B) An identification of a person under subparagraph (A) shall include

(i) the name of the person or, if applicable, the trade name (written in full) under which such person conducts business; and

(ii) upon request of the consumer, the address and telephone number of the person.

(C) Subparagraph (A) does not apply if–

(i) the end user is an agency or department of the United States Government that procures the report from the person for purposes of determining the eligibility of the consumer to whom the report relates to receive access or continued access to classified information (as defined in section 604(b)(4)(E)(i)); and

(ii) the head of the agency or department makes a written finding as prescribed under section 604(b) (4) (A).
(4) The dates, original payees, and amounts of any checks upon which is based any adverse characterization of the consumer, included in the file at the time of the disclosure.

(5) A record of all inquiries received by the agency during the 1-year period preceding the request that identified the consumer in connection with a credit or insurance transaction that was not initiated by the consumer.
(b) Exempt information. The requirements of subsection (a) of this section respecting the disclosure of sources of information and the recipients of consumer reports do not apply to information received or consumer reports furnished prior to the effective date of this title except to the extent that the matter involved is contained in the files of the consumer reporting agency on that date.
(c) Summary of rights required to be included with disclosure.
(1) Summary of rights. A consumer reporting agency shall provide to a consumer, with each written disclosure by the agency to the consumer under this section

(A) a written summary of all of the rights that the consumer has under this title; and

(B) in the case of a consumer reporting agency that compiles and maintains files on consumers on a nationwide basis, a toll-free telephone number established by the agency, at which personnel are accessible to consumers during normal business hours.

(2) Specific items required to be included. The summary of rights required under paragraph (1) shall include

(A) a brief description of this title and all rights of consumers under this title;

(B) an explanation of how the consumer may exercise the rights of the consumer under this title;

(C) a list of all Federal agencies responsible for enforcing any provision of this title and the address and any appropriate phone number of each such agency, in a form that will assist the consumer in selecting the appropriate agency;

(D) a statement that the consumer may have additional rights under State law and that the consumer may wish to contact a State or local consumer protection agency or a State attorney general to learn of those rights; and

(E) a statement that a consumer reporting agency is not required to remove accurate derogatory information from a consumer’s file, unless the information is outdated under section 605 [§ 1681c] or cannot be verified.

(3) Form of summary of rights. For purposes of this subsection and any disclosure by a consumer reporting agency required under this title with respect to consumers’ rights, the Federal Trade Commission (after consultation with each Federal agency referred to in section 621(b) [§ 1681s]) shall prescribe the form and content of any such disclosure of the rights of consumers required under this title. A consumer reporting agency shall be in compliance with this subsection if it provides disclosures under paragraph (1) that are substantially similar to the Federal Trade Commission prescription under this paragraph.

(4) Effectiveness. No disclosures shall be required under this subsection until the date on which the Federal Trade Commission prescribes the form and content of such disclosures under paragraph (3).
§ 610. Conditions and form of disclosure to consumers [15 U.S.C. § 1681h]
(a) In general.
(1) Proper identification. A consumer reporting agency shall require, as a condition of making the disclosures required under section 609 [§ 1681g], that the consumer furnish proper identification.

(2) Disclosure in writing. Except as provided in subsection (b), the disclosures required to be made under section 609 [§ 1681g] shall be provided under that section in writing.
(b) Other forms of disclosure.
(1) In general. If authorized by a consumer, a consumer reporting agency may make the disclosures required under 609 [§ 1681g]

(A) other than in writing; and

(B) in such form as may be

(i) specified by the consumer in accordance with paragraph (2); and

(ii) available from the agency.

(2) Form. A consumer may specify pursuant to paragraph (1) that disclosures under section 609 [§ 1681g] shall be made

(A) in person, upon the appearance of the consumer at the place of business of the consumer reporting agency where disclosures are regularly provided, during normal business hours, and on reasonable notice;

(B) by telephone, if the consumer has made a written request for disclosure by telephone;

(C) by electronic means, if available from the agency; or

(D) by any other reasonable means that is available from the agency.
(c) Trained personnel. Any consumer reporting agency shall provide trained personnel to explain to the consumer any information furnished to him pursuant to section 609 [§ 1681g] of this title.
(d) Persons accompanying consumer. The consumer shall be permitted to be accompanied by one other person of his choosing, who shall furnish reasonable identification. A consumer reporting agency may require the consumer to furnish a written statement granting permission to the consumer reporting agency to discuss the consumer’s file in such person’s presence.
(e) Limitation of liability. Except as provided in sections 616 and 617 [§§ 1681n and 1681o] of this title, no consumer may bring any action or proceeding in the nature of defamation, invasion of privacy, or negligence with respect to the reporting of information against any consumer reporting agency, any user of information, or any person who furnishes information to a consumer reporting agency, based on information disclosed pursuant to section 609, 610, or 615 [§§ 1681g, 1681h, or 1681m] of this title or based on information disclosed by a user of a consumer report to or for a consumer against whom the user has taken adverse action, based in whole or in part on the report, except as to false information furnished with malice or willful intent to injure such consumer.
§ 611. Procedure in case of disputed accuracy [15 U.S.C. § 1681i]
(a) Reinvestigations of disputed information.
(1) Reinvestigation required.

(A) In general. If the completeness or accuracy of any item of information contained in a consumer’s file at a consumer reporting agency is disputed by the consumer and the consumer notifies the agency directly of such dispute, the agency shall reinvestigate free of charge and record the current status of the disputed information, or delete the item from the file in accordance with paragraph (5), before the end of the 30-day period beginning on the date on which the agency receives the notice of the dispute from the consumer.

(B) Extension of period to reinvestigate. Except as provided in subparagraph (C), the 30-day period described in subparagraph (A) may be extended for not more than 15 additional days if the consumer reporting agency receives information from the consumer during that 30-day period that is relevant to the reinvestigation.

(C) Limitations on extension of period to reinvestigate. Subparagraph (B) shall not apply to any reinvestigation in which, during the 30-day period described in subparagraph (A), the information that is the subject of the reinvestigation is found to be inaccurate or incomplete or the consumer reporting agency determines that the information cannot be verified.

(2) Prompt notice of dispute to furnisher of information.

(A) In general. Before the expiration of the 5-business-day period beginning on the date on which a consumer reporting agency receives notice of a dispute from any consumer in accordance with paragraph (1), the agency shall provide notification of the dispute to any person who provided any item of information in dispute, at the address and in the manner established with the person. The notice shall include all relevant information regarding the dispute that the agency has received from the consumer.

(B) Provision of other information from consumer. The consumer reporting agency shall promptly provide to the person who provided the information in dispute all relevant information regarding the dispute that is received by the agency from the consumer after the period referred to in subparagraph (A) and before the end of the period referred to in paragraph (1)(A).

(3) Determination that dispute is frivolous or irrelevant.

(A) In general. Notwithstanding paragraph (1), a consumer reporting agency may terminate a reinvestigation of information disputed by a consumer under that paragraph if the agency reasonably determines that the dispute by the consumer is frivolous or irrelevant, including by reason of a failure by a consumer to provide sufficient information to investigate the disputed information.
(B) Notice of determination. Upon making any determination in accordance with subparagraph (A) that a dispute is frivolous or irrelevant, a consumer reporting agency shall notify the consumer of such determination not later than 5 business days after making such determination, by mail or, if authorized by the consumer for that purpose, by any other means available to the agency.
(C) Contents of notice. A notice under subparagraph (B) shall include
(i) the reasons for the determination under subparagraph (A); and
(ii) identification of any information required to investigate the disputed information, which may consist of a standardized form describing the general nature of such information.
(4) Consideration of consumer information. In conducting any reinvestigation under paragraph (1) with respect to disputed information in the file of any consumer, the consumer reporting agency shall review and consider all relevant information submitted by the consumer in the period described in paragraph (1)(A) with respect to such disputed information.

(5) Treatment of inaccurate or unverifiable information.

(A) In general. If, after any reinvestigation under paragraph (1) of any information disputed by a consumer, an item of the information is found to be inaccurate or incomplete or cannot be verified, the consumer reporting agency shall promptly delete that item of information from the consumer’s file or modify that item of information, as appropriate, based on the results of the reinvestigation.
(B) Requirements relating to reinsertion of previously deleted material.
(i) Certification of accuracy of information. If any information is deleted from a consumer’s file pursuant to subparagraph (A), the information may not be reinserted in the file by the consumer reporting agency unless the person who furnishes the information certifies that the information is complete and accurate.
(ii) Notice to consumer. If any information that has been deleted from a consumer’s file pursuant to subparagraph (A) is reinserted in the file, the consumer reporting agency shall notify the consumer of the reinsertion in writing not later than 5 business days after the reinsertion or, if authorized by the consumer for that purpose, by any other means available to the agency.
(iii) Additional information. As part of, or in addition to, the notice under clause (ii), a consumer reporting agency shall provide to a consumer in writing not later than 5 business days after the date of the reinsertion
(I) a statement that the disputed information has been reinserted;
(II) the business name and address of any furnisher of information contacted and the telephone number of such furnisher, if reasonably available, or of any furnisher of information that contacted the consumer reporting agency, in connection with the reinsertion of such information; and
(III) a notice that the consumer has the right to add a statement to the consumer’s file disputing the accuracy or completeness of the disputed information.
(C) Procedures to prevent reappearance. A consumer reporting agency shall maintain reasonable procedures designed to prevent the reappearance in a consumer’s file, and in consumer reports on the consumer, of information that is deleted pursuant to this paragraph (other than information that is reinserted in accordance with subparagraph (B)(i)).
(D) Automated reinvestigation system. Any consumer reporting agency that compiles and maintains files on consumers on a nationwide basis shall implement an automated system through which furnishers of information to that consumer reporting agency may report the results of a reinvestigation that finds incomplete or inaccurate information in a consumer’s file to other such consumer reporting agencies.
(6) Notice of results of reinvestigation.

(A) In general. A consumer reporting agency shall provide written notice to a consumer of the results of a reinvestigation under this subsection not later than 5 business days after the completion of the reinvestigation, by mail or, if authorized by the consumer for that purpose, by other means available to the agency.
(B) Contents. As part of, or in addition to, the notice under subparagraph (A), a consumer reporting agency shall provide to a consumer in writing before the expiration of the 5-day period referred to in subparagraph (A)
(i) a statement that the reinvestigation is completed;
(ii) a consumer report that is based upon the consumer’s file as that file is revised as a result of the reinvestigation;
(iii) a notice that, if requested by the consumer, a description of the procedure used to determine the accuracy and completeness of the information shall be provided to the consumer by the agency, including the business name and address of any furnisher of information contacted in connection with such information and the telephone number of such furnisher, if reasonably available;
(iv) a notice that the consumer has the right to add a statement to the consumer’s file disputing the accuracy or completeness of the information; and
(v) a notice that the consumer has the right to request under subsection (d) that the consumer reporting agency furnish notifications under that subsection.
(7) Description of reinvestigation procedure. A consumer reporting agency shall provide to a consumer a description referred to in paragraph (6) (B) (iii) by not later than 15 days after receiving a request from the consumer for that description.

(8) Expedited dispute resolution. If a dispute regarding an item of information in a consumer’s file at a consumer reporting agency is resolved in accordance with paragraph (5)(A) by the deletion of the disputed information by not later than 3 business days after the date on which the agency receives notice of the dispute from the consumer in accordance with paragraph (1)(A), then the agency shall not be required to comply with paragraphs (2), (6), and (7) with respect to that dispute if the agency
(A) provides prompt notice of the deletion to the consumer by telephone;
(B) includes in that notice, or in a written notice that accompanies a confirmation and consumer report provided in accordance with subparagraph (C), a statement of the consumer’s right to request under subsection (d) that the agency furnish notifications under that subsection; and
(C) provides written confirmation of the deletion and a copy of a consumer report on the consumer that is based on the consumer’s file after the deletion, not later than 5 business days after making the deletion.
(b) Statement of dispute. If the reinvestigation does not resolve the dispute, the consumer may file a brief statement setting forth the nature of the dispute. The consumer reporting agency may limit such statements to not more than one hundred words if it provides the consumer with assistance in writing a clear summary of the dispute.
(c) Notification of consumer dispute in subsequent consumer reports. Whenever a statement of a dispute is filed, unless there is reasonable grounds to believe that it is frivolous or irrelevant, the consumer reporting agency shall, in any subsequent consumer report containing the information in question, clearly note that it is disputed by the consumer and provide either the consumer’s statement or a clear and accurate codification or summary thereof.
(d) Notification of deletion of disputed information. Following any deletion of information which is found to be inaccurate or whose accuracy can no longer be verified or any notation as to disputed information, the consumer reporting agency shall, at the request of the consumer, furnish notification that the item has been deleted or the statement, codification or summary pursuant to subsection (b) or (c) of this section to any person specifically designated by the consumer who has within two years prior thereto received a consumer report for employment purposes, or within six months prior thereto received a consumer report for any other purpose, which contained the deleted or disputed information.
§ 612. Charges for certain disclosures [15 U.S.C. § 1681j]
(a) Reasonable charges allowed for certain disclosures.
(1) In general. Except as provided in subsections (b), (c), and (d), a consumer reporting agency may impose a reasonable charge on a consumer

(A) for making a disclosure to the consumer pursuant to section 609 [§ 1681g], which charge
(i) shall not exceed $8; and
(ii) shall be indicated to the consumer before making the disclosure; and
(B) for furnishing, pursuant to 611(d) [§ 1681i], following a reinvestigation under section 611(a) [§ 1681i], a statement, codification, or summary to a person designated by the consumer under that section after the 30-day period beginning on the date of notification of the consumer under paragraph (6) or (8) of section 611(a) [§ 1681i] with respect to the reinvestigation, which charge
(i) shall not exceed the charge that the agency would impose on each designated recipient for a consumer report; and
(ii) shall be indicated to the consumer before furnishing such information.
(2) Modification of amount. The Federal Trade Commission shall increase the amount referred to in paragraph (1)(A)(I) on January 1 of each year, based proportionally on changes in the Consumer Price Index, with fractional changes rounded to the nearest fifty cents.
(b) Free disclosure after adverse notice to consumer. Each consumer reporting agency that maintains a file on a consumer shall make all disclosures pursuant to section 609 [§ 1681g] without charge to the consumer if, not later than 60 days after receipt by such consumer of a notification pursuant to section 615 [§ 1681m], or of a notification from a debt collection agency affiliated with that consumer reporting agency stating that the consumer’s credit rating may be or has been adversely affected, the consumer makes a request under section 609 [§ 1681g].
(c) Free disclosure under certain other circumstances. Upon the request of the consumer, a consumer reporting agency shall make all disclosures pursuant to section 609 [§ 1681g] once during any 12-month period without charge to that consumer if the consumer certifies in writing that the consumer
(1) is unemployed and intends to apply for employment in the 60-day period beginning on the date on which the certification is made;

(2) is a recipient of public welfare assistance; or

(3) has reason to believe that the file on the consumer at the agency contains inaccurate information due to fraud.
(d) Other charges prohibited. A consumer reporting agency shall not impose any charge on a consumer for providing any notification required by this title or making any disclosure required by this title, except as authorized by subsection (a).
§ 613. Public record information for employment purposes [15 U.S.C. § 1681k]
(a) In general. A consumer reporting agency which furnishes a consumer report for employment purposes and which for that purpose compiles and reports items of information on consumers which are matters of public record and are likely to have an adverse effect upon a consumer’s ability to obtain employment shall
(1) at the time such public record information is reported to the user of such consumer report, notify the consumer of the fact that public record information is being reported by the consumer reporting agency, together with the name and address of the person to whom such information is being reported; or

(2) maintain strict procedures designed to insure that whenever public record information which is likely to have an adverse effect on a consumer’s ability to obtain employment is reported it is complete and up to date. For purposes of this paragraph, items of public record relating to arrests, indictments, convictions, suits, tax liens, and outstanding judgments shall be considered up to date if the current public record status of the item at the time of the report is reported.
(b) Exemption for national security investigations. Subsection (a) does not apply in the case of an agency or department of the United States Government that seeks to obtain and use a consumer report for employment purposes, if the head of the agency or department makes a written finding as prescribed under section 604(b)(4)(A).
§ 614. Restrictions on investigative consumer reports [15 U.S.C. § 1681l]
Whenever a consumer reporting agency prepares an investigative consumer report, no adverse information in the consumer report (other than information which is a matter of public record) may be included in a subsequent consumer report unless such adverse information has been verified in the process of making such subsequent consumer report, or the adverse information was received within the three-month period preceding the date the subsequent report is furnished.
§ 615. Requirements on users of consumer reports [15 U.S.C. § 1681m]
(a) Duties of users taking adverse actions on the basis of information contained in consumer reports. If any person takes any adverse action with respect to any consumer that is based in whole or in part on any information contained in a consumer report, the person shall
(1) provide oral, written, or electronic notice of the adverse action to the consumer;

(2) provide to the consumer orally, in writing, or electronically

(A) the name, address, and telephone number of the consumer reporting agency (including a toll-free telephone number established by the agency if the agency compiles and maintains files on consumers on a nationwide basis) that furnished the report to the person; and
(B) a statement that the consumer reporting agency did not make the decision to take the adverse action and is unable to provide the consumer the specific reasons why the adverse action was taken; and
(3) provide to the consumer an oral, written, or electronic notice of the consumer’s right

(A) to obtain, under section 612 [§ 1681j], a free copy of a consumer report on the consumer from the consumer reporting agency referred to in paragraph (2), which notice shall include an indication of the 60-day period under that section for obtaining such a copy; and

(B) to dispute, under section 611 [§ 1681i], with a consumer reporting agency the accuracy or completeness of any information in a consumer report furnished by the agency.
(b) Adverse action based on information obtained from third parties other than consumer reporting agencies.
(1) In general. Whenever credit for personal, family, or household purposes involving a consumer is denied or the charge for such credit is increased either wholly or partly because of information obtained from a person other than a consumer reporting agency bearing upon the consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living, the user of such information shall, within a reasonable period of time, upon the consumer’s written request for the reasons for such adverse action received within sixty days after learning of such adverse action, disclose the nature of the information to the consumer. The user of such information shall clearly and accurately disclose to the consumer his right to make such written request at the time such adverse action is communicated to the consumer.

(2) Duties of person taking certain actions based on information provided by affiliate.

(A) Duties, generally. If a person takes an action described in subparagraph (B) with respect to a consumer, based in whole or in part on information described in subparagraph (C), the person shall
(i) notify the consumer of the action, including a statement that the consumer may obtain the information in accordance with clause (ii); and
(ii) upon a written request from the consumer received within 60 days after transmittal of the notice required by clause (I), disclose to the consumer the nature of the information upon which the action is based by not later than 30 days after receipt of the request.
(B) Action described. An action referred to in subparagraph (A) is an adverse action described in section 603(k)(1)(A) [§ 1681a], taken in connection with a transaction initiated by the consumer, or any adverse action described in clause (i) or (ii) of section 603(k)(1)(B) [§ 1681a].
(C) Information described. Information referred to in subparagraph (A)
(i) except as provided in clause (ii), is information that
(I) is furnished to the person taking the action by a person related by common ownership or affiliated by common corporate control to the person taking the action; and

(II) bears on the credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living of the consumer; and

(ii) does not include

(I) information solely as to transactions or experiences between the consumer and the person furnishing the information; or

(II) information in a consumer report.
(c) Reasonable procedures to assure compliance. No person shall be held liable for any violation of this section if he shows by a preponderance of the evidence that at the time of the alleged violation he maintained reasonable procedures to assure compliance with the provisions of this section.
(d) Duties of users making written credit or insurance solicitations on the basis of information contained in consumer files.
(1) In general. Any person who uses a consumer report on any consumer in connection with any credit or insurance transaction that is not initiated by the consumer, that is provided to that person under section 604(c)(1)(B) [§ 1681b], shall provide with each written solicitation made to the consumer regarding the transaction a clear and conspicuous statement that

(A) information contained in the consumer’s consumer report was used in connection with the transaction;
(B) the consumer received the offer of credit or insurance because the consumer satisfied the criteria for credit worthiness or insurability under which the consumer was selected for the offer;
(C) if applicable, the credit or insurance may not be extended if, after the consumer responds to the offer, the consumer does not meet the criteria used to select the consumer for the offer or any applicable criteria bearing on credit worthiness or insurability or does not furnish any required collateral;
(D) the consumer has a right to prohibit information contained in the consumer’s file with any consumer reporting agency from being used in connection with any credit or insurance transaction that is not initiated by the consumer; and
(E) the consumer may exercise the right referred to in subparagraph (D) by notifying a notification system established under section 604(e) [§ 1681b].
(2) Disclosure of address and telephone number. A statement under paragraph (1) shall include the address and toll-free telephone number of the appropriate notification system established under section 604(e) [§ 1681b].

(3) Maintaining criteria on file. A person who makes an offer of credit or insurance to a consumer under a credit or insurance transaction described in paragraph (1) shall maintain on file the criteria used to select the consumer to receive the offer, all criteria bearing on credit worthiness or insurability, as applicable, that are the basis for determining whether or not to extend credit or insurance pursuant to the offer, and any requirement for the furnishing of collateral as a condition of the extension of credit or insurance, until the expiration of the 3-year period beginning on the date on which the offer is made to the consumer.

(4) Authority of federal agencies regarding unfair or deceptive acts or practices not affected. This section is not intended to affect the authority of any Federal or State agency to enforce a prohibition against unfair or deceptive acts or practices, including the making of false or misleading statements in connection with a credit or insurance transaction that is not initiated by the consumer.
§ 616. Civil liability for willful noncompliance [15 U.S.C. § 1681n]
(a) In general. Any person who willfully fails to comply with any requirement imposed under this title with respect to any consumer is liable to that consumer in an amount equal to the sum of

(1) (A) any actual damages sustained by the consumer as a result of the failure or damages of not less than $100 and not more than $1,000; or

(B) in the case of liability of a natural person for obtaining a consumer report under false pretenses or knowingly without a permissible purpose, actual damages sustained by the consumer as a result of the failure or $1,000, whichever is greater;
(2) such amount of punitive damages as the court may allow; and

(3) in the case of any successful action to enforce any liability under this section, the costs of the action together with reasonable attorney’s fees as determined by the court.
(b) Civil liability for knowing noncompliance. Any person who obtains a consumer report from a consumer reporting agency under false pretenses or knowingly without a permissible purpose shall be liable to the consumer reporting agency for actual damages sustained by the consumer reporting agency or $1,000, whichever is greater.
(c) Attorney’s fees. Upon a finding by the court that an unsuccessful pleading, motion, or other paper filed in connection with an action under this section was filed in bad faith or for purposes of harassment, the court shall award to the prevailing party attorney’s fees reasonable in relation to the work expended in responding to the pleading, motion, or other paper.
§ 617. Civil liability for negligent noncompliance [15 U.S.C. § 1681o]
(a) In general. Any person who is negligent in failing to comply with any requirement imposed under this title with respect to any consumer is liable to that consumer in an amount equal to the sum of
(1) any actual damages sustained by the consumer as a result of the failure;

(2) in the case of any successful action to enforce any liability under this section, the costs of the action together with reasonable attorney’s fees as determined by the court.
(b) Attorney’s fees. On a finding by the court that an unsuccessful pleading, motion, or other paper filed in connection with an action under this section was filed in bad faith or for purposes of harassment, the court shall award to the prevailing party attorney’s fees reasonable in relation to the work expended in responding to the pleading, motion, or other paper.
§ 618. Jurisdiction of courts; limitation of actions [15 U.S.C. § 1681p]
An action to enforce any liability created under this title may be brought in any appropriate United States district court without regard to the amount in controversy, or in any other court of competent jurisdiction, within two years from the date on which the liability arises, except that where a defendant has materially and willfully misrepresented any information required under this title to be disclosed to an individual and the information so misrepresented is material to the establishment of the defendant’s liability to that individual under this title, the action may be brought at any time within two years after discovery by the individual of the misrepresentation.
§ 619. Obtaining information under false pretenses [15 U.S.C. § 1681q]
Any person who knowingly and willfully obtains information on a consumer from a consumer reporting agency under false pretenses shall be fined under title 18, United States Code, imprisoned for not more than 2 years, or both.
§ 620. Unauthorized disclosures by officers or employees [15 U.S.C. § 1681r]
Any officer or employee of a consumer reporting agency who knowingly and willfully provides information concerning an individual from the agency’s files to a person not authorized to receive that information shall be fined under title 18, United States Code, imprisoned for not more than 2 years, or both.
§ 621. Administrative enforcement [15 U.S.C. § 1681s]
(a) (1) Enforcement by Federal Trade Commission. Compliance with the requirements imposed under this title shall be enforced under the Federal Trade Commission Act [15 U.S.C. §§ 41 et seq.] by the Federal Trade Commission with respect to consumer reporting agencies and all other persons subject thereto, except to the extent that enforcement of the requirements imposed under this title is specifically committed to some other government agency under subsection (b) hereof. For the purpose of the exercise by the Federal Trade Commission of its functions and powers under the Federal Trade Commission Act, a violation of any requirement or prohibition imposed under this title shall constitute an unfair or deceptive act or practice in commerce in violation of section 5(a) of the Federal Trade Commission Act [15 U.S.C. § 45(a)] and shall be subject to enforcement by the Federal Trade Commission under section 5(b) thereof [15 U.S.C. § 45(b)] with respect to any consumer reporting agency or person subject to enforcement by the Federal Trade Commission pursuant to this subsection, irrespective of whether that person is engaged in commerce or meets any other jurisdictional tests in the Federal Trade Commission Act. The Federal Trade Commission shall have such procedural, investigative, and enforcement powers, including the power to issue procedural rules in enforcing compliance with the requirements imposed under this title and to require the filing of reports, the production of documents, and the appearance of witnesses as though the applicable terms and conditions of the Federal Trade Commission Act were part of this title. Any person violating any of the provisions of this title shall be subject to the penalties and entitled to the privileges and immunities provided in the Federal Trade Commission Act as though the applicable terms and provisions thereof were part of this title.
2) (A) In the event of a knowing violation, which constitutes a pattern or practice of violations of this title, the Commission may commence a civil action to recover a civil penalty in a district court of the United States against any person that violates this title. In such action, such person shall be liable for a civil penalty of not more than $2,500 per violation.

(B) In determining the amount of a civil penalty under subparagraph (A), the court shall take into account the degree of culpability, any history of prior such conduct, ability to pay, effect on ability to continue to do business, and such other matters as justice may require.

(3) Notwithstanding paragraph (2), a court may not impose any civil penalty on a person for a violation of section 623(a)(1) [§ 1681s-2] unless the person has been enjoined from committing the violation, or ordered not to commit the violation, in an action or proceeding brought by or on behalf of the Federal Trade Commission, and has violated the injunction or order, and the court may not impose any civil penalty for any violation occurring before the date of the violation of the injunction or order.

(4) Neither the Commission nor any other agency referred to in subsection (b) may prescribe trade regulation rules or other regulations with respect to this title.
(b) Enforcement by other agencies. Compliance with the requirements imposed under this title with respect to consumer reporting agencies, persons who use consumer reports from such agencies, persons who furnish information to such agencies, and users of information that are subject to subsection (d) of section 615 [§ 1681m] shall be enforced under
(1) section 8 of the Federal Deposit Insurance Act [12 U.S.C. § 1818], in the case of

(A) national banks, and Federal branches and Federal agencies of foreign banks, by the Office of the Comptroller of the Currency;
(B) member banks of the Federal Reserve System (other than national 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 25(a) [25A] of the Federal Reserve Act [12 U.S.C. §§ 601 et seq., §§ 611 et seq], by the Board of Governors of the Federal Reserve System; and
(C) banks insured by the Federal Deposit Insurance Corporation (other than members of the Federal Reserve System) and insured State branches of foreign banks, by the Board of Directors of the Federal Deposit Insurance Corporation;
(2) section 8 of the Federal Deposit Insurance Act [12 U.S.C. § 1818], by the Director of the Office of Thrift Supervision, in the case of a savings association the deposits of which are insured by the Federal Deposit Insurance Corporation;

(3) the Federal Credit Union Act [12 U.S.C. §§ 1751 et seq.], by the Administrator of the National Credit Union Administration [National Credit Union Administration Board] with respect to any Federal credit union;

(4) subtitle IV of title 49 [49 U.S.C. §§ 10101 et seq.], by the Secretary of Transportation, with respect to all carriers subject to the jurisdiction of the Surface Transportation Board;

(5) the Federal Aviation Act of 1958 [49 U.S.C. Appx §§ 1301 et seq.], by the Secretary of Transportation with respect to any air carrier or foreign air carrier subject to that Act [49 U.S.C. Appx §§ 1301 et seq.]; and

(6) the Packers and Stockyards Act, 1921 [7 U.S.C. §§ 181 et seq.] (except as provided in section 406 of that Act [7 U.S.C. §§ 226 and 227]), by the Secretary of Agriculture with respect to any activities subject to that Act.
The terms used in paragraph (1) that are not defined in this title or otherwise defined in section 3(s) of the Federal Deposit Insurance Act (12 U.S.C. § 1813(s)) shall have the meaning given to them in section 1(b) of the International Banking Act of 1978 (12 U.S.C. § 3101).
(c) State action for violations.
(1) Authority of states. In addition to such other remedies as are provided under State law, if the chief law enforcement officer of a State, or an official or agency designated by a State, has reason to believe that any person has violated or is violating this title, the State

(A) may bring an action to enjoin such violation in any appropriate United States district court or in any other court of competent jurisdiction;
(B) subject to paragraph (5), may bring an action on behalf of the residents of the State to recover
(i) damages for which the person is liable to such residents under sections 616 and 617 [§§ 1681n and 1681o] as a result of the violation;
(ii) in the case of a violation of section 623(a) [§ 1681s-2], damages for which the person would, but for section 623(c) [§ 1681s-2], be liable to such residents as a result of the violation; or
(iii) damages of not more than $1,000 for each willful or negligent violation; and
(C) in the case of any successful action under subparagraph (A) or (B), shall be awarded the costs of the action and reasonable attorney fees as determined by the court.
(2) Rights of federal regulators. The State shall serve prior written notice of any action under paragraph (1) upon the Federal Trade Commission or the appropriate Federal regulator determined under subsection (b) and provide the Commission or appropriate Federal regulator with a copy of its complaint, except in any case in which such prior notice is not feasible, in which case the State shall serve such notice immediately upon instituting such action. The Federal Trade Commission or appropriate Federal regulator shall have the right

(A) to intervene in the action;
(B) upon so intervening, to be heard on all matters arising therein;
(C) to remove the action to the appropriate United States district court; and
(D) to file petitions for appeal.
(3) Investigatory powers. For purposes of bringing any action under this subsection, nothing in this subsection shall prevent the chief law enforcement officer, or an official or agency designated by a State, from exercising the powers conferred on the chief law enforcement officer or such official by the laws of such State to conduct investigations or to administer oaths or affirmations or to compel the attendance of witnesses or the production of documentary and other evidence.

(4) Limitation on state action while federal action pending. If the Federal Trade Commission or the appropriate Federal regulator has instituted a civil action or an administrative action under section 8 of the Federal Deposit Insurance Act for a violation of this title, no State may, during the pendency of such action, bring an action under this section against any defendant named in the complaint of the Commission or the appropriate Federal regulator for any violation of this title that is alleged in that complaint.

(5) Limitations on state actions for violation of section 623(a) (1) [§ 1681s-2].

(A) Violation of injunction required. A State may not bring an action against a person under paragraph (1) (B) for a violation of section 623(a) (1) [§ 1681s-2], unless
(i) the person has been enjoined from committing the violation, in an action brought by the State under paragraph (1) (A); and
(ii) the person has violated the injunction.
(B) Limitation on damages recoverable. In an action against a person under paragraph (1) (B) for a violation of section 623(a) (1) [§ 1681s-2], a State may not recover any damages incurred before the date of the violation of an injunction on which the action is based.
(d) Enforcement under other authority. For the purpose of the exercise by any agency referred to in subsection (b) of this section of its powers under any Act referred to in that subsection, a violation of any requirement imposed under this title shall be deemed to be a violation of a requirement imposed under that Act. In addition to its powers under any provision of law specifically referred to in subsection (b) of this section, each of the agencies referred to in that subsection may exercise, for the purpose of enforcing compliance with any requirement imposed under this title any other authority conferred on it by law. Notwithstanding the preceding, no agency referred to in subsection (b) may conduct an examination of a bank, savings association, or credit union regarding compliance with the provisions of this title, except in response to a complaint (or if the agency otherwise has knowledge) that the bank, savings association, or credit union has violated a provision of this title, in which case, the agency may conduct an examination as necessary to investigate the complaint. If an agency determines during an investigation in response to a complaint that a violation of this title has occurred, the agency may, during its next 2 regularly scheduled examinations of the bank, savings association, or credit union, examine for compliance with this title.
(e) Interpretive authority. The Board of Governors of the Federal Reserve System may issue interpretations of any provision of this title as such provision may apply to any persons identified under paragraph (1), (2), and (3) of subsection (b), or to the holding companies and affiliates of such persons, in consultation with Federal agencies identified in paragraphs (1), (2), and (3) of subsection (b).
§ 622. Information on overdue child support obligations [15 U.S.C. § 1681s-1]
Notwithstanding any other provision of this title, a consumer reporting agency shall include in any consumer report furnished by the agency in accordance with section 604 [§ 1681b] of this title, any information on the failure of the consumer to pay overdue support which
(1) is provided

(A) to the consumer reporting agency by a State or local child support enforcement agency; or
(B) to the consumer reporting agency and verified by any local, State, or Federal government agency; and
(2) antedates the report by 7 years or less.
§ 623. Responsibilities of furnishers of information to consumer reporting agencies [15 U.S.C. § 1681s-2]
(a) Duty of furnishers of information to provide accurate information.
(1) Prohibition.

(A) Reporting information with actual knowledge of errors. A person shall not furnish any information relating to a consumer to any consumer reporting agency if the person knows or consciously avoids knowing that the information is inaccurate.
(B) Reporting information after notice and confirmation of errors. A person shall not furnish information relating to a consumer to any consumer reporting agency if
(i) the person has been notified by the consumer, at the address specified by the person for such notices, that specific information is inaccurate; and
(ii) the information is, in fact, inaccurate.
(C) No address requirement. A person who clearly and conspicuously specifies to the consumer an address for notices referred to in subparagraph (B) shall not be subject to subparagraph (A); however, nothing in subparagraph (B) shall require a person to specify such an address.
(2) Duty to correct and update information. A person who

(A) regularly and in the ordinary course of business furnishes information to one or more consumer reporting agencies about the person’s transactions or experiences with any consumer; and
(B) has furnished to a consumer reporting agency information that the person determines is not complete or accurate,
shall promptly notify the consumer reporting agency of that determination and provide to the agency any corrections to that information, or any additional information, that is necessary to make the information provided by the person to the agency complete and accurate, and shall not thereafter furnish to the agency any of the information that remains not complete or accurate.

(3) Duty to provide notice of dispute. If the completeness or accuracy of any information furnished by any person to any consumer reporting agency is disputed to such person by a consumer, the person may not furnish the information to any consumer reporting agency without notice that such information is disputed by the consumer.

(4) Duty to provide notice of closed accounts. A person who regularly and in the ordinary course of business furnishes information to a consumer reporting agency regarding a consumer who has a credit account with that person shall notify the agency of the voluntary closure of the account by the consumer, in information regularly furnished for the period in which the account is closed.

(5) Duty to provide notice of delinquency of accounts. A person who furnishes information to a consumer reporting agency regarding a delinquent account being placed for collection, charged to profit or loss, or subjected to any similar action shall, not later than 90 days after furnishing the information, notify the agency of the month and year of the commencement of the delinquency that immediately preceded the action.
(b) Duties of furnishers of information upon notice of dispute.
(1) In general. After receiving notice pursuant to section 611(a) (2) [§ 1681i] of a dispute with regard to the completeness or accuracy of any information provided by a person to a consumer reporting agency, the person shall

(A) conduct an investigation with respect to the disputed information;
(B) review all relevant information provided by the consumer reporting agency pursuant to section 611(a) (2) [§ 1681i];
(C) report the results of the investigation to the consumer reporting agency; and
(D) if the investigation finds that the information is incomplete or inaccurate, report those results to all other consumer reporting agencies to which the person furnished the information and that compile and maintain files on consumers on a nationwide basis.
(2) Deadline. A person shall complete all investigations, reviews, and reports required under paragraph (1) regarding information provided by the person to a consumer reporting agency, before the expiration of the period under section 611(a)(1) [§ 1681i] within which the consumer reporting agency is required to complete actions required by that section regarding that information.
(c) Limitation on liability. Sections 616 and 617 [§§ 1681n and 1681o] do not apply to any failure to comply with subsection (a), except as provided in section 621(c) (1) (B) [§ 1681s].
(d) Limitation on enforcement. Subsection (a) shall be enforced exclusively under section 621 [§ 1681s] by the Federal agencies and officials and the State officials identified in that section.
§ 624. Relation to State laws [15 U.S.C. § 1681t]
(a) In general. Except as provided in subsections (b) and (c), this title does not annul, alter, affect, or exempt any person subject to the provisions of this title from complying with the laws of any State with respect to the collection, distribution, or use of any information on consumers, except to the extent that those laws are inconsistent with any provision of this title, and then only to the extent of the inconsistency.
(b) General exceptions. No requirement or prohibition may be imposed under the laws of any State
(1) with respect to any subject matter regulated under

(A) subsection (c) or (e) of section 604 [§ 1681b], relating to the prescreening of consumer reports;
(B) section 611 [§ 1681i], relating to the time by which a consumer reporting agency must take any action, including the provision of notification to a consumer or other person, in any procedure related to the disputed accuracy of information in a consumer’s file, except that this subparagraph shall not apply to any State law in effect on the date of enactment of the Consumer Credit Reporting Reform Act of 1996;
(C) subsections (a) and (b) of section 615 [§ 1681m], relating to the duties of a person who takes any adverse action with respect to a consumer;
(D) section 615(d) [§ 1681m], relating to the duties of persons who use a consumer report of a consumer in connection with any credit or insurance transaction that is not initiated by the consumer and that consists of a firm offer of credit or insurance;
(E) section 605 [§ 1681c], relating to information contained in consumer reports, except that this subparagraph shall not apply to any State law in effect on the date of enactment of the Consumer Credit Reporting Reform Act of 1996; or
(F) section 623 [§ 1681s-2], relating to the responsibilities of persons who furnish information to consumer reporting agencies, except that this paragraph shall not apply
(i) with respect to section 54A (a) of chapter 93 of the Massachusetts Annotated Laws (as in effect on the date of enactment of the Consumer Credit Reporting Reform Act of 1996); or
(ii) with respect to section 1785.25(a) of the California Civil Code (as in effect on the date of enactment of the Consumer Credit Reporting Reform Act of 1996);
(2) with respect to the exchange of information among persons affiliated by common ownership or common corporate control, except that this paragraph shall not apply with respect to subsection (a) or (c)(1) of section 2480e of title 9, Vermont Statutes Annotated (as in effect on the date of enactment of the Consumer Credit Reporting Reform Act of 1996); or

(3) with respect to the form and content of any disclosure required to be made under section 609(c) [§ 1681g].
(c) Definition of firm offer of credit or insurance. Notwithstanding any definition of the term “firm offer of credit or insurance” (or any equivalent term) under the laws of any State, the definition of that term contained in section 603(l) [§ 1681a] shall be construed to apply in the enforcement and interpretation of the laws of any State governing consumer reports.
(d) Limitations. Subsections (b) and (c)
(1) do not affect any settlement, agreement, or consent judgment between any State Attorney General and any consumer reporting agency in effect on the date of enactment of the Consumer Credit Reporting Reform Act of 1996; and

(2) do not apply to any provision of State law (including any provision of a State constitution) that

(A) is enacted after January 1, 2004;
(B) states explicitly that the provision is intended to supplement this title; and
(C) gives greater protection to consumers than is provided under this title.
§ 625. Disclosures to FBI for counterintelligence purposes [15 U.S.C. § 1681u]
(a) Identity of financial institutions. Notwithstanding section 604 [§ 1681b] or any other provision of this title, a consumer reporting agency shall furnish to the Federal Bureau of Investigation the names and addresses of all financial institutions (as that term is defined in section 1101 of the Right to Financial Privacy Act of 1978 [12 U.S.C. § 3401]) at which a consumer maintains or has maintained an account, to the extent that information is in the files of the agency, when presented with a written request for that information, signed by the Director of the Federal Bureau of Investigation, or the Director’s designee, which certifies compliance with this section. The Director or the Director’s designee may make such a certification only if the Director or the Director’s designee has determined in writing that
(1) such information is necessary for the conduct of an authorized foreign counterintelligence investigation; and

(2) there are specific and articulate able facts giving reason to believe that the consumer

(A) is a foreign power (as defined in section 101 of the Foreign Intelligence Surveillance Act of 1978 [50 U.S.C. § 1801]) or a person who is not a United States person (as defined in such section 101) and is an official of a foreign power; or
(B) is an agent of a foreign power and is engaging or has engaged in an act of international terrorism (as that term is defined in section 101(c) of the Foreign Intelligence Surveillance Act of 1978 [50 U.S.C. § 1801(c)]) or clandestine intelligence activities that involve or may involve a violation of criminal statutes of the United States.
(b) Identifying information. Notwithstanding the provisions of section 604 [§ 1681b] or any other provision of this title, a consumer reporting agency shall furnish identifying information respecting a consumer, limited to name, address, former addresses, places of employment, or former places of employment, to the Federal Bureau of Investigation when presented with a written request, signed by the Director or the Director’s designee, which certifies compliance with this subsection. The Director or the Director’s designee may make such a certification only if the Director or the Director’s designee has determined in writing that
(1) such information is necessary to the conduct of an authorized counterintelligence investigation; and

(2) there is information giving reason to believe that the consumer has been, or is about to be, in contact with a foreign power or an agent of a foreign power (as defined in section 101 of the Foreign Intelligence Surveillance Act of 1978 [50 U.S.C. § 1801]).
(c) Court order for disclosure of consumer reports. Notwithstanding section 604 [§ 1681b] or any other provision of this title, if requested in writing by the Director of the Federal Bureau of Investigation, or a designee of the Director, a court may issue an order ex parte directing a consumer reporting agency to furnish a consumer report to the Federal Bureau of Investigation, upon a showing in camera that
(1) the consumer report is necessary for the conduct of an authorized foreign counterintelligence investigation; and

(2) there are specific and articulable facts giving reason to believe that the consumer whose consumer report is sought

(A) is an agent of a foreign power, and
(B) is engaging or has engaged in an act of international terrorism (as that term is defined in section 101(c) of the Foreign Intelligence Surveillance Act of 1978 [50 U.S.C. § 1801(c)]) or clandestine intelligence activities that involve or may involve a violation of criminal statutes of the United States.
The terms of an order issued under this subsection shall not disclose that the order is issued for purposes of a counterintelligence investigation.
(d) Confidentiality. No consumer reporting agency or officer, employee, or agent of a consumer reporting agency shall disclose to any person, other than those officers, employees, or agents of a consumer reporting agency necessary to fulfill the requirement to disclose information to the Federal Bureau of Investigation under this section, that the Federal Bureau of Investigation has sought or obtained the identity of financial institutions or a consumer report respecting any consumer under subsection (a), (b), or (c), and no consumer reporting agency or officer, employee, or agent of a consumer reporting agency shall include in any consumer report any information that would indicate that the Federal Bureau of Investigation has sought or obtained such information or a consumer report.
(e) Payment of fees. The Federal Bureau of Investigation shall, subject to the availability of appropriations, pay to the consumer reporting agency assembling or providing report or information in accordance with procedures established under this section a fee for reimbursement for such costs as are reasonably necessary and which have been directly incurred in searching, reproducing, or transporting books, papers, records, or other data required or requested to be produced under this section.
(f) Limit on dissemination. The Federal Bureau of Investigation may not disseminate information obtained pursuant to this section outside of the Federal Bureau of Investigation, except to other Federal agencies as may be necessary for the approval or conduct of a foreign counterintelligence investigation, or, where the information concerns a person subject to the Uniform Code of Military Justice, to appropriate investigative authorities within the military department concerned as may be necessary for the conduct of a joint foreign counterintelligence investigation.
(g) Rules of construction. Nothing in this section shall be construed to prohibit information from being furnished by the Federal Bureau of Investigation pursuant to a subpoena or court order, in connection with a judicial or administrative proceeding to enforce the provisions of this Act. Nothing in this section shall be construed to authorize or permit the withholding of information from the Congress.
(h) Reports to Congress. On a semiannual basis, the Attorney General shall fully inform the Permanent Select Committee on Intelligence and the Committee on Banking, Finance and Urban Affairs of the House of Representatives, and the Select Committee on Intelligence and the Committee on Banking, Housing, and Urban Affairs of the Senate concerning all requests made pursuant to subsections (a), (b), and (c).
(i) Damages. Any agency or department of the United States obtaining or disclosing any consumer reports, records, or information contained therein in violation of this section is liable to the consumer to whom such consumer reports, records, or information relate in an amount equal to the sum of
(1) $100, without regard to the volume of consumer reports, records, or information involved;

(2) any actual damages sustained by the consumer as a result of the disclosure;

(3) if the violation is found to have been willful or intentional, such punitive damages as a court may allow; and

(4) in the case of any successful action to enforce liability under this subsection, the costs of the action, together with reasonable attorney fees, as determined by the court.
(j) Disciplinary actions for violations. If a court determines that any agency or department of the United States has violated any provision of this section and the court finds that the circumstances surrounding the violation raise questions of whether or not an officer or employee of the agency or department acted willfully or intentionally with respect to the violation, the agency or department shall promptly initiate a proceeding to determine whether or not disciplinary action is warranted against the officer or employee who was responsible for the violation.
(k) Good-faith exception. Notwithstanding any other provision of this title, any consumer reporting agency or agent or employee thereof making disclosure of consumer reports or identifying information pursuant to this subsection in good-faith reliance upon a certification of the Federal Bureau of Investigation pursuant to provisions of this section shall not be liable to any person for such disclosure under this title, the constitution of any State, or any law or regulation of any State or any political subdivision of any State.
(l) Limitation of remedies. Notwithstanding any other provision of this title, the remedies and sanctions set forth in this section shall be the only judicial remedies and sanctions for violation of this section.
(m) Injunctive relief. In addition to any other remedy contained in this section, injunctive relief shall be available to require compliance with the procedures of this section. In the event of any successful action under this subsection, costs together with reasonable attorney fees, as determined by the court, may be recovered.

Legislative History
House Reports: No. 91-975 (Comm. on Banking and Currency) and No. 91-1587 (Comm. of Conference)
Senate Reports: No. 91-1139 accompanying S. 3678 (Comm. on Banking and Currency)
Congressional Record, Vol. 116 (1970)
May 25, considered and passed House.
Sept. 18, considered and passed Senate, amended.
Oct. 9, Senate agreed to conference report.
Oct. 13, House agreed to conference report.

Enactment:
Public Law No. 91-508 (October 26, 1970):

Amendments: Public Law Nos.
95-473 (October 17, 1978)
95-598 (November 6, 1978)
98-443 (October 4, 1984)
101-73 (August 9, 1989)
102-242 (December 19, 1991)
102-537 (October 27, 1992)
102-550 (October 28, 1992)
103-325 (September 23, 1994)
104-88 (December 29, 1995)
104-93 (January 6, 1996)
104-193 (August 22, 1996)
104-208 (September 30, 1996)
105-107 (November 20, 1997)
105-347 (November 2, 1998)

1. The reporting periods have been lengthened for certain adverse information pertaining to U.S. Government insured or guaranteed student loans, or pertaining to national direct student loans. See sections 430A (f) and 463(c) (3) of the Higher Education Act of 1965, 20 U.S.C. 1080a (f) and 20 U.S.C. 1087cc(c) (3), respectively.

** Should read “paragraphs (4) and (5) …” Prior Section 605(a) (6) was amended and redesignated as Section 605(a) (5) in November 1998.

As amended by Public Law 104-208, 110 Stat. 3009 (Sept. 30, 1996)

To amend the Consumer Credit Protection Act to prohibit abusive practices by debt collectors.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the Consumer Credit Protection Act (15 U.S.C. 1601 et seq.) is amended by adding at the end thereof the following new title:
TITLE VIII – DEBT COLLECTION PRACTICES [Fair Debt Collection Practices Act]
Sec.
801. Short Title
802. Congressional findings and declaration of purpose
803. Definitions
804. Acquisition of location information
805. Communication in connection with debt collection
806. Harassment or abuse
807. False or misleading representations
808. Unfair practice
809. Validation of debts
810. Multiple debts
811. Legal actions by debt collectors
812. Furnishing certain deceptive forms
813. Civil liability
814. Administrative enforcement
815. Reports to Congress by the Commission
816. Relation to State laws
817. Exemption for State regulation
818. Effective date
§ 801. Short Title [15 USC 1601 note]
This title may be cited as the “Fair Debt Collection Practices Act.”

§ 802. Congressional findings and declarations of purpose [15 USC 1692]
(a) There is abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by many debt collectors. Abusive debt collection practices contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy.
(b) Existing laws and procedures for redressing these injuries are inadequate to protect consumers.
(c) Means other than misrepresentation or other abusive debt collection practices are available for the effective collection of debts.
(d) Abusive debt collection practices are carried on to a substantial extent in interstate commerce and through means and instrumentalities of such commerce. Even where abusive debt collection practices are purely intrastate in character, they nevertheless directly affect interstate commerce.
(e) It is the purpose of this title to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.

§ 803. Definitions [15 USC 1692a]
As used in this title –
(1) The term “Commission” means the Federal Trade Commission.
(2) The term “communication” means the conveying of information regarding a debt directly or indirectly to any person through any medium.
(3) The term “consumer” means any natural person obligated or allegedly obligated to pay any debt.
(4) The term “creditor” means any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.
(5) The term “debt” means any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.
(6) The term “debt collector” means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. Notwithstanding the exclusion provided by clause (F) of the last sentence of this paragraph, the term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts. For the purpose of section 808(6), such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests. The term does not include –
(A) any officer or employee of a creditor while, in the name of the creditor, collecting debts for such creditor;
(B) any person while acting as a debt collector for another person, both of whom are related by common ownership or affiliated by corporate control, if the person acting as a debt collector does so only for persons to whom it is so related or affiliated and if the principal business of such person is not the collection of debts;
(C) any officer or employee of the United States or any State to the extent that collecting or attempting to collect any debt is in the performance of his official duties;
(D) any person while serving or attempting to serve legal process on any other person in connection with the judicial enforcement of any debt;
(E) any nonprofit organization which, at the request of consumers, performs bona fide consumer credit counseling and assists consumers in the liquidation of their debts by receiving payments from such consumers and distributing such amounts to creditors; and
(F) any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity (i) is incidental to a bona fide fiduciary obligation or a bona fide escrow arrangement; (ii) concerns a debt which was originated by such person; (iii) concerns a debt which was not in default at the time it was obtained by such person; or (iv) concerns a debt obtained by such person as a secured party in a commercial credit transaction involving the creditor.
(7) The term “location information” means a consumer’s place of abode and his telephone number at such place, or his place of employment.
(8) The term “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 any of the foregoing.

§ 804. Acquisition of location information [15 USC 1692b]
Any debt collector communicating with any person other than the consumer for the purpose of acquiring location information about the consumer shall –
(1) identify himself, state that he is confirming or correcting location information concerning the consumer, and, only if expressly requested, identify his employer;
(2) not state that such consumer owes any debt;
(3) not communicate with any such person more than once unless requested to do so by such person or unless the debt collector reasonably believes that the earlier response of such person is erroneous or incomplete and that such person now has correct or complete location information;
(4) not communicate by post card;
(5) not use any language or symbol on any envelope or in the contents of any communication effected by the mails or telegram that indicates that the debt collector is in the debt collection business or that the communication relates to the collection of a debt; and
(6) after the debt collector knows the consumer is represented by an attorney with regard to the subject debt and has knowledge of, or can readily ascertain, such attorney’s name and address, not communicate with any person other than that attorney, unless the attorney fails to respond within a reasonable period of time to the communication from the debt collector.

§ 805. Communication in connection with debt collection [15 USC 1692c]
(a) COMMUNICATION WITH THE CONSUMER GENERALLY. Without the prior consent of the consumer given directly to the debt collector or the express permission of a court of competent jurisdiction, a debt collector may not communicate with a consumer in connection with the collection of any debt –
(1) at any unusual time or place or a time or place known or which should be known to be inconvenient to the consumer. In the absence of knowledge of circumstances to the contrary, a debt collector shall assume that the convenient time for communicating with a consumer is after 8 o’clock antimeridian and before 9 o’clock postmeridian, local time at the consumer’s location;
(2) if the debt collector knows the consumer is represented by an attorney with respect to such debt and has knowledge of, or can readily ascertain, such attorney’s name and address, unless the attorney fails to respond within a reasonable period of time to a communication from the debt collector or unless the attorney consents to direct communication with the consumer; or
(3) at the consumer’s place of employment if the debt collector knows or has reason to know that the consumer’s employer prohibits the consumer from receiving such communication.
(b) COMMUNICATION WITH THIRD PARTIES. Except as provided in section 804, without the prior consent of the consumer given directly to the debt collector, or the express permission of a court of competent jurisdiction, or as reasonably necessary to effectuate a post judgment judicial remedy, a debt collector may not communicate, in connection with the collection of any debt, with any person other than a consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector.
(c) CEASING COMMUNICATION. If a consumer notifies a debt collector in writing that the consumer refuses to pay a debt or that the consumer wishes the debt collector to cease further communication with the consumer, the debt collector shall not communicate further with the consumer with respect to such debt, except –
(1) to advise the consumer that the debt collector’s further efforts are being terminated;
(2) to notify the consumer that the debt collector or creditor may invoke specified remedies which are ordinarily invoked by such debt collector or creditor; or
(3) where applicable, to notify the consumer that the debt collector or creditor intends to invoke a specified remedy.
If such notice from the consumer is made by mail, notification shall be complete upon receipt.
(d) For the purpose of this section, the term “consumer” includes the consumer’s spouse, parent (if the consumer is a minor), guardian, executor, or administrator.

§ 806. Harassment or abuse [15 USC 1692d]
A debt collector may not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:
(1) The use or threat of use of violence or other criminal means to harm the physical person, reputation, or property of any person.
(2) The use of obscene or profane language or language the natural consequence of which is to abuse the hearer or reader.
(3) The publication of a list of consumers who allegedly refuse to pay debts, except to a consumer reporting agency or to persons meeting the requirements of section 603(f) or 604(3)1 of this Act.
(4) The advertisement for sale of any debt to coerce payment of the debt.
(5) Causing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously with intent to annoy, abuse, or harass any person at the called number.
(6) Except as provided in section 804, the placement of telephone calls without meaningful disclosure of the caller’s identity.

§ 807. False or misleading representations [15 USC 1962e]
A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:
(1) The false representation or implication that the debt collector is vouched for, bonded by, or affiliated with the United States or any State, including the use of any badge, uniform, or facsimile thereof.
(2) The false representation of –
(A) the character, amount, or legal status of any debt; or
(B) any services rendered or compensation which may be lawfully received by any debt collector for the collection of a debt.
(3) The false representation or implication that any individual is an attorney or that any communication is from an attorney.
(4) The representation or implication that nonpayment of any debt will result in the arrest or imprisonment of any person or the seizure, garnishment, attachment, or sale of any property or wages of any person unless such action is lawful and the debt collector or creditor intends to take such action.
(5) The threat to take any action that cannot legally be taken or that is not intended to be taken.
(6) The false representation or implication that a sale, referral, or other transfer of any interest in a debt shall cause the consumer to –
(A) lose any claim or defense to payment of the debt; or
(B) become subject to any practice prohibited by this title.
(7) The false representation or implication that the consumer committed any crime or other conduct in order to disgrace the consumer.
(8) Communicating or threatening to communicate to any person credit information which is known or which should be known to be false, including the failure to communicate that a disputed debt is disputed.
(9) The use or distribution of any written communication which simulates or is falsely represented to be a document authorized, issued, or approved by any court, official, or agency of the United States or any State, or which creates a false impression as to its source, authorization, or approval.
(10) The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer.
(11) The failure to disclose in the initial written communication with the consumer and, in addition, if the initial communication with the consumer is oral, in that initial oral communication, that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose, and the failure to disclose in subsequent communications that the communication is from a debt collector, except that this paragraph shall not apply to a formal pleading made in connection with a legal action.
(12) The false representation or implication that accounts have been turned over to innocent purchasers for value.
(13) The false representation or implication that documents are legal process.
(14) The use of any business, company, or organization name other than the true name of the debt collector’s business, company, or organization.
(15) The false representation or implication that documents are not legal process forms or do not require action by the consumer.
(16) The false representation or implication that a debt collector operates or is employed by a consumer reporting agency as defined by section 603(f) of this Act.

§ 808. Unfair practices [15 USC 1692f]
A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:
(1) The collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.
(2) The acceptance by a debt collector from any person of a check or other payment instrument postdated by more than five days unless such person is notified in writing of the debt collector’s intent to deposit such check or instrument not more than ten nor less than three business days prior to such deposit.
(3) The solicitation by a debt collector of any postdated check or other postdated payment instrument for the purpose of threatening or instituting criminal prosecution.
(4) Depositing or threatening to deposit any postdated check or other postdated payment instrument prior to the date on such check or instrument.
(5) Causing charges to be made to any person for communications by concealment of the true propose of the communication. Such charges include, but are not limited to, collect telephone calls and telegram fees.
(6) Taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if –
(A) there is no present right to possession of the property claimed as collateral through an enforceable security interest;
(B) there is no present intention to take possession of the property; or
(C) the property is exempt by law from such dispossession or disablement.
(7) Communicating with a consumer regarding a debt by post card.
(8) Using any language or symbol, other than the debt collector’s address, on any envelope when communicating with a consumer by use of the mails or by telegram, except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business.

§ 809. Validation of debts [15 USC 1692g]
(a) Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing –
(1) the amount of the debt;
(2) the name of the creditor to whom the debt is owed;
(3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;
(4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and
(5) a statement that, upon the consumer’s written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.
(b) If the consumer notifies the debt collector in writing within the thirty-day period described in subsection (a) that the debt, or any portion thereof, is disputed, or that the consumer requests the name and address of the original creditor, the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt or any copy of a judgment, or the name and address of the original creditor, and a copy of such verification or judgment, or name and address of the original creditor, is mailed to the consumer by the debt collector.
(c) The failure of a consumer to dispute the validity of a debt under this section may not be construed by any court as an admission of liability by the consumer.

§ 810. Multiple debts [15 USC 1692h]
If any consumer owes multiple debts and makes any single payment to any debt collector with respect to such debts, such debt collector may not apply such payment to any debt which is disputed by the consumer and, where applicable, shall apply such payment in accordance with the consumer’s directions.

§ 811. Legal actions by debt collectors [15 USC 1692i]
(a) Any debt collector who brings any legal action on a debt against any consumer shall –
(1) in the case of an action to enforce an interest in real property securing the consumer’s obligation, bring such action only in a judicial district or similar legal entity in which such real property is located; or
(2) in the case of an action not described in paragraph (1), bring such action only in the judicial district or similar legal entity –
(A) in which such consumer signed the contract sued upon; or
(B) in which such consumer resides at the commencement of the action.
(b) Nothing in this title shall be construed to authorize the bringing of legal actions by debt collectors.

§ 812. Furnishing certain deceptive forms [15 USC 1692j]
(a) It is unlawful to design, compile, and furnish any form knowing that such form would be used to create the false belief in a consumer that a person other than the creditor of such consumer is participating in the collection of or in an attempt to collect a debt such consumer allegedly owes such creditor, when in fact such person is not so participating.
(b) Any person who violates this section shall be liable to the same extent and in the same manner as a debt collector is liable under section 813 for failure to comply with a provision of this title.

§ 813. Civil liability [15 USC 1692k]
(a) Except as otherwise provided by this section, any debt collector who fails to comply with any provision of this title with respect to any person is liable to such person in an amount equal to the sum of –
(1) any actual damage sustained by such person as a result of such failure;
(2) (A) in the case of any action by an individual, such additional damages as the court may allow, but not exceeding $1,000; or
(B) in the case of a class action, (i) such amount for each named plaintiff as could be recovered under subparagraph (A), and (ii) such amount as the court may allow for all other class members, without regard to a minimum individual recovery, not to exceed the lesser of $500,000 or 1 per centum of the net worth of the debt collector; and
(3) in the case of any successful action to enforce the foregoing liability, the costs of the action, together with a reasonable attorney’s fee as determined by the court. On a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment, the court may award to the defendant attorney’s fees reasonable in relation to the work expended and costs.
(b) In determining the amount of liability in any action under subsection (a), the court shall consider, among other relevant factors –
(1) in any individual action under subsection (a)(2)(A), the frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, and the extent to which such noncompliance was intentional; or
(2) in any class action under subsection (a)(2)(B), the frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, the resources of the debt collector, the number of persons adversely affected, and the extent to which the debt collector’s noncompliance was intentional.
(c) A debt collector may not be held liable in any action brought under this title if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.
(d) An action to enforce any liability created by this title may be brought in any appropriate United States district court without regard to the amount in controversy, or in any other court of competent jurisdiction, within one year from the date on which the violation occurs.
(e) No provision of this section imposing any liability shall apply to any act done or omitted in good faith in conformity with any advisory opinion of the Commission, notwithstanding that after such act or omission has occurred, such opinion is amended, rescinded, or determined by judicial or other authority to be invalid for any reason.

§ 814. Administrative enforcement [15 USC 1692l]
(a) Compliance with this title shall be enforced by the Commission, except to the extend that enforcement of the requirements imposed under this title is specifically committed to another agency under subsection (b). For purpose of the exercise by the Commission of its functions and powers under the Federal Trade Commission Act, a violation of this title shall be deemed an unfair or deceptive act or practice in violation of that Act. All of the functions and powers of the Commission under the Federal Trade Commission Act are available to the Commission to enforce compliance by any person with this title, irrespective of whether that person is engaged in commerce or meets any other jurisdictional tests in the Federal Trade Commission Act, including the power to enforce the provisions of this title in the same manner as if the violation had been a violation of a Federal Trade Commission trade regulation rule.
(b) Compliance with any requirements imposed under this title shall be enforced under –
(1) section 8 of the Federal Deposit Insurance Act, in the case of –
(A) national banks, by the Comptroller of the Currency;
(B) member banks of the Federal Reserve System (other than national banks), by the Federal Reserve Board; and
(C) banks the deposits or accounts of which are insured by the Federal Deposit Insurance Corporation (other than members of the Federal Reserve System), by the Board of Directors of the Federal Deposit Insurance Corporation;
(2) section 5(d) of the Home Owners Loan Act of 1933, section 407 of the National Housing Act, and sections 6(i) and 17 of the Federal Home Loan Bank Act, by the Federal Home Loan Bank Board (acting directing or through the Federal Savings and Loan Insurance Corporation), in the case of any institution subject to any of those provisions;
(3) the Federal Credit Union Act, by the Administrator of the National Credit Union Administration with respect to any Federal credit union;
(4) subtitle IV of Title 49, by the Interstate Commerce Commission with respect to any common carrier subject to such subtitle;
(5) the Federal Aviation Act of 1958, by the Secretary of Transportation with respect to any air carrier or any foreign air carrier subject to that Act; and
(6) the Packers and Stockyards Act, 1921 (except as provided in section 406 of that Act), by the Secretary of Agriculture with respect to any activities subject to that Act.
(c) For the purpose of the exercise by any agency referred to in subsection (b) of its powers under any Act referred to in that subsection, a violation of any requirement imposed under this title shall be deemed to be a violation of a requirement imposed under that Act. In addition to its powers under any provision of law specifically referred to in subsection (b), each of the agencies referred to in that subsection may exercise, for the purpose of enforcing compliance with any requirement imposed under this title any other authority conferred on it by law, except as provided in subsection (d).
(d) Neither the Commission nor any other agency referred to in subsection (b) may promulgate trade regulation rules or other regulations with respect to the collection of debts by debt collectors as defined in this title.

§ 815. Reports to Congress by the Commission [15 USC 1692m]
(a) Not later than one year after the effective date of this title and at one-year intervals thereafter, the Commission shall make reports to the Congress concerning the administration of its functions under this title, including such recommendations as the Commission deems necessary or appropriate. In addition, each report of the Commission shall include its assessment of the extent to which compliance with this title is being achieved and a summary of the enforcement actions taken by the Commission under section 814 of this title.
(b) In the exercise of its functions under this title, the Commission may obtain upon request the views of any other Federal agency which exercises enforcement functions under section 814 of this title.

§ 816. Relation to State laws [15 USC 1692n]
This title does not annul, alter, or affect, or exempt any person subject to the provisions of this title from complying with the laws of any State with respect to debt collection practices, except to the extent that those laws are inconsistent with any provision of this title, and then only to the extent of the inconsistency. For purposes of this section, a State law is not inconsistent with this title if the protection such law affords any consumer is greater than the protection provided by this title.

§ 817. Exemption for State regulation [15 USC 1692o]
The Commission shall by regulation exempt from the requirements of this title any class of debt collection practices within any State if the Commission determines that under the law of that State that class of debt collection practices is subject to requirements substantially similar to those imposed by this title, and that there is adequate provision for enforcement.

§ 818. Effective date [15 USC 1692 note]
This title takes effect upon the expiration of six months after the date of its enactment, but section 809 shall apply only with respect to debts for which the initial attempt to collect occurs after such effective date.

Approved September 20, 1977

ENDNOTES

1. So in original; however, should read “604(a)(3).”

LEGISLATIVE HISTORY:

Public Law 95-109 [H.R. 5294]

HOUSE REPORT No. 95-131 (Comm. on Banking, Finance, and Urban Affairs).

SENATE REPORT No. 95-382 (Comm. on Banking, Housing, and Urban Affairs).

CONGRESSIONAL RECORD, Vol. 123 (1977):

Apr. 4, considered and passed House.

Aug. 5, considered and passed Senate, amended.

Sept. 8, House agreed to Senate amendment.

WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 13, No. 39:

Sept. 20, Presidential statement.

AMENDMENTS:

SECTION 621, SUBSECTIONS (b)(3), (b)(4) and (b)(5) were amended to transfer certain administrative enforcement responsibilities, pursuant to Pub. L. 95-473, § 3(b), Oct. 17, 1978. 92 Stat. 166; Pub. L. 95-630, Title V. § 501, November 10, 1978, 92 Stat. 3680; Pub. L. 98-443, § 9(h), Oct. 4, 1984, 98 Stat. 708.

SECTION 803, SUBSECTION (6), defining “debt collector,” was amended to repeal the attorney at law exemption at former Section (6)(F) and to redesignate Section 803(6)(G) pursuant to Pub. L. 99-361, July 9, 1986, 100 Stat. 768. For legislative history, see H.R. 237, HOUSE REPORT No. 99-405 (Comm. on Banking, Finance and Urban Affairs). CONGRESSIONAL RECORD: Vol. 131 (1985): Dec. 2, considered and passed House. Vol. 132 (1986): June 26, considered and passed Senate.

SECTION 807, SUBSECTION (11), was amended to affect when debt collectors must state (a) that they are attempting to collect a debt and (b) that information obtained will be used for that purpose, pursuant to Pub. L. 104-208 § 2305, 110 Stat. 3009 (Sept. 30, 1996).

As amended by Public Law 105-318, 112 Stat. 3007 (Oct. 30, 1998)

An Act
To amend chapter 47 of title 18, United States Code, relating to identity fraud, and for other purposes. [NOTE: Oct. 30, 1998 - [H.R. 4151]
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, [NOTE: Identity Theft and Assumption Deterrence Act of 1998.]
Sec.
001. Short Title
002. Constitutional Authority to Enact this Legislation.
003. Identity Theft
004. Amendment of Federal Sentencing Guidelines for Offenses Under Section 1028
005. Centralized Complaint and Consumer Education Service for Victims of Identity Theft
006. Technical Amendments to Title 18, United States Code
007. Redaction of Ethics Reports Filed by Judicial Officers and Employees
§ 001. Short Title. [NOTE: 18 USC 1001 note.]
This Act may be cited as the “Identity Theft and Assumption Deterrence Act of 1998″.
§ 002. Constitutional Authority to Enact this Legislation. [NOTE: 18 USC 1028 note.]
The constitutional authority upon which this Act rests is the power of Congress to regulate commerce with foreign nations and among the several States, and the authority to make all laws which shall be necessary and proper for carrying into execution the powers vested by the Constitution in the Government of the United States or in any department or officer thereof, as set forth in article I, section 8 of the United States Constitution.
§ 003. Identity Theft.
(a) Establishment of Offense.–Section 1028(a) of title 18, United States Code, is amended–
(1) in paragraph (5), by striking “or” at the end;
(2) in paragraph (6), by adding “or” at the end;
(3) in the flush matter following paragraph (6), by striking “or attempts to do so,”; and
(4) by inserting after paragraph (6) the following:
“(7) knowingly transfers or uses, without lawful authority, a means of identification of another person with the intent to commit, or to aid or abet, any unlawful activity that constitutes a violation of Federal law, or that constitutes a felony under any applicable State or local law;”.

(b) Penalties.–Section 1028(b) of title 18, United States Code, is amended–
(1) in paragraph (1)–

(A) in subparagraph (B), by striking “or” at the end;
(B) in subparagraph (C), by adding “or” at the end; and
(C) by adding at the end the following:
“(D) an offense under paragraph (7) of such subsection that involves the transfer or use of 1 or more means of identification if, as a result of the offense, any individual committing the offense obtains anything of value aggregating $1,000 or more during any 1-year period;”;
(2) in paragraph (2)–
(A) in subparagraph (A), by striking “or transfer of an identification document or” and inserting “, transfer, or use of a means of identification, an identification document, or a”; and
(B) in subparagraph (B), by inserting “or (7)” after “(3)”;
(3) by amending paragraph (3) to read as follows:
“(3) a fine under this title or imprisonment for not more than 20 years, or both, if the offense is committed–
“(A) to facilitate a drug trafficking crime (as defined in section 929(a)(2));
“(B) in connection with a crime of violence (as defined in section 924(c)(3)); or
“(C) after a prior conviction under this section becomes final;”;
(4) in paragraph (4), by striking “and” at the end;
(5) by redesignating paragraph (5) as paragraph (6); and
(6) by inserting after paragraph (4) the following:
“(5) in the case of any offense under subsection (a), forfeiture to the United States of any personal property used or intended to be used to commit the offense; and”.
(c) Circumstances.–Section 1028(c) of title 18, United States Code, is amended by striking paragraph (3) and inserting the following:
“(3) either–
“(A) the production, transfer, possession, or use prohibited by this section is in or affects interstate or foreign commerce; or
“(B) the means of identification, identification document, false identification document, or document- making implement is transported in the mail in the course of the production, transfer, possession, or use prohibited by this section.”.
(d) Definitions.–Subsection (d) of section 1028 of title 18, United States Code, is amended to read as follows:
“(d) In this section–
“(1) the term `document-making implement’ means any implement, impression, electronic device, or computer hardware or software, that is specifically configured or primarily used for making an identification document, a false identification document, or another document-making implement;
“(2) the term `identification document’ means a document made or issued by or under the authority of the United States Government, a State, political subdivision of a State, a foreign government, political subdivision of a foreign government, an international governmental or an international quasi-governmental organization which, when completed with information concerning a particular individual, is of a type intended or commonly accepted for the purpose of identification of individuals;
“(3) the term `means of identification’ means any name or number that may be used, alone or in conjunction with any other information, to identify a specific individual, including any–
“(A) name, social security number, date of birth, official State or government issued driver’s license or identification number, alien registration number, government passport number, employer or taxpayer identification number;
“(B) unique biometric data, such as fingerprint, voice print, retina or iris image, or other unique physical representation;
“(C) unique electronic identification number, address, or routing code; or
“(D) telecommunication identifying information or access device (as defined in section 1029(e));
“(4) the term `personal identification card’ means an identification document issued by a State or local government solely for the purpose of identification;
“(5) the term `produce’ includes alter, authenticate, or assemble; and
“(6) the term `State’ includes any State of the United States, the District of Columbia, the Commonwealth of Puerto Rico, and any other commonwealth, possession, or territory of the United States.”.
(e) Attempt and Conspiracy.–Section 1028 of title 18, United States Code, is amended by adding at the end the following:
“(f ) Attempt and Conspiracy.–Any person who attempts or conspires to commit any offense under this section shall be subject to the same penalties as those prescribed for the offense, the commission of which was the object of the attempt or conspiracy.”.
(f ) Forfeiture Procedures.–Section 1028 of title 18, United States Code, is amended by adding at the end the following:
“(g) Forfeiture Procedures.–The forfeiture of property under this section, including any seizure and disposition of the property and any related judicial or administrative proceeding, shall be governed by the provisions of section 413 (other than subsection (d) of that section) of the Comprehensive Drug Abuse Prevention and Control Act of 1970 (21 U.S.C. 853).”.
(g) Rule of Construction.–Section 1028 of title 18, United States Code, is amended by adding at the end the following:
“(h) Rule of Construction.–For purpose of subsection (a)(7), a single identification document or false identification document that contains 1 or more means of identification shall be construed to be 1 means of identification.”.
(h) Conforming Amendments.–Chapter 47 of title 18, United States Code, is amended–
(1) in the heading for section 1028, by adding “and information” at the end; and
(2) in the table of sections at the beginning of the chapter, in the item relating to section 1028, by adding “and information” at the end.
§ 004. Amendment of Federal Sentencing Guidelines for Offenses Under Section 1028. [NOTE: 28 USC 994 note.]
(a) In General.–Pursuant to its authority under section 994(p) of title 28, United States Code, the United States Sentencing Commission shall review and amend the Federal sentencing guidelines and the policy statements of the Commission, as appropriate, to provide an appropriate penalty for each offense under section 1028 of title 18, United States Code, as amended by this Act.
(b) Factors for Consideration.–In carrying out subsection (a), the United States Sentencing Commission shall consider, with respect to each offense described in subsection (a)–
(1) the extent to which the number of victims (as defined in section 3663A(a) of title 18, United States Code) involved in the offense, including harm to reputation, inconvenience, and other difficulties resulting from the offense, is an adequate measure for establishing penalties under the Federal sentencing guidelines;
(2) the number of means of identification, identification documents, or false identification documents (as those terms are defined in section 1028(d) of title 18, United States Code, as amended by this Act) involved in the offense, is an adequate measure for establishing penalties under the Federal sentencing
guidelines;
(3) the extent to which the value of the loss to any individual caused by the offense is an adequate measure for establishing penalties under the Federal sentencing guidelines;
(4) the range of conduct covered by the offense;
(5) the extent to which sentencing enhancements within the Federal sentencing guidelines and the court’s authority to sentence above the applicable guideline range are adequate to ensure punishment at or near the maximum penalty for the most egregious conduct covered by the offense;
(6) the extent to which Federal sentencing guidelines sentences for the offense have been constrained by statutory maximum penalties;
(7) the extent to which Federal sentencing guidelines for the offense adequately achieve the purposes of sentencing set forth in section 3553(a)(2) of title 18, United States Code; and
(8) any other factor that the United States Sentencing Commission considers to be appropriate.
§ 005. Centralized Complying and Consumer Education Service for Victims of Identity Theft. [NOTE: 18 USC 1028 note.]
(a) In <<NOTE: Deadline.>> General.–Not later than 1 year after the date of enactment of this Act, the Federal Trade Commission shall establish procedures to–
(1) log and acknowledge the receipt of complaints by individuals who certify that they have a reasonable belief that 1 or more of their means of identification (as defined in section 1028 of title 18, United States Code, as amended by this Act) have been assumed, stolen, or otherwise unlawfully acquired in violation of section 1028 of title 18, United States Code, as amended by this Act;
(2) provide informational materials to individuals described in paragraph (1); and
(3) refer complaints described in paragraph (1) to appropriate entities, which may include referral to–
(A) the 3 major national consumer reporting agencies; and
(B) appropriate law enforcement agencies for potential law enforcement action.
(b) Authorization of Appropriations.–There are authorized to be appropriated such sums as may be necessary to carry out this section.
§ 006. Technical Amendments to Title 18, United States Code.
(a) Technical Correction Relating to Criminal Forfeiture Procedures.–Section 982(b)(1) of title 18, United States Code, is amended to read as follows: “(1) The forfeiture of property under
this section, including any seizure and disposition of the property and any related judicial or administrative proceeding, shall be governed by the provisions of section 413 (other than subsection (d) of that section) of the Comprehensive Drug Abuse Prevention and Control Act of
1970 (21 U.S.C. 853).”.
(b) Economic Espionage and Theft of Trade Secrets as Predicate Offenses for Wire Interception.–Section 2516(1)(a) of title 18, United States Code, is amended by inserting “chapter 90 (relating to protection of trade secrets),” after “to espionage),”.
§ 007. Redaction of Ethics Reports Filed by Judicial Officers and Employees.
Section 105(b) of the Ethics in Government Act of 1978 (5 U.S.C. App.) is amended by adding at the end the following new paragraph:
“(3)(A) This section does not require the immediate and unconditional availability of reports filed by an individual described in section 109(8) or 109(10) of this Act if a finding is made by the Judicial Conference, in consultation with United States Marshall Service, that revealing personal and sensitive information could endanger that individual.
“(B) A report may be redacted pursuant to this paragraph only–
“(i) to the extent necessary to protect the individual who filed the report; and
“(ii) for as long as the danger to such individual exists.
“(C) The Administrative Office of the United States Courts shall submit to the Committees on the Judiciary of the House of Representatives and of the Senate an annual report with respect to the operation of this paragraph including–
“(i) the total number of reports redacted pursuant to this paragraph;
“(ii) the total number of individuals whose reports have been redacted pursuant to this paragraph; and
“(iii) the types of threats against individuals whose reports are redacted, if appropriate.
“(D) The Judicial Conference, in consultation with the Department of Justice, shall issue regulations setting forth the circumstances under which redaction is appropriate under this paragraph and the procedures for redaction.[NOTE: Regulations.]
“(E) This paragraph shall expire on December 31, 2001, and apply to filings through calendar year 2001.”. [NOTE: Expiration date.]
Approved October 30, 1998.

LEGISLATIVE HISTORY–H.R. 4151 (S. 512):
SENATE REPORTS: No. 105-274 accompanying S. 512 (Comm. on the Judiciary).

CONGRESSIONAL RECORD, Vol. 144 (1998):
Oct. 7, considered and passed House.
Oct. 14, considered and passed Senate.

WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 34 (1998):
Oct. 30, Presidential statement.

Subpart A–Consumer Complaints

Section 227.1 Definitions.
Section 227.2 Consumer complaint procedure.

Subpart B–Credit Practices Rule

Section 227.11 Authority, purpose, and scope.
Section 227.12 Definitions.
Section 227.13 Unfair credit contract provisions.
Section 227.14 Unfair or deceptive practices involving cosigners.
Section 227.15 Unfair late charges.
Section 227.16 State exemptions.

Sec. 227.1 Definitions.

For the purposes of this part,1 unless the context indicates otherwise, the following definitions apply:

1 The words this part, as used herein, mean title 12, chapter II, part 227 of the Code of Federal Regulations, cited as 12 CFR part 227 and designated as Regulation AA.

(a) Board means the Board of Governors of the Federal Reserve System.
(b) Consumer complaint means an allegation by or on behalf of an individual, group of individuals, or other entity that a particular act or practice of a State member bank is unfair or deceptive, or in violation of a regulation issued by the Board pursuant to a Federal statute, or in violation of any other Act or regulation under which the bank must operate.
(c) State member bank means a bank that is chartered by a State and is a member of the Federal Reserve System.
(d) Unless the context indicates otherwise, bank shall be construed to mean a State member bank, and complaint to mean a consumer complaint.

Sec. 227.2 Consumer complaint procedure.

(a) Submission of complaints. (1) Any consumer having a complaint regarding a State member bank is invited to submit it to the Federal Reserve System. The complaint should be submitted in writing, if possible, and should include the following information:
(i) A description of the act or practice that is thought to be unfair or deceptive, or in violation of existing law or regulation, including all relevant facts;
(ii) The name and address of the bank that is the subject of the complaint; and
(iii) The name and address of the complainant.
(2) Consumer complaints should be made to:
(i) The Director, Division of Consumer Affairs, Board of Governors of the Federal Reserve System, Washington, DC 20551; or
(ii) The Federal Reserve Bank of the District in which the bank is located. The addresses of the Federal Reserve Banks are as follows:

Federal Reserve Bank of Boston, 30 Pearl Street, Boston, MA 02106.
Federal Reserve Bank of New York, 33 Liberty Street, New York, NY 10045.
Federal Reserve Bank of Philadelphia, 100 North 6th Street, Philadelphia, PA 19105.
Federal Reserve Bank of Cleveland, 1455 East Sixth Street, Cleveland, OH 44101.
Federal Reserve Bank of Richmond, 100 North Ninth Street, Richmond, VA 23261.
Federal Reserve Bank of Chicago, 230 South La Salle Street, Chicago, IL 60690.
Federal Reserve Bank of St. Louis, 411 Locust Street, St. Louis, MO 63166.
Federal Reserve Bank of Minneapolis, 250 Marquette Street, Minneapolis, MN 55480.
Federal Reserve Bank of Kansas City, 925 Grand Avenue, Kansas City, MO 64198.
Federal Reserve Bank of Dallas, 400 South Akard Street, Dallas, TX 75222.
Federal Reserve Bank of Atlanta, 104 Marietta Street NW., Atlanta, GA 30303.
Federal Reserve Bank of San Francisco, 400 Sansome Street, San Francisco, CA 94120.

(b) Response to complaints. Within 15 business days of receipt of a written complaint by the Board or a Federal Reserve Bank, a substantive response or an acknowledgment setting a reasonable time for a substantive response will be sent to the individual making the complaint.
(c) Referrals to other agencies. Complaints received by the Board or a Federal Reserve Bank regarding an act or practice of an institution other than a State member bank will be forwarded to the Federal agency having jurisdiction over that institution.

Sec. 227.11 Authority, purpose, and scope.

(a) Authority. This subpart is issued by the Board under section 18(f) of the Federal Trade Commission Act, 15 U.S.C. 57a(f) (section 202(a) of the Magnuson-Moss Warranty–Federal Trade Commission Improvement Act, Pub. L. 93-637).
(b) Purpose. Unfair or deceptive acts or practices in or affecting commerce are unlawful under section 5(a)(1) of the Federal Trade Commission Act, 15 U.S.C. 45(a)(1). This subpart defines unfair or deceptive acts or practices of banks in connection with extensions of credit to consumers.
(c) Scope. This subpart applies to all banks and their subsidiaries, except savings banks that are members of the Federal Home Loan Bank System. Compliance is to be enforced by:
(1) The Comptroller of the Currency, in the case of national banks, banks operating under the code of laws for the District of Columbia, and federal branches and federal agencies of foreign banks;
(2) The Board of Governors of the Federal Reserve System, in the case of banks that are members of the Federal Reserve System (other than banks referred to in paragraph (c)(1) of this section), 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; and
(3) The Federal Deposit Insurance Corporation, in the case of banks insured by the Federal Deposit Insurance Corporation (other than banks referred to in paragraphs (c)(1) and (c)(2) of this section), and insured state branches of foreign banks.
(d) The terms used in paragraph (c) of this section that are not defined in the Federal Trade Commission Act or in section 3(s) of the Federal Deposit Insurance Act (12 U.S.C. 1813(s)) shall have the meaning given to them in section 1(b) of the International Banking Act of 1978 (12 U.S.C. 3101).

Sec. 227.12 Definitions.

For the purposes of this subpart, the following definitions apply:
(a) Consumer means a natural person who seeks or acquires goods, services, or money for personal, family, or household use other than for the purchase of real property.
(b)(1) Cosigner means a natural person who assumes liability for the obligation of a consumer without receiving goods, services, or money in return for the obligation, or, in the case of an open-end credit obligation, without receiving the contractual right to obtain extensions of credit under the account.
(2) Cosigner includes any person whose signature is requested as a condition to granting credit to a consumer, or as a condition for forbearance on collection of a consumer’s obligation that is in default. The term does not include a spouse whose signature is required on a credit obligation to perfect a security interest pursuant to state law.
(3) A person who meets the definition in this paragraph is a cosigner, whether or not the person is designated as such on the credit obligation.
(c) Earnings means compensation paid or payable to an individual or for the individual’s account for personal services rendered or to be rendered by the individual, whether denominated as wages, salary, commission, bonus, or otherwise, including periodic payments pursuant to a pension, retirement, or disability program.
(d) Household goods means clothing, furniture, appliances, linens, china, crockery, kitchenware, and personal effects of the consumer and the consumer’s dependents. The term household goods does not include:
(1) Works of art;
(2) Electronic entertainment equipment (other than one television and one radio);
(3) Items acquired as antiques; that is, items over one hundred years of age, including such items that have been repaired or renovated without changing their original form or character; and
(4) Jewelry (other than wedding rings).
(e) Obligation means an agreement between a consumer and a creditor.
(f) Person means an individual, corporation, or other business organization.

Sec. 227.13 Unfair credit contract provisions.

It is an unfair act or practice for a bank to enter into a consumer credit obligation that contains, or to enforce in a consumer credit obligation purchased by the bank, any of the following provisions:
(a) Confession of judgment. A cognovit or confession of judgment (for purposes other than executory process in the State of Louisiana), warrant of attorney, or other waiver of the right of notice and the opportunity to be heard in the event of suit or process thereon.
(b) Waiver of exemption. An executory waiver or a limitation of exemption from attachment, execution, or other process on real or personal property held, owned by, or due to the consumer, unless the waiver applies solely to property subject to a security interest executed in connection with the obligation.
(c) Assignment of wages. An assignment of wages or other earnings unless:
(1) The assignment by its terms is revocable at the will of the debtor;
(2) The assignment is a payroll deduction plan or preauthorized payment plan, commencing at the time of the transaction, in which the consumer authorizes a series of wage deductions as a method of making each payment; or
(3) The assignment applies only to wages or other earnings already earned at the time of the assignment.
(d) Security interest in household goods. A nonpossessory security interest in household goods other than a purchase money security interest.

Sec. 227.14 Unfair or deceptive practices involving cosigners.

(a) Prohibited practices. In connection with the extension of credit to consumers, it is:
(1) A deceptive act or practice for a bank to misrepresent the nature or extent of cosigner liability to any person; and
(2) An unfair act or practice for a bank to obligate a cosigner unless the cosigner is informed prior to becoming obligated of the nature of the cosigner’s liability.
(b) Disclosure requirement. (1) A clear and conspicuous disclosure statement shall be given in writing to the cosigner prior to becoming obligated. The disclosure statement shall be substantially similar to the following statement and shall either be a separate document or included in the documents evidencing the consumer credit obligation.

Notice to Cosigner

You are being asked to guarantee this debt. Think carefully before you do. If the borrower doesn’t pay the debt, you will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility.
You may have to pay up to the full amount of the debt if the borrower does not pay. You may also have to pay late fees or collection costs, which increase this amount.
The bank can collect this debt from you without first trying to collect from the borrower. The bank can use the same collection methods against you that can be used against the borrower, such as suing you, garnishing your wages, etc. If this debt is ever in default, that fact may become a part of your credit record.
This notice is not the contract that makes you liable for the debt.

(2) In the case of open-end credit, the disclosure statement shall be given to the cosigner prior to the time that the cosigner becomes obligated for fees or transactions on the account.
(3) A bank that is in compliance with this paragraph may not be held in violation of paragraph (a)(2) of this section.

Sec. 227.15 Unfair late charges.

(a) In connection with collecting a debt arising out of an extension of credit to a consumer, it is an unfair act or practice for a bank to levy or collect any delinquency charge on a payment, when the only delinquency is attributable to late fees or delinquency charges assessed on earlier installments, and the payment is otherwise a full payment for the applicable period and is paid on its due date or within an applicable grace period.
(b) For the purposes of this section, collecting a debt means any activity, other than the use of judicial process, that is intended to bring about or does bring about repayment of all or part of money due (or alleged to be due) from a consumer.

Sec. 227.16 State exemptions.

(a) General rule. (1) An appropriate state agency may apply to the Board for a determination that:
(i) There is a state requirement or prohibition in effect that applies to any transaction to which a provision of this subpart applies; and
(ii) The state requirement or prohibition affords a level of protection to consumers that is substantially equivalent to, or greater than, the protection afforded by this subpart.
(2) If the Board makes such a determination, the provision of this subpart will not be in effect in that state to the extent specified by the Board in its determination, for as long as the state administers and enforces the state requirement or prohibition effectively.
(b) Applications. The procedures under which a state agency may apply for an exemption under this section are the same as those set forth in appendix B to Regulation Z (12 CFR part 226).

Subpart A–General
Section 229.1 – Authority and purpose; organization.
Section 229.2 – Definitions.
Section 229.3 – Administrative enforcement.

Sec. 229.1 Authority and purpose; organization.

(a) Authority and purpose. This part (Regulation CC; 12 CFR part 229) is issued by the Board of Governors of the Federal Reserve System (Board) to implement the Expedited Funds Availability Act (Act) (title VI of Pub. L. 100-86, 101 Stat. 552, 635), as amended by section 1001 of the Cranston-Gonzalez National Affordable Housing Act of 1990 (Pub. L. 101-625, 104 Stat. 4079, 4424) and sections 212(h), 225, and 227 of the Federal Deposit Insurance Corporation Improvement Act of 1991 (Pub. L. 102-242, 105 Stat. 2236, 2303, 2307).
(b) Organization. This part is divided into subparts and appendices as follows–
(1) Subpart A contains general information. It sets forth–
(i) The authority, purpose, and organization;
(ii) Definition of terms; and
(iii) Authority for administrative enforcement of this part’s provisions.
(2) Subpart B of this part contains rules regarding the duty of banks to make funds deposited into accounts available for withdrawal, including availability schedules. Subpart B of this part also contains rules regarding exceptions to the schedules, disclosure of funds availability policies, payment of interest, liability of banks for failure to comply with Subpart B of this part, and other matters.
(3) Subpart C of this part contains rules to expedite the collection and return of checks by banks. These rules cover the direct return of checks, the manner in which the paying bank and returning banks must return checks to the depositary bank, notification of nonpayment by the paying bank, endorsement and presentment of checks, same-day settlement for certain checks, the liability of banks for failure to comply with subpart C of this part, and other matters.

Sec. 229.2 Definitions.

As used in this part, unless the context requires otherwise:
(a) Account means a deposit as defined in 12 CFR 204.2(a)(1)(i) that is a transaction account as described in 12 CFR 204.2(e). As defined in these sections, account generally includes accounts at a bank from which the account holder is permitted to make transfers or withdrawals by negotiable or transferable instrument, payment order of withdrawal, telephone transfer, electronic payment, or other similar means for the purpose of making payments or transfers to third persons or others. Account also includes accounts at a bank from which the account holder may make third party payments at an ATM, remote service unit, or other electronic device, including by debit card, but the term does not include savings deposits or accounts described in 12 CFR 204.2(d)(2) even though such accounts permit third party transfers. An account may be in the form of–
(1) A demand deposit account,
(2) A negotiable order of withdrawal account,
(3) A share draft account,
(4) An automatic transfer account, or
(5) Any other transaction account described in 12 CFR 204.2(e).
Account does not include an account where the account holder is a bank, where the account holder is an office of an institution described in paragraphs (e)(1) through (e)(6) of this section or an office of a foreign bank as defined in section 1(b) of the International Banking Act (12 U.S.C. 3101) that is located outside the United States, or where the direct or indirect account holder is the Treasury of the United States.
(b) Automated clearinghouse or ACH means a facility that processes debit and credit transfers under rules established by a Federal Reserve Bank operating circular on automated clearinghouse items or under rules of an automated clearinghouse association.
(c) Automated teller machine or ATM means an electronic device at which a natural person may make deposits to an account by cash or check and perform other account transactions.
(d) Available for withdrawal with respect to funds deposited means available for all uses generally permitted to the customer for actually and finally collected funds under the bank’s account agreement or policies, such as for payment of checks drawn on the account, certification of checks drawn on the account, electronic payments, withdrawals by cash, and transfers between accounts.
(e) Bank means– For purposes of subpart C of this part and, in connection therewith,
this subpart A, the term bank also includes any person engaged in the
business of banking, as well as a Federal Reserve Bank, a Federal Home
Loan Bank, and a state or unit of general local government to the
extent that the state or unit of general local government acts as a
paying bank.
(1) An insured bank as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 18I3) or a bank that is eligible to apply to become an insured bank under section 5 of that Act (12 U.S.C. 1815);
(2) A mutual savings bank as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813);
(3) A savings bank as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813);
(4) An insured credit union as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752) or a credit union that is eligible to make application to become an insured credit union under section 201 of that Act (12 U.S.C. 1781);
(5) A member as defined in section 2 of the Federal Home Loan Bank Act (12 U.S.C. 1422);
(6) A savings association as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813) that is an insured depository institution as defined in section 3 of that Act (12 U.S.C. 1813(c)(2)) or that is eligible to apply to become an insured depository institution under section 5 of that Act (12 U.S.C. 1815); or
(7) An agency or a branch of a foreign bank as defined in section l(b) of the International Banking Act (12 U.S.C. 3101).
For purposes of subpart C of this part and, in connection therewith, this subpart A, the term bank also includes any person engaged in the business of banking, as well as a Federal Reserve Bank, a Federal Home Loan Bank, and a state or unit of general local government to the extent that the state or unit of general local government acts as a paying bank.
(f) Banking day means that part of any business day on which an office of a bank is open to the public for carrying on substantially all of its banking functions.
(g) Business day means a calendar day other than a Saturday or a Sunday, January 1, the third Monday in January, the third Monday in February, the last Monday in May, July 4, the first Monday in September, the second Monday in October, November 11, the fourth Thursday in November, or December 25. If January 1, July 4, November 11, or December 25 fall on a Sunday, the next Monday is not a business day.
(h) Cash means United States coins and currency.
(i) Cashier’s check means a check that is–
(1) Drawn on a bank;
(2) Signed by an officer or employee of the bank on behalf of the bank as drawer;
(3) A direct obligation of the bank; and
(4) Provided to a customer of the bank or acquired from the bank for remittance purposes.
(j) Certified check means a check with respect to which the drawee bank certifies by signature on the check of an officer or other authorized employee of the bank that–
(1) (i) The signature of the drawer on the check is genuine; and
(ii) The bank has set aside funds that–
(A) Are equal to the amount of the check, and
(B) Will be used to pay the check; or
(2) The bank will pay the check upon presentment.
(k) Check means–
(1) A negotiable demand draft drawn on or payable through or at an office of a bank;
(2) A negotiable demand draft drawn on a Federal Reserve Bank or a Federal Home Loan Bank;
(3) A negotiable demand draft drawn on the Treasury of the United States;
(4) A demand draft drawn on a state government or unit of general local government that is not payable through or at a bank;
(5) A United States Postal Service money order; or
(6) A traveler’s check drawn on or payable through or at a bank. The term check does not include a non cash item or an item payable in a medium other than United States money. A draft may be a check even though it is described on its face by another term, such as money order. For purposes of subpart C, and in connection therewith, subpart A, of this part, the term check also includes a demand draft of the type described above that is nonnegotiable.
(l) [Reserved]
(m) Check processing region means the geographical area served by an office of a Federal Reserve Bank for purposes of its check processing activities.
(n) Consumer account means any account used primarily for personal, family, or household purposes.
(o) Depositary bank means the first bank to which a check is transferred even though it is also the paying bank or the payee. A check deposited in an account is deemed to be transferred to the bank holding the account into which the check is deposited, even though the check is physically received and indorsed first by another bank.
(p) Electronic payment means a wire transfer or an ACH credit transfer.
(q) Forward collection means the process by which a bank sends a check on a cash basis to the paying bank for payment.
(r) Local check means a check payable by or at a local paying bank, or a check payable by a non bank payor and payable through a local paying bank.
(s) Local paying bank means a paying bank that is located in the
same check-processing region as the physical location of the branch,
contractual branch, or proprietary ATM of the depositary bank in which
that check was deposited.
(t) Merger transaction means–
(1) A merger or consolidation of two or more banks; or
(2) The transfer of substantially all of the assets of one or more banks or branches to another bank in consideration of the assumption by the acquiring bank of substantially all of the liabilities of the transferring banks, including the deposit liabilities.
(u) Non cash item means an item that would otherwise be a check, except that–
(1) A passbook, certificate, or other document is attached;
(2) It is accompanied by special instructions, such as a request for special advice of payment or dishonor;
(3) It consists of more than a single thickness of paper, except a check that qualifies for handling by automated check processing equipment; or
(4) It has not been preprinted or post-encoded in magnetic ink with the routing number of the paying bank.
(v) Non local check means a check payable by, through, or at a non local paying bank.
(w) Non local paying bank means a paying bank that is not a local paying bank with respect to the depositary bank.
(x) Nonproprietary ATM means an ATM that is not a proprietary ATM.
(y) [Reserved]
(z) Paying bank means–
(1) The bank by which a check is payable, unless the check is payable at another bank and is sent to the other bank for payment or collection;
(2) The bank at which a check is payable and to which it is sent for payment or collection;
(3) The Federal Reserve Bank or Federal Home Loan Bank by which a check is payable;
(4) The bank through which a check is payable and to which it is sent for payment or collection, if the check is not payable by a bank; or
(5) The state or unit of general local government on which a check is drawn and to which it is sent for payment or collection.
For purposes of subpart C, and in connection therewith, subpart A, paying bank includes the bank through which a check is payable and to which the check is sent for payment or collection, regardless of whether the check is payable by another bank, and the bank whose routing number appears on a check in fractional or magnetic form and to which the check is sent for payment or collection.
(aa) Proprietary ATM means an ATM that is–
(1) Owned or operated by, or operated exclusively for, the depositary bank;
(2) Located on the premises (including the outside wall) of the depositary bank; or
(3) Located within 50 feet of the premises of the depositary bank, and not identified as being owned or operated by another entity. If more than one bank meets the owned or operated criterion of paragraph (AA)(1) of this section, the ATM is considered proprietary to the bank that operates it.
(bb) Qualified returned check means a returned check that is prepared for automated return to the depositary bank by placing the check in a carrier envelope or placing a strip on the check and encoding the strip or envelope in magnetic ink. A qualified returned check need not contain other elements of a check drawn on the depositary bank, such as the name of the depositary bank.
(cc) Returning bank means a bank (other than the paying or depositary bank) handling a returned check or notice in lieu of return. A returning bank is also a collecting bank for purposes of UCC 4-202(b).
(dd) Routing number means–
(1) The number printed on the face of a check in fractional form on in nine-digit form; or
(2) The number in a bank’s endorsement in fractional or nine-digit form.
(ee) Similarly situated bank means a bank of similar size, located in the same community, and with similar check handling activities as the paying bank or returning bank.
(ff) State means a state, the District of Columbia, Puerto Rico, or the U.S. Virgin Islands.
(gg) Teller’s check means a check provided to a customer of a bank or acquired from a bank for remittance purposes, that is drawn by the bank, and drawn on another bank or payable through or at a bank.
(hh) Traveler’s check means an instrument for the payment of money that–
(1) Is drawn on or payable through or at a bank;
(2) Is designated on its face by the term traveler’s check or by any substantially similar term or is commonly known and marketed as a traveler’s check by a corporation or bank that is an issuer of traveler’s checks;
(3) Provides for a specimen signature of the purchaser to be completed at the time of purchase; and
(4) Provides for a countersignature of the purchaser to be completed at the time of negotiation.
(ii) Uniform Commercial Code, Code, or U.C.C. means the Uniform Commercial Code as adopted in a state.
(jj) United States means the states, including the District of Columbia, the US Virgin Islands, and Puerto Rico.
(kk) Unit of general local government means any city, county, parish, town, township, village, or other general purpose political subdivision of a state. The term does not include special purpose units of government, such as school districts or water districts.
(ll) Wire transfer means an unconditional order to a bank to pay a fixed or determinable amount of money to a beneficiary upon receipt or on a day stated in the order, that is transmitted by electronic or other means through Fed wire, the Clearing House Interbank Payments System, other similar network, between banks, or on the books of a bank. Wire transfer does not include an electronic fund transfer as defined in section 903(6) of the Electronic Fund Transfer Act (15 U.S.C. 1693a(6)).
(mm) Fed wire has the same meaning as that set forth in Sec. 210.26(e) of this chapter.
(nn) Good faith means honesty in fact and observance of reasonable commercial standards of fair dealing.
(oo) Interest compensation means an amount of money calculated at the average of the Federal Funds rates published by the Federal Reserve Bank of New York for each of the days for which interest compensation is payable, divided by 360. The Federal Funds rate for any day on which a published rate is not available is the same as the published rate for the last preceding day for which there is a published rate.
(pp) Contractual branch, with respect to a bank, means a branch of
another bank that accepts a deposit on behalf of the first bank.

Sec. 229.3 Administrative enforcement.

(a) Enforcement agencies. Compliance with this part is enforced under–
(1) Section 8 of the Federal Deposit Insurance Act (12 U.S.C. 1818 et seq.) in the case of–
(i) National banks, and Federal branches and Federal agencies of foreign banks, by the Office of the Comptroller of the Currency;
(ii) Member banks of the Federal Reserve System (other than national banks), and offices, branches, and agencies of foreign banks located in the United States (other than Federal branches, Federal agencies, and insured State branches of foreign banks), by the Board; and
(iii) Banks insured by the Federal Deposit Insurance Corporation (other than members of the Federal Reserve System) and insured State branches of foreign banks, by the Board of Directors of the Federal Deposit Insurance Corporation;
(2) Section 8 of the Federal Deposit Insurance Act, by the Director of the Office of Thrift Supervision in the case of savings associations the deposits of which are insured by the Federal Deposit Insurance Corporation; and
(3) The Federal Credit Union Act (12 U.S.C. 1751 et seq.) by the National Credit Union Administration Board with respect to any federal credit union or credit union insured by the National Credit Union Share Insurance Fund. The terms used in paragraph (a)(1) of this section that are not defined in this part or otherwise defined in section 3(s) of the Federal Deposit Insurance Act (12 U.S.C. 1813(s)) shall have the meaning given to them in section 1(b) of the International Banking Act of 1978 (12 U.S.C. 3101).
(b) Additional powers. (1) For the purposes of the exercise by any agency referred to in paragraph (a) of this section of its powers under any statute referred to in that paragraph, a violation of any requirement imposed under the Act is deemed to be a violation of a requirement imposed under that statute.
(2) In addition to its powers under any provision of law specifically referred to in paragraph (a) of this section, each of the agencies referred to in that paragraph may exercise, for purposes of enforcing compliance with any requirement imposed under this part, any other authority conferred on it by law.
(c) Enforcement by the Board. (1) Except to the extent that enforcement of the requirements imposed under this part is specifically committed to some other government agency, the Board shall enforce such requirements.
(2) If the Board determines that–
(i) Any bank that is not a bank described in paragraph (a) of this section; or
(ii) Any other person subject to the authority of the Board under the Act and this part,

has failed to comply with any requirement imposed by this part, the Board may issue an order prohibiting any bank, any Federal Reserve Bank, or any other person subject to the authority of the Board from engaging in any activity or transaction that directly or indirectly involves such noncomplying bank or person (including any activity or transaction involving the receipt, payment, collection, and clearing of checks, and any related function of the payment system with respect to checks).

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Donec porttitor lacus. Fringilla accumsan ultrices, molestie at purus. Nulla volutpat consectetur sapien, non semper libero feugiat sed. Donec laoreet suscipit nisi, ut Sec. 205.1 – Authority and purpose.
Sec. 205.2 – Definitions.
Sec. 205.3 – Coverage.
Sec. 205.4 – General disclosure requirements; jointly offered services.
Sec. 205.5 – Issuance of access devices.
Sec. 205.6 – Liability of consumer for unauthorized transfers.
Sec. 205.7 – Initial disclosures.
Sec. 205.8 – Change in terms notice; error resolution notice.
Sec. 205.9 – Receipts at electronic terminals; periodic statements.
Sec. 205.10 – Preauthorized transfers.
Sec. 205.11 – Procedures for resolving errors.
Sec. 205.12 – Relation to other laws.
Sec. 205.13 – Administrative enforcement; record retention.
Sec. 205.14 – Electronic fund transfer service provider not holding consumer’s account.
Sec. 205.15 – Electronic fund transfer of government benefits.

Sec. 205.1 Authority and purpose.

(a) Authority. The regulation in this part, known as Regulation E, is issued by the Board of Governors of the Federal Reserve System 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. 7100-0200.
(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. 205.2 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 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 property or services and defer payment therefor.
(g) Electronic fund transfer is defined in Sec. 205.3.
(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, 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.
(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 above 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. 205.3 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 Secs. 205.10 (b), (d), and (e) and 205.13, this part applies to any person.
(b) Electronic fund transfer. 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 an account. The term includes, but is not limited to:
(1) Point-of-sale transfers;
(2) Automated teller machine transfers;
(3) Direct deposits or withdrawals of funds;
(4) Transfers initiated by telephone; and
(5) Transfers resulting from debit card transactions, whether or not initiated through an electronic terminal.
(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 Fed wire 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 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. 205.10(e) regarding compulsory use and sections 915 and 916 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. 205.10(e) regarding compulsory use and sections 915 and 916 of the act regarding civil and criminal liability.

Sec. 205.4 General disclosure requirements; jointly offered services.
(a) Form of disclosures. Disclosures required under this part shall be clear and readily understandable, in writing, and in a form the consumer may keep. A financial institution may use commonly accepted or readily understandable abbreviations in complying with the disclosure requirements of this part.
(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) [Reserved]
(d) 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.
(e) 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 Secs. 205.7 and 205.8 that are within its knowledge and within the purview of its relationship with the consumer for whom it holds an account.

Sec. 205.5 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 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. 205.7, 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. 205.6 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. 205.7(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 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. 205.7 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. 205.6 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. 205.9, and notices regarding preauthorized transfers as provided in Secs. 205.10(a), and 205.10(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. 205.10(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.

Sec. 205.8 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. 205.7(b) 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 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. 205.9(b).

Sec. 205.9 Receipts at electronic terminals; periodic statements.
(a) Receipts at electronic terminals. 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 who 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, for the right to make transfers, or for 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. 205.8(b) given on or with the statement satisfies this requirement.
(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. 205.10(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 (c)(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. 205.11.

Sec. 205.10 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.
(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. 205.11 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 Secs. 205.9 or 205.10(a); or
(vii) The consumer’s request for documentation required by Secs. 205.9 or 205.10(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. 205.9, 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 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. 205.6(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 (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 (c)(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 application 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. 205.14, 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:
(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. 205.12 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 226.12(a)(2), footnote 21), 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; and
(iii) 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.
(2) The Truth in Lending Act and Regulation Z (12 CFR part 226), 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 Board 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. Only state laws that are inconsistent with the act and this part are preempted and then only to the extent of the inconsistency. A state law is not inconsistent with the act and this part if it is more protective of consumers.
(2) Standards for determination. State law is inconsistent with the requirements of the act and this part if it:
(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. 205.11(c)(2)(i); 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 from the requirements of the act or this part for any class of electronic fund transfers within the state. The Board 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 915 of the act; and
(ii) When the Board grants an exemption, the state law requirements shall constitute the requirements of the federal law for purposes of section 915 of the act, except for state law requirements not imposed by the federal law.

Sec. 205.13 Administrative enforcement; record retention.
(a) Enforcement by federal agencies. Compliance with this part is enforced by the agencies listed in Appendix B of this part.
(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, 915, or 916(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. 205.14 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 Secs. 205.7, 205.8, and 205.9 that are within the purview of its relationship with the consumer. The service provider need not furnish the periodic statement required by Sec. 205.9(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. 205.9(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. 205.9(b)(1), in the format prescribed by the automated clearinghouse 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. 205.6(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 Secs. 205.6(b)(3) and 205.11(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 time the period in which notice of an error must be received, specified in Sec. 205.11(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. 205.11(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. 205.11(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. 205.11(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. 205.11(d)(2)(ii).

Sec. 205.15 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. 205.9(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 comply with the following special rules:
(1) Initial disclosures. The agency shall modify the disclosures under Sec. 205.7(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. 205.7(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. 205.7(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. 205.8(b).
(3) Limitations on liability. For purposes of Sec. 205.6(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. 205.11 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.

Subpart A–Collection of Checks and Other Items By Federal Reserve Banks

Section 210.1 – Authority, purpose, and scope.
Section 210.2 – Definitions.
Section 210.3 – General provisions.
Section 210.4 – Sending items to Reserve banks.
Section 210.5 – Sender’s agreement; recovery by Reserve Bank.
Section 210.6 – Status, warranties, and liability of Reserve Bank.
Section 210.7 – Presenting items for payment.
Section 210.8 – Presenting non cash items for acceptance.
Section 210.9 – Settlement and payment.
Section 210.10 – Time schedule and availability of credits for cash items and returned checks.
Section 210.11 – Availability of proceeds of non cash items; time schedule.
Section 210.12 – Return of cash items and handling of returned checks. Section 210.13 – Unpaid items.
Section 210.14 – Extension of time limits.
Section 210.15 – Direct presentment of certain warrants.

Subpart B–Funds Transfers Through Fed wire

Section 210.25 – Authority, purpose, and scope.
Section 210.26 – Definitions.
Section 210.27 – Reliance on identifying number.
Section 210.28 – Agreement of sender.
Section 210.29 – Agreement of receiving bank.
Section 210.30 – Payment orders.
Section 210.31 – Payment by a Federal Reserve Bank to a receiving bank or beneficiary.
Section 210.32 – Federal Reserve Bank liability; payment of interest.
Appendix A to Subpart B–Commentary
Appendix B to Subpart B–Article 4A, Funds Transfers

Sec. 210.1 Authority, purpose, and scope.

The Board of Governors of the Federal Reserve System (Board) has issued this subpart pursuant to the Federal Reserve Act, sections 11 (i) and (j) (12 U.S.C. 248 (i) and (j)), section 13 (12 U.S.C. 342), section 16 (12 U.S.C. 248(o) and 360), and section 19(f) (12 U.S.C. 464); the Expedited Funds Availability Act (12 U.S.C. 4001 et seq.); and other laws. This subpart governs the collection of checks and other cash and non cash items and the handling of returned checks by Federal Reserve Banks. Its purpose is to provide rules for collecting and returning items and settling balances.

Sec. 210.2 Definitions.

As used in this subpart, unless the context otherwise requires: (a) Actually and finally collected funds means cash or any other form of payment that is, or has become, final and irrevocable.
(b) Bank includes a depository institution as defined in section 19 of the Federal Reserve Act (12 U.S.C. 461(b)).
(c) Bank draft means a check drawn by one bank on another bank.
(d) Banking day means the part of a day on which a bank is open to the public for carrying on substantially all of its banking functions.
(e) Cash items means–
(1) A check other than one classified as a non cash item under this section; or
(2) Any other item payable on demand and collectible at par that the Reserve Bank of the District in which the item is payable is willing to accept as a cash item. Cash item does not include a returned check.
(f) Check means a draft, as defined in the Uniform Commercial Code that is drawn on a bank and payable on demand. Check as defined in 12 CFR 229.2(k) means an item defined as a check in 12 CFR 229.2(k) for purposes of subpart C of part 229.
(g) Item means an instrument or a promise or order to pay money, whether negotiable or not, that is:
(1) Payable in a Federal Reserve District1 (District);

1 For purposes of this subpart, the Virgin Islands and Puerto Rico are deemed to be in the Second District, and Guam, American Samoa, and the Northern Mariana Islands in the Twelfth District.

(2) Sent by a sender to a Reserve Bank for handling under this subpart; and
(3) Collectible in funds acceptable to the Reserve Bank of the District in which the instrument is payable.

Unless otherwise indicated, item includes both a cash and a non cash item, and includes a returned check sent by a paying or returning bank. Item does not include a check that cannot be collected at par, or a payment order as defined in Sec. 210.26(i) and handled under subpart B of this part.

(h) Nonbank payor means a payor of an item, other than a bank.
(i) Non cash item means an item that a receiving Reserve Bank classifies in its operating circulars as requiring special handling. The term also means an item normally received as a cash item if a Reserve Bank decides that special conditions require that it handle the item as a non cash item.
(j) Paying bank means–
(1) The bank by which an item is payable unless the item is payable or collectible at or through another bank and is sent to the other bank for payment or collection;
(2) The bank at or through which an item is payable or collectible and to which it sent for payment or collection; or
(3) The bank whose routing number appears on a check in magnetic characters or fractional form and to which the check is sent for payment or collection.
(k) Returned check means a cash item or a check as defined in 12 CFR 229.2(k) returned by a paying bank, including a notice of nonpayment in lieu of a returned check, whether or not a Reserve Bank handled the check for collection.
(l) Sender means any of the following that sends an item to a Reserve Bank for forward collection:
(1) Depository institution means a depository institution as defined in section 19(b) of the Federal Reserve Act. (12 U.S.C. 461(b))
(2) Clearing institution means:
(i) An institution that is not a depository institution, but maintains with a Reserve Bank the balance referred to in the first paragraph of section 13 of the Federal Reserve Act (12 U.S.C. 342); or
(ii) A corporation that maintains an account with a Reserve Bank in conformity with Sec. 211.4 of this chapter (Regulation K).
(3) International Organization means an international organization for which a Reserve Bank is empowered to act as depository or fiscal agent and maintains an account.
(4) Foreign correspondent means any of the following for which a Reserve Bank maintains an account: a foreign bank or banker, a foreign state as defined in section 25(b) of the Federal Reserve Act (12 U.S.C. 632), or a foreign correspondent or agency referred to in section 14(e) of that Act (12 U.S.C. 358).
(m) State means a State of the United States, the District of Columbia, Puerto Rico, or a territory, possession, or dependency of the United States.
Unless the context otherwise requires, the terms not defined herein have the meanings set forth in 12 CFR 229.2 applicable to subpart C of part 229, and the terms not defined herein or in 12 CFR 229.2 have the meanings set forth in the Uniform Commercial Code.
(n) Clock hour means a time that is on the hour, such as 1:00, 2:00, etc.
(o) Fed wire has the same meaning as that set forth in Sec. 210.26(e).
(p) Uniform Commercial Code means the Uniform Commercial Code as adopted in a state.

Sec. 210.3 General provisions.

(a) General. Each Reserve Bank shall receive and handle items in accordance with this subpart, and shall issue operating circulars governing the details of its handling of items and other matters deemed appropriate by the Reserve Bank. The circulars may, among other things, classify cash items and non cash items, require separate sorts and letters, provide different closing times for the receipt of different classes or types of items, set forth terms of services, and establish procedures for adjustments on a Reserve Bank’s books, including amounts, waiver of expenses, and payment of interest by as-of adjustment.
(b) Binding effect. This subpart, together with subpart C of part 229 and the operating circulars of the Reserve Banks, are binding on all parties interested in an item handled by any Reserve Bank.
(c) Government items. As depositaries and fiscal agents of the United States, Reserve Banks handle certain items payable by the United States or certain Federal agencies as cash or non cash items. To the extent provided by regulations issued by, and arrangements made with, the United States Treasury Department and other Government departments and agencies, the handling of such items is governed by this subpart. The Reserve Banks shall include in their operating circulars such information regarding these regulations and arrangements as the Reserve Banks deem appropriate.
(d) Government senders. Except as otherwise provided by statutes of the United States, or regulations issued or arrangements made hereunder, this subpart and the operating circulars of the Reserve Banks apply to the following when acting as a sender: a department, agency, instrumentality, independent establishment, or office of the United States, or a wholly owned or controlled Government corporation, that maintains or uses an account with a Reserve Bank.
(e) Foreign items. A Reserve Bank also may receive and handle certain items payable outside a Federal Reserve District, as provided in its operating circulars. The handling of such items in a state is governed by this subpart, and the handling of such items outside a state is governed by the local law.
(f) Relation to other law. The provisions of this subpart supersede any inconsistent provisions of the Uniform Commercial Code, of any other state law, or of part 229 of this title, but only to the extent of the inconsistency.

Subpart A–Collection of Checks and Other Items By Federal Reserve Banks

Sec. 210.4 Sending items to Reserve Banks.

(a) A sender may send any item to the Reserve Bank with which it maintains or uses an account, but that Reserve Bank may permit or require the sender to send direct to another Reserve Bank an item payable within the other Reserve Bank’s District.
(b) With respect to an item sent direct, the relationships and the rights and liabilities between the sender, the Reserve Bank of its District, and the Reserve Bank to which the item is sent are the same as if the sender had sent the item to the Reserve Bank of its District and that Reserve Bank had sent the item to the other Reserve Bank.
(c) The Reserve Banks shall receive cash items and other checks at par.

Sec. 210.5 Sender’s agreement; recovery by Reserve Bank.

(a) Sender’s agreement. The warranties, authorizations, and agreements made pursuant to this paragraph may not be disclaimed and are made whether or not the item bears an endorsement of the sender. By sending an item to a Reserve Bank, the sender:
(1) Authorizes the receiving Reserve Bank (and any other Reserve Bank or collecting bank to which the item is sent) to handle the item subject to this subpart and to the Reserve Banks’ operating circulars, and warrants its authority to give this authorization;
(2) Warrants to each Reserve Bank handling the item that:
(i) The sender is a person entitled to enforce the item or authorized to obtain payment of the item on behalf of a person entitled to enforce the item; and
(ii) The item has not been altered; but this paragraph (a)(2) does not limit any warranty by a sender or other prior party arising under state law or under subpart C of part 229 of this title; and
(3) Agrees to indemnify each Reserve Bank for any loss of expense sustained (including attorneys’ fees and expenses of litigation) resulting from (i) the sender’s lack of authority to make the warranty in paragraph (a)(1) of this section; (ii) any action taken by the Reserve Bank within the scope of its authority in handling the item; or (iii) any warranty made by the Reserve Bank under Sec. 210.6(b) of this subpart.
(b) Recovery by Reserve Bank. If an action or proceeding is brought against (or if defense is tendered to) a Reserve Bank that has handled an item, based on:
(1) The alleged failure of the sender to have the authority to make the warranty and agreement in paragraph (a)(1) of this section;
(2) Any action by the Reserve Bank within the scope of its authority in handling the item; or
(3) Any warranty made by the Reserve Bank under Sec. 210.6(b) of this subpart, the Reserve Bank may, upon entry of a final judgment or decree, recover from the sender the amount of attorneys’ fees and other expenses of litigation incurred, as well as any amount the Reserve Bank is required to pay because of the judgment or decree or the tender of defense, together with interest thereon.
(c) Methods of recovery. The Reserve Bank may recover the amount stated in paragraph (b) of this section by charging any account on its books that is maintained or used by the sender (or if the sender is another Reserve Bank, by entering a charge against the other Reserve Bank through the Inter district Settlement Fund), if:
(1) The Reserve Bank made seasonable written demand on the sender to assume defense of the action or proceeding; and
(2) The sender has not made any other arrangement for payment that is acceptable to the Reserve Bank.

The Reserve Bank is not responsible for defending the action or proceeding before using this method of recovery. A Reserve Bank that has been charged through the Inter district Settlement Fund may recover from its sender in the manner and under the circumstances set forth in this paragraph. A Reserve Bank’s failure to avail itself of the remedy provided in this paragraph does not prejudice its enforcement in any other manner of the indemnity agreement referred to in paragraph (a)(3) of this section.
(d) Security interest. To secure any obligation due or to become due to a Reserve Bank by a sender or prior collecting bank under this subpart or subpart C of part 229 of this title, the sender and prior collecting bank, by sending an item directly or indirectly to the Reserve Bank, grant to the Reserve Bank a security interest in all of the sender’s or prior collecting bank’s assets in the possession of, or held for the account of, the Reserve Bank. The security interest attaches when a warranty is breached or any other obligation to the Reserve Bank is incurred. If the Reserve Bank, in its sole discretion, deems itself insecure and gives notice thereof to the sender or prior collecting bank, or if the sender or prior collecting bank suspends payments or is closed, the Reserve Bank may take any action authorized by law to recover the amount of an obligation, including, but not limited to, the exercise of rights of set off, the realization on any available collateral, and any other rights it may have as a creditor under applicable law.

Sec. 210.6 Status, warranties, and liability of Reserve Bank.

(a)(1) Status and Liability. A Reserve Bank shall act only as agent or subagent of the owner with respect to an item. This agency terminates not later than the time the Reserve Bank receives payment for the item in actually and finally collected funds and makes the proceeds available for use by the sender. A Reserve Bank may be liable to the owner, to the sender, to a prior collecting bank, or to the depositary bank’s customer with respect to a check as defined in 12 CFR 229.2(k). A Reserve Bank shall not have or assume any liability with respect to an item or its proceeds except for the Reserve Bank’s own lack of good faith or failure to exercise ordinary care, except as provided in paragraph (b) of this section and except as provided in subpart C of part 229.
(2) Reliance on routing designation appearing on item. A Reserve Bank may present or send an item based on the routing number or other designation of a paying bank or non bank payor appearing in any form on the item when the Reserve Bank receives it. A Reserve Bank shall not be responsible for any delay resulting from its acting on any designation, whether inscribed by magnetic ink or by other means, and whether or not the designation acted on is consistent with any other designation appearing on the item.
(b) Warranties and liability. By presenting or sending an item, a Reserve Bank warrants to a subsequent collecting bank and to the paying bank and any other payor:
(1) That the Reserve Bank is a person entitled to enforce the item (or is authorized to obtain payment of the item on behalf of a person who is either:
(i) Entitled to enforce the item; or
(ii) Authorized to obtain payment on behalf of a person entitled to enforce the item); and
(2) That the item has not been altered.

The Reserve Bank also makes the warranties set forth in Sec. 229.34(c) of this title, subject to the terms of part 229 of this title. The Reserve Bank shall not have or assume any other liability to the paying bank or other payor, except for the Reserve Bank’s own lack of good faith or failure to exercise ordinary care.
(c) Time for commencing action against Reserve Bank. A claim against a Reserve Bank for lack of good faith or failure to exercise ordinary care shall be barred unless the action on the claim is commenced within two years after the claim accrues. A claim accrues on the date when a Reserve Bank’s alleged failure to exercise ordinary care or to act in good faith first results in damages to the claimant. This paragraph does not lengthen the time limit for claims under Sec. 229.38(g) of this title (which include claims for breach of warranty under Sec. 229.34 of this title).

Sec. 210.7 Presenting items for payment.

(a) Presenting or sending. As provided under State law or as otherwise permitted by this section: (1) a Reserve Bank or a subsequent collecting bank may present an item for payment or send the item for presentment and payment; and
(2) A Reserve Bank may send an item to a subsequent collecting bank with authority to present it for payment or to send it for presentment and payment.
(b) Place of presentment. A Reserve Bank or subsequent collecting bank may present an item–
(1) At a place requested by the paying bank;
(2) In the case of a check as defined in 12 CFR 229.2(k), in accordance with 12 CFR 229.36;
(3) At a place requested by the non bank payor, if the item is payable by a non bank payor other than through or at a paying bank;
(4) Under a special collection agreement consistent with this subpart; or
(5) Through a clearinghouse and subject to its rules and practices.
(c) Presenting or sending direct. A Reserve Bank or subsequent collecting bank may, with respect to an item payable in the Reserve Bank’s District:
(1) Present or send the item direct to the paying bank, or to a place requested by the paying bank; or
(2) If the item is payable by a nonbank payor other than through a paying bank, present it direct to the nonbank payor. Documents, securities, or other papers accompanying a non cash item shall not be delivered to the nonbank payor before the item is paid unless the sender specifically authorizes delivery.
(d) Item payable in another district. A Reserve Bank receiving an item payable in another District ordinarily sends the item to the Reserve Bank of the other District, but with the agreement of the other Reserve Bank, may present or send the item as if it were payable in its own District.

Sec. 210.8 Presenting non cash Items for Acceptance.

A Reserve Bank or a subsequent collecting bank may, if instructed by the sender, present a non cash item for acceptance in any manner authorized by law if: (a) The item provides that it must be presented for acceptance; (b) the item is payable elsewhere than at the residence or place of business of the payor; or (c) the date of payment of the item depends on presentment for acceptance. Documents accompanying a non cash item shall not be delivered to the payor upon acceptance of the item unless the sender specifically authorizes delivery. A Reserve Bank shall not have or assume any other obligation to present or to send for presentment for acceptance any non cash item.

Sec. 210.9 Settlement and payment.

(a) Cash items. (1) On the day a paying bank receives 2 a cash item directly or indirectly from a Reserve Bank, it shall settle for the item such that the proceeds of the settlement are available to the Reserve Bank by the close of Fed wire on that day, or it shall return the item by the later of the close of the paying bank’s banking day or the close of Fed wire. If the paying bank fails to settle for or return a cash item in accordance with this paragraph (a)(1), it is accountable for the amount of the item as of the close of its banking day or the close of Fed wire on the day it receives the item, whichever is earlier.

2 A paying bank is deemed to receive a cash item on its next banking day if it receives the item: (1) On a day other than a banking day for it; or (2) On a banking day for it, but after a “cut-off hour” established by it in accordance with state law.

(2)(i) On the day a paying bank receives a cash item directly or indirectly from a Reserve Bank, it shall settle for the item so that the proceeds of the settlement are available to the Reserve Bank, or return the item, by the latest of:
(A) The next clock hour that is at least one hour after the paying bank receives the item;
(B) One hour after the scheduled opening of Fed wire; or
(C) Such later time as provided in the Reserve Bank’s operating circular.
(ii) If the paying bank fails to settle for or return a cash item in accordance with paragraph (a)(2)(i) of this section, it shall be subject to any applicable overdraft charges. Settlement under paragraph (a)(2)(i) of this section satisfies the settlement requirements of paragraph (a)(1) of this section.
(3)(i) If a paying bank closes voluntarily on a day that is a banking day for a Reserve Bank, and the Reserve Bank makes a cash item available to the paying bank on that day, the paying bank shall either:
(A) On that day, settle for the item so that the proceeds of the settlement are available to the Reserve Bank, or return the item, by the latest of:
(1) The next clock hour that is at least one hour after the paying bank ordinarily would have received the item;
(2) One hour after the scheduled opening of Fed wire; or
(3) Such later time as provided in the Reserve Bank’s operating circular; or
(B) On the next day that is a banking day for both the paying bank and the Reserve Bank, settle for the item so that the proceeds of the settlement are available to the Reserve Bank by the later of:
(1) One hour after the scheduled opening of Fed wire on that day; or
(2) Such later time as provided in the Reserve Bank’s operating circular;
and compensate the Reserve Bank for the value of the float associated with the item in accordance with procedures provided in the Reserve Bank’s operating circular.
(ii) If a paying bank closes voluntarily on a day that is a banking day for a Reserve Bank, and the Reserve Bank makes a cash item available to the paying bank on that day, the paying bank is not considered to have received the item until its next banking day, but it shall be subject to any applicable overdraft charges if it fails to settle for or return the item in accordance with paragraph (a)(3)(i) of this section. The settlement requirements of paragraphs (a)(1) and (a)(2) of this section do not apply to a paying bank that settles in accordance with paragraph (a)(3)(i) of this section.
(4)(i) If a paying bank receives a cash item directly or indirectly from a Reserve Bank on a banking day that is not a banking day for the Reserve Bank:
(A) The paying bank shall:
(1) Settle for the item so that the proceeds of the settlement are available to the Reserve Bank by the close of Fed wire on the Reserve Bank’s next banking day; or
(2) Return the item by midnight of the day it receives the item. If the paying bank fails to settle for or return a cash item in accordance with this paragraph (a)(4)(i)(A), it shall become accountable for the amount of the item as of the close of its banking day on the day it receives the item.
(B) The paying bank shall:
(1) Settle for the item so that the proceeds of the settlement are available to the Reserve Bank by one hour after the scheduled opening of Fed wire on the Reserve Bank’s next banking day or such later time as provided in the Reserve Bank’s operating circular; or
(2) Return the item by midnight of the day it receives the item. If the paying bank fails to settle for or return a cash item in accordance with this paragraph (a)(4)(i)(B), it shall be subject to any applicable overdraft charges. Settlement under this paragraph (a)(4)(i)(B) satisfies the settlement requirements of paragraph (a)(4)(i)(A) of this section.
(ii) The settlement requirements of paragraphs (a)(1) and (a)(2) of this section do not apply to a paying bank that settles in accordance with paragraph (a)(4)(i) of this section.
(5) Settlement with a Reserve Bank under paragraphs (a)(1) through (4) of this section shall be made by debit to an account on the Reserve Bank’s books, cash, or other form of settlement to which the Reserve Bank agrees, except that the Reserve Bank may, in its discretion, obtain settlement by charging the paying bank’s reserve or clearing account. A paying bank may not set off against the amount of a settlement under this section the amount of a claim with respect to another cash item, cash letter, or other claim under Sec. 229.34(c) of this title or other law.
(6) If a cash item is unavailable for return, the paying bank may send a notice in lieu of return as provided in Sec. 229.30(f) of this title.
(b) Non cash items. A Reserve Bank may require the paying or collecting bank to which it has presented or sent a non cash item to pay for the item in cash, but the Reserve Bank may permit payment by a debit to an account on the Reserve Bank’s books or by any of the following that is in a form acceptable to the Reserve Bank: bank draft, transfer of funds or bank credit, or any other form of payment authorized by State law.
(c) Nonbank payor. A Reserve Bank may require a nonbank payor to which it has presented an item to pay for it in cash, but the Reserve Bank may permit payment in any of the following that is in a form acceptable to the Reserve Bank: cashier’s check, certified check, or other bank draft or obligation.
(d) Handling of payment. A Reserve Bank may handle a bank draft or other form of payment it receives in payment of a cash item as a cash item. A Reserve Bank may handle a bank draft or other form of payment it receives in payment of a non cash item as either a cash item or a non cash item.
(e) Liability of Reserve Bank. Except as set forth in 12 CFR 229.35(b), a Reserve Bank shall not be liable for the failure of a collecting bank, paying bank, or nonbank payor to pay for an item, or for any loss resulting from the Reserve Bank’s acceptance of any form of payment other than cash authorized in paragraphs (a), (b), and (c) of this section. A Reserve Bank that acts in good faith and exercises ordinary care shall not be liable for the nonpayment of, or failure to realize upon, a bank draft or other form of payment that it accepts under paragraphs (a), (b), and (c) of this section.

Sec. 210.10 Time schedule and availability of credits for cash items and returned checks.

(a) Each Reserve Bank shall include in its operating circulars a time schedule for each of its offices indicating when the amount of any cash item or returned check received by it (or sent direct to another Reserve office for the account of that Reserve Bank) is counted as reserves for purposes of part 204 of this chapter (Regulation D) and becomes available for use by the sender or paying or returning bank. The Reserve Bank shall give either immediate or deferred credit in accordance with its time schedule to a sender or paying or returning bank other than a foreign correspondent. A Reserve Bank ordinarily gives credit to a foreign correspondent only when the Reserve Bank receives payment of the item in actually and finally collected funds, but, in its discretion, a Reserve Bank may give immediate or deferred credit in accordance with its time schedule.
(b) Notwithstanding its time schedule, a Reserve Bank may refuse at any time to permit the use of credit given for any cash item or returned check, and may defer availability after credit is received by the Reserve Bank for a period of time that is reasonable under the circumstances.

Sec. 210.11 Availability of proceeds of non cash items; time schedule.

(a) Availability of credit. A Reserve Bank shall give credit to the sender for the proceeds of a non cash item when it receives payment in actually and finally collected funds (or advice from another Reserve Bank of such payment to it). The amount of the item is counted as reserve for purposes of part 204 of this chapter (Regulation D) and becomes available for use by the sender when the Reserve Bank receives the payment or advice, except as provided in paragraph (b) of this section.
(b) Time schedule. A Reserve Bank may give credit for the proceeds of a non cash item subject to payment in actually and finally collected funds in accordance with a time schedule included in its operating circulars. The time schedule shall indicate when the proceeds of the non cash item will be counted as reserve for purposes of part 204 of this chapter (Regulation D) and become available for use by the sender. A Reserve Bank may, however, refuse at any time to permit the use of credit given for a non cash item for which the Reserve Bank has not yet received payment in actually and finally collected funds.
(c) Handling of payment. If a Reserve Bank receives, in payment for a non cash item, a bank draft or other form of payment that it elects to handle as a non cash item, the Reserve Bank shall neither count the proceeds as reserve for purposes of part 204 of this chapter (Regulation D) nor make the proceeds available for use until it receives payment in actually and finally collected funds.

Sec. 210.12 Return of cash items and handling of returned checks.

(a) Return of cash items. A paying bank that receives a cash item directly or indirectly from a Reserve Bank, other than for immediate payment over the counter, and that pays for the item as provided in Sec. 210.9(a) of this subpart, may, before it has finally paid the item, return the item in accordance with subpart C of part 229, the Uniform Commercial Code, and its Reserve Bank’s operating circular. A paying bank that receives a cash item directly or indirectly from a Reserve Bank also may return the item prior to settlement, in accordance with Sec. 210.9(a) and its Reserve Bank’s operating circular. The rules or practices of a clearinghouse through which the item was presented, or a special collection agreement under which the item was presented, may not extend these return times, but may provide for a shorter return time.
(b) Return of checks not handled by Reserve Banks. A paying bank that receives a check as defined in 12 CFR 229.2(k), other than directly or indirectly from a Reserve Bank, and that determines not to pay the check, may send the returned check to its Reserve Bank in accordance with subpart C of part 229, the Uniform Commercial Code, and its Reserve Bank’s operating Circular. A returning bank may send a returned check to its Reserve Bank in accordance with subpart C of part 229, the Uniform Commercial Code, and its Reserve Bank’s operating circular.
(c) Paying bank’s and returning bank’s agreement. The warranties, authorizations, and agreements made pursuant to this paragraph may not be disclaimed and are made whether or not the returned check bears an endorsement of the paying bank or returning bank. By sending a returned check to a Reserve Bank, the paying bank or returning bank–
(1) Authorizes the receiving Reserve Bank (and any other Reserve Bank or returning bank to which the returned check is sent) to handle the returned check subject to this subpart and to the Reserve Banks’ operating circulars;
(2) Makes the warranties set forth in Sec. 229.34 of this title (but this paragraph does not limit any warranty by a paying or returning bank arising under state law); and
(3) Agrees to indemnify each Reserve Bank for any loss or expense (including attorneys’ fees and expenses of litigation) resulting from–
(i) The paying or returning bank’s lack of authority to give the authorization in paragraph (c)(1) of this section;
(ii) Any action taken by a Reserve Bank within the scope of its authority in handling the returned check; or
(iii) Any warranty made by the Reserve Bank under 12 CFR 229.34.
(d) Warranties by Reserve Bank. By sending a returned check and receiving settlement or other consideration for it, a Reserve Bank makes the returning bank warranties as set forth in Sec. 229.34 of this title, subject to the terms of part 229 of this title. The Reserve Bank shall not have or assume any other liability to the transferee returning bank, to any subsequent returning bank, to the depository bank, to the owner of the check, or to any other person, except for the Reserve Bank’s own lack of good faith or failure to exercise ordinary care as provided in subpart C of part 229 of this title.
(e) Recovery by Reserve Bank. If an action or proceeding is brought against (or if defense is tendered to) a Reserve Bank that has handled a returned Check based on–
(1) The alleged failure of the paying or returning bank to have the authority to give the authorization in paragraph (c)(1) of this section;
(2) Any action by the Reserve Bank within the scope of its authority in handling the returned check; or
(3) Any warranty made by the Reserve Bank under 12 CFR 229.34,

The Reserve Bank may, upon the entry of a final judgment or decree, recover from the paying bank or returning bank the amount of attorneys’ fees and other expenses of litigation incurred, as well as any amount the Reserve Bank is required to pay because of the judgment or decree or the tender of defense, together with interest thereon.
(f) Methods of recovery. The Reserve Bank may recover the amount stated in paragraph (d) of this section by charging any account on its books that is maintained or used by the paying or returning bank (or, if the returning bank is another Reserve Bank, by entering a charge against the other Reserve Bank through the Interdistrict Settlement Fund), if–

(1) The Reserve Bank made seasonable written demand on the paying or returning bank to assume defense of the action or proceeding; and
(2) The paying or returning bank has not made any other arrangement for payment that is acceptable to the Reserve Bank.

The Reserve Bank is not responsible for defending the action or proceeding before using this method of recovery. A Reserve Bank that has been charged through the Interdistrict Settlement Fund may recover from the paying or returning bank in the manner and under the circumstances set forth in this paragraph. A Reserve Bank’s failure to avail itself of the remedy provided in this paragraph does not prejudice its enforcement in any other manner of the indemnity agreement referred to in paragraph (c)(3) of this section.
(g) Reserve Bank’s responsibility. A Reserve Bank shall handle a returned check, or a notice of nonpayment, in accordance with subpart C of part 229 and its operating circular. A Reserve Bank may permit or require the paying or returning bank to send direct to another Reserve Bank a returned check with respect to which the depositary bank is located within the other Reserve Bank’s District, in accordance with Sec. 210.4(b).
(h) Settlement. A subsequent returning bank or depositary bank shall settle for returned checks in the same manner and by the same time as for cash items presented for payment under this subpart.
(i) Security interest. To secure any obligation due or to become due to a Reserve Bank by a paying bank, returning bank, or prior returning bank under this subpart or subpart C of part 229 of this title, the paying bank, returning bank, and prior returning bank, by sending a returned check directly or indirectly to the Reserve Bank, grant to the Reserve Bank a security interest in all of the paying bank’s, returning bank’s, and prior returning bank’s assets in the possession of, or held for the account of, the Reserve Bank. The security interest attaches when a warranty is breached or any other obligation to the Reserve Bank is incurred. If the Reserve Bank, in its sole discretion, deems itself insecure and gives notice thereof to the paying bank, returning bank, or prior returning bank, or if the paying bank, returning bank, or prior returning bank suspends payments or is closed, the Reserve Bank may take any action authorized by law to recover the amount of an obligation, including, but not limited to, the exercise of rights of set off, the realization on any available collateral, and any other rights it may have as a creditor under applicable law.

Sec. 210.13 Unpaid items.

(a) Right of recovery. If a Reserve Bank does not receive payment in actually and finally collected funds for an item, the Reserve Bank shall recover by charge-back or otherwise the amount of the item from the sender, prior collecting bank, paying bank, or returning bank from or through which it was received, whether or not the item itself can be sent back. In the event of recovery from such a party, no party, including the owner or holder of the item, shall, for the purpose of obtaining payment of the amount of the item, have any interest in any reserve balance or other funds or property in the Reserve Bank’s possession of the bank that failed to make payment in actually and finally collected funds.
(b) Suspension or closing of bank. A Reserve Bank shall not pay or act on a draft, authorization to charge (including a charge authorized by Sec. 210.9(a)(5)), or other order on a reserve balance or other funds in its possession for the purpose of settling for items under Sec. 210.9 or Sec. 210.12 after it receives notice of suspension or closing of the bank making the settlement for that bank’s own or another’s account.

Sec. 210.14 Extension of time limits.

If a bank (including a Reserve Bank) or nonbank payor is delayed in acting on an item beyond applicable time limits because of interruption of communication or computer facilities, suspension of payments by a bank or nonbank payor, war, emergency conditions, failure of equipment, or other circumstances beyond its control, its time for acting is extended for the time necessary to complete the action, if it exercises such diligence as the circumstances require.

Sec. 210.15 Direct presentment of certain warrants.

If a Reserve Bank elects to present direct to the payor a bill, note, or warrant that is issued and payable by a State or a political subdivision and that is a cash item not payable or collectible through a bank: (a) Sections 210.9, 210.12, and 210.13 and the operating circulars of the Reserve Banks apply to the payor as if it were a paying bank; (b) Sec. 210.14 applies to the payor as if it were a bank; and (c) under Sec. 210.9 each day on which the payor is open for the regular conduct of its affairs or the accommodation of the public is considered a banking day.

Sec. 210.25 Authority, purpose, and scope.

(a) Authority and purpose. This subpart provides rules to govern funds transfers through Fed wire, and has been issued pursuant to the Federal Reserve Act–section 13 (12 U.S.C. 342), paragraph (f) of section 19 (12 U.S.C. 464), paragraph 14 of section 16 (12 U.S.C. 248(o)), and paragraphs (i) and (j) of section 11 (12 U.S.C. 248(i) and (j))–and other laws and has the force and effect of federal law. This subpart is not a funds-transfer system rule as defined in Section 4A- 501(b) of Article 4A.
(b) Scope. (1) This subpart incorporates the provisions of Article 4A set forth in appendix B to this subpart. In the event of an inconsistency between the provisions of the sections of this subpart and appendix B, to this subpart, the provisions of the sections of this subpart shall prevail.
(2) Except as otherwise provided in paragraphs (b)(3) and (b)(4) of this section, this Subpart governs the rights and obligations of:
(i) Federal Reserve Banks sending or receiving payment orders;
(ii) Senders that send payment orders directly to a Federal Reserve Bank;
(iii) Receiving banks that receive payment orders directly from a Federal Reserve Bank; (iv) Beneficiaries that receive payment for payment orders sent to a Federal Reserve Bank by means of credit to an account maintained or used at a Federal Reserve Bank; and
(v) Other parties to a funds transfer any part of which is carried out through Fed wire to the same extent as if this subpart were considered a funds-transfer system rule under Article 4A.
(3) This subpart governs a funds transfer that is sent through Fed wire, as provided in paragraph (b)(2) of this section, even though a portion of the funds transfer is governed by the Electronic Fund Transfer Act, but the portion of such funds transfer that is governed by the Electronic Fund Transfer Act is not governed by this subpart.
(4) In the event that any portion of this Subpart establishes rights or obligations with respect to the availability of funds that are also governed by the Expedited Funds Availability Act or the Board’s Regulation CC, Availability of Funds and Collection of Checks, those provisions of the Expedited Funds Availability Act or Regulation CC shall apply and the portion of this Subpart, including Article 4A as incorporated herein, shall not apply.
(c) Operating Circulars. Each Federal Reserve Bank shall issue an Operating Circular consistent with this Subpart that governs the details of its funds-transfer operations and other matters it deems appropriate. Among other things, the Operating Circular may: set cut-off hours and funds-transfer business days; address available security procedures; specify format and media requirements for payment orders; identify messages that are not payment orders; and impose charges for funds- transfer services.
(d) Government senders, receiving banks, and beneficiaries. Except as otherwise expressly provided by the statutes of the United States, the parties specified in paragraphs (b)(2)(ii) through (v) of this section include:
(1) A department, agency, instrumentality, independent establishment, or office of the United States, or a wholly-owned or controlled Government corporation;
(2) An international organization;
(3) A foreign central bank; and
(4) A department, agency, instrumentality, independent establishment, or office of a foreign government, or a wholly-owned or controlled corporation of a foreign government.

Sec. 210.26 Definitions.

As used in this subpart, the following definitions apply:
(a) Article 4A means article 4A of the Uniform Commercial Code as set forth in appendix B of this subpart.
(b) As of adjustment means a debit or credit, for reserve or clearing balance maintenance purposes only, applied to the reserve or clearing balance of a bank that either sends a payment order to a Federal Reserve Bank, or that receives a payment order from a Federal Reserve Bank, in lieu of an interest charge or payment.
(c) Automated clearing house transfer means any transfer designated as an automated clearing house transfer in a Federal Reserve Bank Operating Circular.
(d) Beneficiary’s bank has the same meaning as in Article 4A, except that:
(1) A Federal Reserve Bank need not be identified in the payment order in order to be the beneficiary’s bank; and
(2) The term includes a Federal Reserve Bank when that Federal Reserve Bank is the beneficiary of a payment order.
(e) Fed wire is the funds-transfer system owned and operated by the Federal Reserve Banks that is used primarily for the transmission and settlement of payment orders governed by this subpart. Fed wire does not include the system for making automated clearing house transfers.
(f) Interdistrict transfer means a funds transfer involving entries to accounts maintained at two Federal Reserve Banks.
(g) Intradistrict transfer means a funds transfer involving entries to accounts maintained at one Federal Reserve Bank.
(h) Off-line bank means a bank that transmits payment orders to and receives payment orders from a Federal Reserve Bank by telephone orally or by other means other than electronic data transmission.
(i) Payment order has the same meaning as in Article 4A, except that the term does not include automated clearing house transfers or any communication designated in a Federal Reserve Bank Operating Circular issued under this Subpart as not being a payment order.
(j) Sender’s account, receiving bank’s account, and beneficiary’s account mean the reserve, clearing, or other funds deposit account at a Federal Reserve Bank maintained or used by the sender, receiving bank, or beneficiary, respectively.
(k) Sender’s Federal Reserve Bank and receiving bank’s Federal Reserve Bank mean the Federal Reserve Bank at which the sender or receiving bank, respectively, maintains or uses an account.

Subpart B–Funds Transfers Through Fed wire

Sec. 210.27 Reliance on identifying number.

(a) Reliance by a Federal Reserve Bank on number to identify an intermediary bank or beneficiary’s bank. A Federal Reserve Bank may rely on the number in a payment order that identifies the intermediary bank or beneficiary’s bank, even if it identifies a bank different from the bank identified by name in the payment order, if the Federal Reserve Bank does not know of such an inconsistency in identification. A Federal Reserve Bank has no duty to detect any such inconsistency in identification.
(b) Reliance by a Federal Reserve Bank on number to identify beneficiary. A Federal Reserve Bank, acting as a beneficiary’s bank, may rely on the number in a payment order that identifies the beneficiary, even if it identifies a person different from the person identified by name in the payment order, if the Federal Reserve Bank does not know of such an inconsistency in identification. A Federal Reserve Bank has no duty to detect any such inconsistency in identification.

Sec. 210.28 Agreement of sender.

(a) Payment of sender’s obligation to a Federal Reserve Bank. A sender (other than a Federal Reserve Bank), by maintaining or using an account with a Federal Reserve Bank, authorizes the sender’s Federal Reserve Bank to obtain payment for the sender’s payment orders by debiting the amount of the payment order from the sender’s account.
(b) Overdrafts. (1) A sender does not have the right to an overdraft in the sender’s account. In the event an overdraft is created, the overdraft shall be due and payable immediately without the need for a demand by the Federal Reserve Bank, at the earliest of the following times:
(i) At the end of the funds-transfer business day;
(ii) At the time the Federal Reserve Bank, in its sole discretion, deems itself insecure and gives notice thereof to the sender; or
(iii) At the time the sender suspends payments or is closed.
(2) The sender shall have in its account, at the time the overdraft is due and payable, a balance of actually and finally collected funds sufficient to cover the aggregate amount of all its obligations to the Federal Reserve Bank, whether the obligations result from the execution of a payment order or otherwise.
(3) To secure any overdraft, as well as any other obligation due or to become due to its Federal Reserve Bank, each sender, by sending a payment order to a Federal Reserve Bank that is accepted by the Federal Reserve Bank, grants to the Federal Reserve Bank a security interest in all of the sender’s assets in the possession of, or held for the account of, the Federal Reserve Bank. The security interest attaches when an overdraft, or any other obligation to the Federal Reserve Bank, becomes due and payable.
(4) A Federal Reserve Bank may take any action authorized by law to recover the amount of an overdraft that is due and payable, including, but not limited to, the exercise of rights of set off, the realization on any available collateral, and any other rights it may have as a creditor under applicable law.
(5) If a sender, other than a government sender described in Sec. 210.25(d), incurs an overdraft in its account as a result of a debit to the account by a Federal Reserve Bank under paragraph (a) of this section, the account will be subject to any applicable overdraft charges, regardless of whether the overdraft has become due and payable. A Federal Reserve Bank may debit a sender’s account under paragraph (a) of this section immediately on acceptance of the payment order.
(c) Review of payment orders. A sender, by sending a payment order to a Federal Reserve Bank, agrees that for the purposes of sections 4A- 204(a) and 4A-304 of Article 4A, a reasonable time to notify a Federal Reserve Bank of the relevant facts concerning an unauthorized or erroneously executed payment order is within 30 calendar days after the sender receives notice that the payment order was accepted or executed, or that the sender’s account was debited with respect to the payment order.

Sec. 210.29 Agreement of receiving bank.

(a) Payment. A receiving bank (other than a Federal Reserve Bank) that receives a payment order from its Federal Reserve Bank authorizes that Federal Reserve Bank to pay for the payment order by crediting the amount of the payment order to the receiving bank’s account.
(b) Off-line banks. An off-line bank that does not expressly notify its Federal Reserve Bank in writing that it maintains an account for another bank warrants to that Federal Reserve Bank that the off-line bank does not act as an intermediary bank or a beneficiary’s bank with respect to payment orders received through Fed wire for a beneficiary that is a bank.

Sec. 210.30 Payment orders.

(a) Rejection. A sender shall not send a payment order to a Federal Reserve Bank unless authorized to do so by the Federal Reserve Bank. A Federal Reserve Bank may reject, or impose conditions that must be satisfied before it will accept, a payment order for any reason.
(b) Selection of an intermediary bank. For an interdistrict transfer, a Federal Reserve Bank is authorized and directed to execute a payment order through another Federal Reserve Bank. A sender shall not send a payment order to a Federal Reserve Bank that requires the Federal Reserve Bank to issue a payment order to an intermediary bank (other than a Federal Reserve Bank) unless that intermediary bank is designated in the sender’s payment order. A sender shall not send to a Federal Reserve Bank a payment order instructing use by a Federal Reserve Bank of a funds-transfer system or means of transmission other than Fed wire, unless the Federal Reserve Bank agrees with the sender in writing to follow such instructions.
(c) Same-day execution. A sender shall not issue a payment order that instructs a Federal Reserve Bank to execute the payment order on a funds-transfer business day that is later than the funds-transfer business day on which the order is received by the Federal Reserve Bank, unless the Federal Reserve Bank agrees with the sender in writing to follow such instructions.

Sec. 210.31 Payment by a Federal Reserve Bank to a receiving bank or beneficiary.

(a) Payment to a receiving bank. Payment of a Federal Reserve Bank’s obligation to pay a receiving bank (other than a Federal Reserve Bank) occurs at the earlier of the time when the amount of the payment order is credited to the receiving bank’s account or when the payment order is sent to the receiving bank.
(b) Payment to a beneficiary. Payment by a Federal Reserve Bank to a beneficiary of a payment order, where the Federal Reserve Bank is the beneficiary’s bank, occurs at the earlier of the time when the amount of the payment order is credited to the beneficiary’s account or when notice of the credit is sent to the beneficiary.

Sec. 210.32 Federal Reserve Bank liability; payment of interest.

(a) Damages. In connection with its handling of a payment order under this subpart, a Federal Reserve Bank shall not be liable to a sender, receiving bank, beneficiary, or other Federal Reserve Bank, governed by this subpart, for any damages other than those payable under Article 4A. A Federal Reserve Bank shall not agree to be liable to a sender, receiving bank, beneficiary, or other Federal Reserve Bank for consequential damages under section 4A-305(d) of Article 4A.
(b) Payment of interest. (1) A Federal Reserve Bank, in its discretion, may satisfy its obligation, or that of another Federal Reserve Bank, to pay compensation in the form of interest under Article 4A by–
(i) Providing an as of adjustment to its sender, its receiving bank, or its beneficiary, as provided in the Federal Reserve Bank’s Operating Circular, in an amount equal to the amount on which interest is to be calculated multiplied by the number of days for which interest is to be calculated; or
(ii) Paying compensation in the form of interest to its sender, its receiving bank, its beneficiary, or another party to the funds transfer that is entitled to such payment, in an amount that is calculated in accordance with section 4A-506 of Article 4A.
(2) If the sender or receiving bank that is the recipient of an as of adjustment or an interest payment is not the party entitled to compensation under Article 4A, the sender or receiving bank shall pass through the benefit of the as of adjustment or interest payment by making an interest payment, as of the day the as of adjustment or interest payment is effected, to the party entitled to compensation. The interest payment that is made to the party entitled to compensation shall not be less than the value of the as of adjustment or interest payment that was provided by the Federal Reserve Bank to the sender or receiving bank. The party entitled to compensation may agree to accept compensation in a form other than a direct interest payment, provided that such an alternative form of compensation is not less than the value of the interest payment that otherwise would be made.
(c) Nonwaiver of right of recovery. Nothing in this subpart or any Operating Circular issued hereunder shall constitute, or be construed as constituting, a waiver by a Federal Reserve Bank of a cause of action for recovery under any applicable law of mistake and restitution.

Appendix A to Subpart B–Commentary

The Commentary provides background material to explain the intent of the Board of Governors of the Federal Reserve System (Board) in adopting a particular provision in the subpart and to help readers interpret that provision. In some comments, examples are offered. The Commentary constitutes an official Board interpretation of subpart B of this part. Commentary is not provided for every provision of subpart B of this part, as some provisions are self-explanatory.

Section 210.25–Authority, Purpose, and Scope

(a) Authority and purpose. Section 210.25(a) states that the purpose of subpart B of this part is to provide rules to govern funds transfers through Fed wire and recites the Board’s rulemaking authority for this subpart. Subpart B of this part is federal law and is not a “funds- transfer system rule,” as defined in section 4A-501(b) of Article 4A, Funds Transfers, of the Uniform Commercial Code (UCC), as set forth in appendix B of this subpart. Certain provisions of Article 4A may not be varied by a funds-transfer system rule, but under section 4A-107, regulations of the Board and Operating Circulars of the Federal Reserve Banks supersede inconsistent provisions of Article 4A to the extent of the inconsistency. In addition, regulations of the Board may preempt inconsistent provisions of state law. Accordingly, subpart B of this part supersedes or preempts inconsistent provisions of state law. It does not affect state law governing funds transfers that does not conflict with the provisions of subpart B of this part, such as Article 4A, as enacted in any state, as it applies to parties to funds transfers through Fed wire whose rights are not governed by subpart B of this part.
(b) Scope. (1) Subpart B of this part incorporates the provisions of Article 4A set forth in appendix B of this subpart. The provisions set forth expressly in the sections of subpart B of this part supersede or preempt any inconsistent provisions of Article 4A as set forth in appendix B of this subpart or as enacted in any state. The official comments to Article 4A are not incorporated in subpart B of this part or this Commentary to subpart B of this part, but the official comments may be useful in interpreting Article 4A. Because section 4A-105 refers to other provisions of the Uniform Commercial Code, e.g., definitions in Article 1 of the UCC, these other provisions of the UCC, as approved by the National Conference of Commissioners on Uniform State Laws and the American Law Institute, from time to time, are also incorporated in subpart B of this part. Subpart B of this part applies to any party to a Fed wire funds transfer that is in privity with a Federal Reserve Bank. These parties include a sender (bank or nonbank) that sends a payment order directly to a Federal Reserve Bank, a receiving bank that receives a payment order directly from a Federal Reserve Bank, and a beneficiary that receives credit to an account that it uses or maintains at a Federal Reserve Bank for a payment order sent to a Federal Reserve Bank. Other parties to a funds transfer are covered by this subpart to the same extent that this subpart would apply to them if this subpart were a “funds-transfer system rule” under Article 4A that selected subpart B of this part as the governing law.
(2) The scope of the applicability of a funds-transfer system rule under Article 4A is specified in section 4A-501(b), and the scope of the choice of law provision is specified in section 4A-507(c). Under section 4A-507(c), a choice of law provision is binding on the participants in a funds-transfer system and certain other parties having notice that the funds-transfer system might be used for the funds transfer and of the choice of law provision. The Uniform Commercial Code provides that a person has notice when the person has actual knowledge, receives notification or has reason to know from all the facts and circumstances known to the person at the time in question. (See UCC section 1-201(25).) However, under sections 4A-507(b) and 4A-507(d), a choice of law by agreement of the parties takes precedence over a choice of law made by funds-transfer system rule.
(3) If originators, receiving banks, and beneficiaries that are not in privity with a Federal Reserve Bank have the notice contemplated by section 4A-507(c) or if those parties agree to be bound by subpart B of this part, subpart B of this part generally would apply to payment orders between those remote parties, including participants in other funds-transfer systems. For example, a funds transfer may be sent from an originator’s bank through a funds-transfer system other than Fed wire to a receiving bank which, in turn, sends a payment order through Fed wire to execute the funds transfer. Similarly, a Federal Reserve Bank may execute a payment order through Fed wire to a receiving bank that sends it through a funds-transfer system other than Fed wire to a beneficiary’s bank. In the first example, if the originator’s bank has notice that Fed wire may be used to effect part of the funds transfer, the sending of the payment order through the other funds-transfer system to the receiving bank will be governed by subpart B of this part unless the parties to the payment order have agreed otherwise. In the second example, if the beneficiary’s bank has notice that Fed wire may be used to effect part of the funds transfer, the sending of the payment order to the beneficiary’s bank through the other funds-transfer system will be governed by subpart B of this part unless the parties have agreed otherwise. In both cases, the other funds-transfer system’s rules would also apply to, at a minimum, the portion of these funds transfers going through that funds-transfer system. Because subpart B of this part is federal law, to the extent of any inconsistency, subpart B of this part will take precedence over any funds-transfer system rule applicable to the remote sender or receiving bank or to a Federal Reserve Bank. If remote parties to a funds transfer, a portion of which is sent through Fed wire, have expressly selected by agreement a law other than subpart B of this part under section 4A-507(b), subpart B of this part would not take precedence over the choice of law made by the agreement even though the remote parties had notice that Fed wire may be used and of the governing law. (See 4A-507(d)). In addition, subpart B of this part would not apply to a funds transfer sent through another funds-transfer system where no Federal Reserve Bank handles the funds transfer, even though settlement for the funds transfer is made by means of a separate net settlement or funds transfer through Fed wire.
(4) Under section 4A-108, Article 4A does not apply to a funds transfer, any part of which is governed by the Electronic Fund Transfer Act (15 U.S.C. 1693 et seq.). Fed wire funds transfers to or from consumer accounts are exempt from the Electronic Fund Transfer Act and Regulation E (12 CFR part 205). A funds transfer from a consumer originator or a funds transfer to a consumer beneficiary could be carried out in part through Fed wire and in part through an automated clearing house or other means that is subject to the Electronic Fund Transfer Act or Regulation E. In these cases, subpart B of this part would not govern the portion of the funds transfer that is governed by the Electronic Fund Transfer Act or Regulation E. (See Commentary to Sec. 210.26(i) “payment order”.)
(5) Finally, section 4A-404(a) provides that a beneficiary’s bank is obliged to pay the amount of a payment order to the beneficiary on the payment date unless acceptance of the payment order occurs on the payment date after the close of the funds-transfer business day of the bank. The Expedited Funds Availability Act provides that funds received by a bank by wire transfer shall be available for withdrawal not later than the banking day after the business day on which such funds are received (12 U.S.C. 4002(a)). That Act also preempts any provision of state law that was not effective on September 1, 1989 that is inconsistent with that Act or it’s implementing Regulation CC (12 CFR part 229). Accordingly, the Expedited Funds Availability Act and Regulation CC may preempt section 4A-404(a) as enacted in any state. In order to ensure that section 4A-404(a), or other provisions of Article 4A, as incorporated in subpart B of this part, do not take precedence over provisions of the Expedited Funds Availability Act, this section provides that where subpart B of this part establishes rights or obligations that are also governed by the Expedited Funds Availability Act or Regulation CC, the Expedited Funds Availability Act or Regulation CC provision shall apply and subpart B of this part shall not apply.
(c) Operating Circulars. The Federal Reserve Banks issue Operating Circulars consistent with this Subpart that contain additional provisions applicable to payment orders sent through Fed wire. Under section 4A-107, these Operating Circulars supersede inconsistent provisions of Article 4A, as set forth in appendix B and as enacted in any state. These Operating Circulars are not funds-transfer system rules, but, by their terms, they are binding on all parties covered by this Subpart.
(d) Government senders, receiving banks, and beneficiaries. This section clarifies that unless a statute of the United States provides otherwise, subpart B of this part applies to governmental entities, domestic or foreign, including foreign central banks as specified in paragraph (b)(1) of this section.

Section 210.26–Definitions

Article 4A defines many terms (e.g., beneficiary, intermediary bank, receiving bank, security procedure) used in this subpart. These terms are defined or listed in sections 4A-103 through 4A-105. These terms, such as the term bank (defined in section 4A-105(d)(2)), may differ from comparable terms in subpart A of this part. As subpart B of this part incorporates consistent provisions of Article 4A, it incorporates these definitions unless these terms are expressly defined otherwise in subpart B of this part. This subpart modifies the definitions of two Article 4A terms, beneficiary’s bank and payment order. This subpart also defines terms not defined in Article 4A.
(a) Article 4A. Article 4A means the version of that
article of the Uniform Commercial Code set forth in appendix B of this subpart. It does not refer to the law of any particular state unless the context indicates otherwise. Subject to the express provisions of this Subpart, this version of Article 4A is incorporated into this Subpart and made federal law for transactions covered by this subpart.
(b) As of adjustments. As of adjustments are memorandum items that affect a bank’s reserve or clearing balance for the purpose of meeting the required balance, but do not represent funds that can be used for other purposes. As discussed in the Commentary to Sec. 210.32(b), the Federal Reserve Banks generally provide as of adjustments as a means of effecting interest payments or charges.
(d) Beneficiary’s bank. The definition of beneficiary’s bank in subpart B of this part differs from the section 4A-103(a)(3) definition. The subpart B definition clarifies that where a Federal Reserve Bank functions as the beneficiary’s bank, it need not be identified in the payment order as the beneficiary’s bank and that a Federal Reserve Bank that receives a payment order as beneficiary is also the beneficiary’s bank with respect to that payment order.
(e) Fed wire. Fed wire refers to the funds-transfer system owned and operated by the Federal Reserve Banks that is governed by this Subpart. The term does not refer to any particular computer, telecommunications facility, or funds transfer, but to the system as a whole, which may include transfers by telephone or by written instrument in particular circumstances. Fed wire does not include the system used for automated clearing house transfers.
(h) Off-line bank. Most Fed wire payment orders are transmitted electronically from a sender to a Federal Reserve Bank or from a Federal Reserve Bank to a receiving bank. Banks transmitting payment orders to Federal Reserve Banks electronically are often referred to as on-line banks. Some Fed wire participants, however, transmit payment orders to a Federal Reserve Bank or receive payment orders from a Federal Reserve Bank orally by telephone, or, in unusual circumstances, in writing. A bank that does not use either a terminal or a computer that links it electronically to a terminal or computer at its Federal Reserve Bank to send payment orders through Fed wire is an off-line bank.
(i) Payment order. (1) The definition of payment order in subpart B of this part differs from the section 4A-103(a)(1) definition. The subpart B definition clarifies that, for the purposes of subpart B of this part, automated clearing house transfers and certain messages that are transmitted through Fed wire are not payment orders. Federal Reserve Banks and banks participating in Fed wire send various types of messages, relating to payment orders or to other matters, through Fed wire that are not intended to be payment orders. Under the subpart B definition, these messages, and messages involved with automated clearing house transfers, are not payment orders and therefore are not governed by this subpart. The Operating Circulars of the Federal Reserve Banks specify those messages that may be transmitted through Fed wire but that are not payment orders.
(2) In some cases, messages sent through Fed wire, such as certain requests for credit transfer, may be payment orders under Article 4A, but are not treated as payment orders under subpart B because they are not an instruction to a Federal Reserve Bank to pay money.
(3) This subpart and Article 4A govern a payment order even though the originator’s or beneficiary’s account may be a consumer account established primarily for personal, family, or household purposes. Under section 4A-108, Article 4A does not apply to a funds transfer any part of which is governed by the Electronic Fund Transfer Act. That Act, and Regulation E implementing it, do not apply to funds transfers through Fed wire (see 15 U.S.C. 1693a(6)(B) and 12 CFR 205.3(b)). Thus, this Subpart applies to all funds transfers through Fed wire even though some such transfers involve originators or beneficiaries that are consumers. (See also Sec. 210.25(b) and accompanying Commentary.)

Section 210.27–Reliance on Identifying Number

(a) Reliance by a Federal Reserve Bank on number to identify intermediary bank or beneficiary’s bank. Section 4A-208 provides that a receiving bank, such as a Federal Reserve Bank, may rely on the routing number of an intermediary bank or the beneficiary’s bank specified in a payment order as identifying the appropriate intermediary bank or beneficiary’s bank, even if the payment order identifies another bank by name, provided that the receiving bank does not know of the inconsistency. Under section 4A-208(b)(2), if the sender of the payment order is not a bank, a receiving bank may rely on the number only if the sender had notice before the receiving bank accepted the sender’s order that the receiving bank might rely on the number. This section provides this notice to entities that are not banks, such as the Department of the Treasury, that send payment orders directly to a Federal Reserve Bank.
(b) Reliance by a Federal Reserve Bank on number to identify beneficiary. Section 4A-207 provides that a beneficiary’s bank, such as a Federal Reserve Bank, may rely on the number identifying a beneficiary, such as the beneficiary’s account number, specified in a payment order as identifying the appropriate beneficiary, even if the payment order identifies another beneficiary by name, provided that the beneficiary’s bank does not know of the inconsistency. Under section 4A- 207(c)(2), if the originator is not a bank, an originator is not obliged to pay for a payment order if the originator did not have notice that the beneficiary’s bank might rely on the identifying number and the person paid on the basis of the identifying number was not entitled to receive payment. This section of subpart B provides this notice to entities that are not banks, such as the Department of the Treasury, that are originators of payment orders sent directly by the originators to a Federal Reserve Bank, where that Federal Reserve Bank or another Federal Reserve Bank is the beneficiary’s bank (see also section 4A- 402(b), providing that a sender must pay a beneficiary’s bank for a payment order accepted by the beneficiary’s bank).

Section 210.28–Agreement of Sender

(a) Payment of sender’s obligation to a Federal Reserve Bank. When a sender issues a payment order to a Federal Reserve Bank and the Federal Reserve Bank issues a conforming order implementing the sender’s payment order, under section 4A-403, the sender is indebted to the Federal Reserve Bank for the amount of the payment order. A sender, other than a Federal Reserve Bank, that maintains or uses an account at a Federal Reserve Bank authorizes the Federal Reserve Bank to debit that account so that the Federal Reserve Bank can obtain payment for the payment order.
(b) Overdrafts. (1) In some cases, debits to a sender’s account will create an overdraft in the sender’s account. The Board and the Federal Reserve Banks have established policies concerning when a Federal Reserve Bank will permit a bank to incur an overdraft in its account at a Federal Reserve Bank. These policies do not give a bank or other sender a right to an overdraft in its account. Subpart B clarifies that a sender does not have a right to such an overdraft. If an overdraft arises, it becomes immediately due and payable at the earliest of: The end of the funds-transfer business day of the Federal Reserve Bank; the time the Federal Reserve Bank in its sole discretion, deems itself insecure and gives notice to the sender; or the time that the sender suspends payments or is closed by governmental action, such as the appointment of a receiver. In some cases, a Federal Reserve Bank extends its Fed wire operations beyond its cut-off hour for that funds-transfer business day. For the purposes of this section, unless otherwise specified by the Federal Reserve Bank making such an extension, an overdraft becomes due and payable at the end of the extended operating hours. An overdraft becomes due and payable prior to a Federal Reserve Bank’s cut-off hour if the Federal Reserve Bank deems itself insecure and gives notice to the sender. Notice that the Federal Reserve Bank deems itself insecure may be given in accordance with the provisions on notice in section 1-201(27) of the UCC, in accordance with any other applicable law or agreement, or by any other reasonable means. An overdraft also becomes due and payable at the time that a bank is closed or suspends payments. For example, an overdraft becomes due and payable if a receiver is appointed for the bank or the bank is prevented from making payments by governmental order. The Federal Reserve Bank need not make demand on the sender for the overdraft to become due and payable.
(2) A sender must cover any overdraft and any other obligation of the sender to the Federal Reserve Bank by the time the overdraft becomes due and payable. By sending a payment order to a Federal Reserve Bank, the sender grants a security interest to the Federal Reserve Bank in any assets of the sender held by, or for the account of, the Federal Reserve Bank in order to secure all obligations due or to become due to the Federal Reserve Bank. The security interest attaches when the overdraft, or other obligation of the sender to the Federal Reserve Bank, becomes due and payable. The security interest does not apply to assets held by the sender as custodian or trustee for the sender’s customers or third parties. Once an overdraft is due and payable, a Federal Reserve Bank may exercise its right of set off, liquidate collateral, or take other similar action to satisfy the over drafting bank’s obligation owed to the Federal Reserve Bank.
(c) Review of payment orders. (1) Under section 4A-204, a receiving bank is required to refund the principal amount of an unauthorized payment order that the sender was not obliged to pay, together with interest on the refundable amount calculated from the date that the receiving bank received payment to the date of the refund. The sender is not entitled to compensation in the form of interest if the sender fails to exercise ordinary care to determine that the order was not authorized and to notify the receiving bank within a reasonable period of time after the sender receives a notice that the payment order was accepted or that the sender’s account was debited with respect to the order. Similarly, under section 4A-304, if a sender of a payment order that was erroneously executed does not notify the bank receiving the payment order within a reasonable time, the bank is not liable to the sender for compensation in the form of interest on any amount refundable to the sender. Section 210.28(c) establishes 30 calendar days as the reasonable period of time for the purposes of these provisions of Article 4A.
(2) Section 4A-505 provides that a customer must object to a debit to its account by a receiving bank within one year after the customer received notification reasonably identifying the payment order. Subpart B of this part does not vary this one-year period.

Section 210.29–Agreement of Receiving Bank

(b) Off-line banks. (1) Generally, an on-line bank receiving payment orders or advices of credit for payment orders from a Federal Reserve Bank receives the payment orders or advices electronically a short time after the corresponding payment orders are received by the on-line bank’s Federal Reserve Bank. An off-line bank receiving payment orders or advices of credit from a Federal Reserve Bank does not have an electronic connection with the Federal Reserve Bank; therefore, payment orders or advices are transmitted either by telephone on the day the payment order is received by the receiving bank’s Federal Reserve Bank, or sent by courier or mail along with the off-line bank’s daily account statement, on the funds-transfer business day following the day the payment order is received by the off-line bank’s Federal Reserve Bank.
(2) Under section 4A-302(a)(2), a Federal Reserve Bank must transmit payment orders at a time and by means reasonably necessary to allow payment to the beneficiary on the payment date, or as soon thereafter as is feasible. Therefore, where an off-line receiving bank is an intermediary bank or beneficiary’s bank in a payment order, its Federal Reserve Bank attempts to transmit the payment order to the off-line bank by telephone on the day the payment order is received by the Federal Reserve Bank. A Federal Reserve Bank can generally identify these payment orders from the type code designated in the payment order.
(3) Under section 4A-404(b), if a payment order instructs payment to the account of the beneficiary, the beneficiary’s bank must notify the beneficiary of the receipt of a payment order before midnight of the next funds-transfer business day following the payment date. Where an off-line bank is the beneficiary of a payment order, telephone notice by a Federal Reserve Bank to the off-line bank of the receipt of the order is not required by Article 4A because the Federal Reserve Bank sends notice to the off-line bank by courier or mail, along with its daily account statement, on the day after the payment order is received by its Federal Reserve Bank. Payment orders for which an off-line bank is the beneficiary of the order are generally designated as settlement transactions.
(4) If an off-line receiving bank maintains an account for another bank, the off-line bank may receive payment orders designated as settlement transactions in its capacity as beneficiary’s bank or intermediary bank. A Federal Reserve Bank cannot readily distinguish these payment orders from settlement transactions for which the off-line bank is the beneficiary of the order. If an off-line bank notifies it’s Federal Reserve Bank that it maintains an account for another bank, the Federal Reserve Bank will attempt to telephone the off-line bank with respect to all settlement transactions received by such bank, whether the off-line bank is the beneficiary, the beneficiary’s bank, or an intermediary bank in the payment order. Under this section, an off-line bank that does not expressly notify its Federal Reserve Bank in writing that it maintains an account for another bank warrants to that Federal Reserve Bank that it does not act as an intermediary bank or a beneficiary’s bank for a bank beneficiary with respect to payment orders received through Fed wire.

Section 210.30–Payment Orders

(a) Rejection. (1) A sender must make arrangements with its Federal Reserve Bank before it can send payment orders to the Federal Reserve Bank. Federal Reserve Banks reserve the right to reject or impose conditions on the acceptance of payment orders for any reason. For example, a Federal Reserve Bank might reject or impose conditions on accepting a payment order where a sender does not have sufficient funds in its account with the Federal Reserve Bank to cover the amount of the sender’s payment order and other obligations of the sender due or to become due to the Federal Reserve Bank. A Federal Reserve Bank may require a sender to execute a written agreement concerning security procedures or other matters before the sender may send payment orders to the Federal Reserve Bank.
(b) Selection of an intermediary bank. (1) Under section 4A-302, if a receiving bank (other than a beneficiary’s bank), such as a Federal Reserve Bank, accepts a payment order, it must issue a payment order that complies with the sender’s order. The sender’s order may include instructions concerning an intermediary bank to be used that must be followed by a receiving bank (see section 4A-302(a)(1)). If the sender does not designate any intermediary bank in its payment order, the receiving bank may select an intermediary bank through which the sender’s payment order can be expeditiously issued to the beneficiary’s bank so long as the receiving bank exercises ordinary care in selecting the intermediary bank (see section 4A-302(b)).
(2) This section provides that in an interdistrict transfer, a Federal Reserve Bank is authorized and directed to select another Federal Reserve Bank as an intermediary bank. A sender may, however, instruct a Federal Reserve Bank to use a particular intermediary bank by designating that bank as the bank to be credited by that Federal Reserve Bank (or the second Federal Reserve Bank in the case of an interdistrict transfer) in its payment order, in which case the Federal Reserve Bank will send the payment order to that bank if that bank receives payment orders through Fed wire. A sender may not instruct a Federal Reserve Bank to use its discretion to select an intermediary bank other than a Federal Reserve Bank or an intermediary bank designated by the sender. In addition, a sender may not instruct a Federal Reserve Bank to use a funds-transfer system or means of transmission other than Fed wire unless the sender and the Federal Reserve Bank agree in writing to the use of the funds-transfer system or means of transmission.
(c) Same-day execution. Generally, Fed wire is a same-day value transfer system through which funds may be transferred from the originator to the beneficiary on the same funds-transfer business day. A sender may not send a payment order to a Federal Reserve Bank that specifies an execution date or payment date later than the day on which the payment order is issued, unless the sender of the order and the Federal Reserve Bank agree in writing to the arrangement.

Section 210.31–Payment by a Federal Reserve Bank to a Receiving Bank or Beneficiary

(a) Payment to a receiving bank. (1) Under section 4A-402, when a Federal Reserve Bank executes a sender’s payment order by issuing a conforming order to a receiving bank that accepts the payment order, the Federal Reserve Bank must pay the receiving bank the amount of the payment order. Section 210.29(a) authorizes a Federal Reserve Bank to make the payment by crediting the account at the Federal Reserve Bank maintained or used by the receiving bank. Section 210.31(a) provides that the payment occurs when the receiving bank’s account is credited or when the payment order is sent by the Federal Reserve Bank to the receiving bank, whichever is earlier. Ordinarily, payment will occur during the funds-transfer business day a short time after the payment order is received, even if the receiving bank is an off-line bank. This credit is final and irrevocable when made and constitutes final settlement under section 4A-403. Payment does not waive a Federal Reserve Bank’s right of recovery under the applicable law of mistake and restitution (see Sec. 210.32(c)), affect a Federal Reserve Bank’s right to apply the funds to any obligation due or to become due to the Federal Reserve Bank, or affect legal process or claims by third parties on the funds.
(2) This section on final payment does not apply to settlement for payment orders between Federal Reserve Banks. These payment orders are settled by other means.
(b) Payment to a beneficiary. Section 210.31(b) specifies when a Federal Reserve Bank makes payment to a beneficiary for which it is the beneficiary’s bank. As in the case of payment to a receiving bank, this payment occurs at the earlier of the time that the Federal Reserve Bank credits the beneficiary’s account or sends notice of the credit to the beneficiary, and is final and irrevocable when made.

Section 210.32–Federal Reserve Bank Liability; Payment of Interest

(a) Damages. (1) Under section 4A-305(d), damages for failure of a receiving bank to execute a payment order that it was obligated to execute by express agreement are limited to expenses in the transaction and incidental expenses and interest and do not include additional damages, including consequential damages, unless they are provided for in an express written agreement of the receiving bank. This section clarifies that in connection with the handling of payment orders, Federal Reserve Banks may not agree to be liable for consequential damages under this provision and shall not be liable for damages other than those that may be due under Article 4A to parties governed by this subpart. Any agreement in conflict with these provisions would not be effective, because it would be in violation of subpart B.
(2) This section does not affect the ability of other parties to a funds transfer to agree to be liable for consequential damages, the liability of a Federal Reserve Bank under section 4A-404, or the liability to parties governed by subpart B for claims not based on the handling of a payment order under this subpart.
(b) Payment of interest. (1) Under Article 4A, a Federal Reserve Bank may be required to pay compensation in the form of interest to another party in connection with its handling of a funds transfer. For example, payment of compensation in the form of interest is required in certain situations pursuant to sections 4A-204 (relating to refund of payment and duty of customer to report with respect to unauthorized payment order), 4A-209 (relating to acceptance of payment order), 4A-210 (relating to rejection of payment order), 4A-304 (relating to duty of sender to report erroneously executed payment order), 4A-305 (relating to liability for late or improper execution or failure to execute a payment order), 4A-402 (relating to obligation of sender to pay receiving bank), and 4A-404 (relating to obligation of beneficiary’s bank to pay and give notice to beneficiary). Under section 4A-506(a), the amount of such interest may be determined by agreement between the sender and receiving bank or by funds-transfer system rule. If there is no such agreement, under section 4A-506(b), the amount of interest is based on the Federal funds rate. Section 210.32(b) provides two means by which Federal Reserve Banks may provide compensation in the form of interest: through an as of adjustment or through an explicit interest payment.
(2) An as of adjustment is a memorandum credit or debit that is applied to the reserve or clearing balance of the bank that sent the payment order to, or received the payment order from, a Federal Reserve Bank. Federal Reserve Banks generally provide as of adjustments to correct errors and recover float. An as of adjustment differs from a debit or credit to an account in that it does not affect the actual balance of the account; it only affects the balance for reserve or clearing balance computation purposes. These adjustments affect the level of reserve or clearing balances that the bank must fund by other means and are therefore an effective substitute for explicit interest payments.
(3) A party that sent or received a payment order from a Federal Reserve Bank may be unable to make use of an as of adjustment as compensation in lieu of explicit interest. For example, if the sender or receiving bank is not subject to reserve requirements or satisfies its reserve requirements with vault cash, the as of adjustment could not be used to free other balances for investment. A Federal Reserve Bank may, in its discretion, provide compensation by an explicit interest payment rather than through an as of adjustment. Interest would be calculated in accordance with the procedures specified in section 4A-506(b). Similarly, compensation in the form of explicit interest will be paid to Government senders, receiving banks, or beneficiaries described in Sec. 210.25(d) if they are entitled to interest under this subpart. A Federal Reserve Bank may also, in its discretion, pay explicit interest directly to a remote party to a Fed wire funds transfer that is entitled to interest, rather than providing compensation to its direct sender or receiving bank.
(4) If a bank that received an as of adjustment or explicit interest payment is not the party entitled to interest compensation under Article 4A, the bank must pass the benefit of the as of adjustment or explicit interest payment made to it to the party that is entitled to compensation in the form of interest from a Federal Reserve Bank. The benefit may be passed on either in the form of a direct payment of interest or in the form of a compensating balance, if the party entitled to interest agrees to accept the other form of compensation, and the value of the compensating balance is at least equivalent to the value of the explicit interest that otherwise would have been provided.
(c) Nonwaiver of right of recovery. Several sections of Article 4A allow for a party to a funds transfer to make a claim pursuant to the applicable law of mistake and restitution. Nothing in subpart B of this part or any Operating Circular issued under subpart B of this part waives any such claim. A Federal Reserve Bank, however, may waive such a claim by express written agreement in order to settle litigation or for other purposes.

Appendix B to Subpart B–Article 4A, Funds Transfers

Part 1–Subject Matter and Definitions

Section 4A-101. Short Title

This Article may be cited as Uniform Commercial Code–Funds Transfers.

Section 4A-102. Subject Matter

Except as otherwise provided in section 4A-108, this Article applies to funds transfers defined in section 4A-104.

Section 4A-103. Payment Order–Definitions

(a) In this Article:
(1) Payment order means an instruction of a sender to a receiving bank, transmitted orally, electronically, or in writing, to pay, or to cause another bank to pay, a fixed or determinable amount of money to a beneficiary if:
(i) The instruction does not state a condition to payment to the beneficiary other than time of payment,
(ii) The receiving bank is to be reimbursed by debiting an account of, or otherwise receiving payment from, the sender, and
(iii) The instruction is transmitted by the sender directly to the receiving bank or to an agent, funds-transfer system, or communication system for transmittal to the receiving bank.
(2) Beneficiary means the person to be paid by the beneficiary’s bank.
(3) Beneficiary’s bank means the bank identified in a payment order in which an account of the beneficiary is to be credited pursuant to the order or which otherwise is to make payment to the beneficiary if the order does not provide for payment to an account.
(4) Receiving bank means the bank to which the sender’s instruction is addressed.
(5) Sender means the person giving the instruction to the receiving bank.
(b) If an instruction complying with subsection (a)(1) is to make more than one payment to a beneficiary, the instruction is a separate payment order with respect to each payment.
(c) A payment order is issued when it is sent to the receiving bank.

Section 4A-104. Funds Transfer–Definitions

In this Article:
(a) Funds transfer means the series of transactions, beginning with the originator’s payment order, made for the purpose of making payment to the beneficiary of the order. The term includes any payment order issued by the originator’s bank or an intermediary bank intended to carry out the originator’s payment order. A funds transfer is completed by acceptance by the beneficiary’s bank of a payment order for the benefit of the beneficiary of the originator’s payment order.
(b) Intermediary bank means a receiving bank other than the originator’s bank or the beneficiary’s bank.
(c) Originator means the sender of the first payment order in a funds transfer.
(d) Originator’s bank means (i) the receiving bank to which the payment order of the originator is issued if the originator is not a bank, or (ii) the originator if the originator is a bank.

Section 4A-105. Other Definitions

(a) In this Article:
(1) Authorized account means a deposit account of a customer in a bank designated by the customer as a source of payment of payment orders issued by the customer to the bank. If a customer does not so designate an account, any account of the customer is an authorized account if payment of a payment order from that account is not inconsistent with a restriction on the use of that account.
(2) Bank means a person engaged in the business of banking and includes a savings bank, savings and loan association, credit union, and trust company. A branch or separate office of a bank is a separate bank for purposes of this Article.
(3) Customer means a person, including a bank, having an account with a bank or from whom a bank has agreed to receive payment orders.
(4) Funds-transfer business day of a receiving bank means the part of a day during which the receiving bank is open for the receipt, processing, and transmittal of payment orders and cancellations and amendments of payment orders.
(5) Funds-transfer system means a wire transfer network, automated clearing house, or other communication system of a clearing house or other association of banks through which a payment order by a bank may be transmitted to the bank to which the order is addressed.
(6) Good faith means honesty in fact and the observance of reasonable commercial standards of fair dealing.
(7) Prove with respect to a fact means to meet the burden of establishing the fact (section 1-201(8)).
(b) Other definitions applying to this Article and the sections in which they appear are:
Acceptance……………………………………….Sec. 4A-209
Beneficiary………………………………………Sec. 4A-103
Beneficiary’s bank………………………………..Sec. 4A-103
Executed…………………………………………Sec. 4A-301
Execution date……………………………………Sec. 4A-301
Funds transfer……………………………………Sec. 4A-104
Funds-transfer system rule…………………………Sec. 4A-501
Intermediary bank…………………………………Sec. 4A-104
Originator……………………………………….Sec. 4A-104
Originator’s bank…………………………………Sec. 4A-104
Payment by beneficiary’s bank to beneficiary…………Sec. 4A-405
Payment by originator to beneficiary………………..Sec. 4A-406
Payment by sender to receiving bank…………………Sec. 4A-403
Payment date……………………………………..Sec. 4A-401
Payment order…………………………………….Sec. 4A-103
Receiving bank……………………………………Sec. 4A-103
Security procedure………………………………..Sec. 4A-201
Sender…………………………………………..Sec. 4A-103

(c) The following definitions in Article 4 apply to this Article:
Clearing house…………………………………….Sec. 4-104
Item……………………………………………..Sec. 4-104
Suspends payments………………………………….Sec. 4-104

(d) In addition Article 1 contains general definitions and principles of construction and interpretation applicable throughout this Article.

Section 4A-106. Time Payment Order is Received

(a) The time of receipt of a payment order or communication canceling or amending a payment order is determined by the rules applicable to receipt of a notice stated in section 1-201(27). A receiving bank may fix a cut-off time or times on a funds-transfer business day for the receipt and processing of payment orders and communications canceling or amending payment orders. Different cut-off times may apply to payment orders, cancellations, or amendments, or to different categories of payment orders, cancellations, or amendments. A cut-off time may apply to senders generally or different cut-off times may apply to different senders or categories of payment orders. If a payment order or communication canceling or amending a payment order is received after the close of a funds-transfer business day or after the appropriate cut-off time on a funds-transfer business day, the receiving bank may treat the payment order or communication as received at the opening of the next funds-transfer business day.
(b) If this Article refers to an execution date or payment date or states a day on which a receiving bank is required to take action, and the date or day does not fall on a funds-transfer business day, the next day that is a funds-transfer business day is treated as the date or day stated, unless the contrary is stated in this Article.

Section 4A-107. Federal Reserve Regulations and Operating Circulars

Regulations of the Board of Governors of the Federal Reserve System and operating circulars of the Federal Reserve Banks supersede any inconsistent provision of this Article to the extent of the inconsistency.

Section 4A-108. Exclusion of Consumer Transactions Governed by Federal Law
This Article does not apply to a funds transfer any part of which is governed by the Electronic Fund Transfer Act of 1978 (title XX, Pub. L. 95-630, 92 Stat. 3728, 15 U.S.C. 1693 et seq.) as amended from time to time.

Part 2–Issue and Acceptance of Payment Order

Section 4A-201. Security Procedure

Security procedure means a procedure established by agreement of a customer and a receiving bank for the purpose of (i) verifying that a payment order or communication amending or canceling a payment order is that of the customer, or (ii) detecting error in the transmission or the content of the payment order or communication. A security procedure may require the use of algorithms or other codes, identifying words or numbers, encryption, callback procedures, or similar security devices. Comparison of a signature on a payment order or communication with an authorized specimen signature of the customer is not by itself a security procedure.

Section 4A-202. Authorized and Verified Payment Orders

(a) A payment order received by the receiving bank is the authorized order of the person identified as sender if that person authorized the order or is otherwise bound by it under the law of agency.
(b) If a bank and its customer have agreed that the authenticity of payment orders issued to the bank in the name of the customer as sender will be verified pursuant to a security procedure, a payment order received by the receiving bank is effective as the order of the customer, whether or not authorized, if (i) the security procedure is a commercially reasonable method of providing security against unauthorized payment orders, and (ii) the bank proves that it accepted the payment order in good faith and in compliance with the security procedure and any written agreement or instruction of the customer restricting acceptance of payment orders issued in the name of the customer. The bank is not required to follow an instruction that violates a written agreement with the customer or notice of which is not received at a time and in a manner affording the bank a reasonable opportunity to act on it before the payment order is accepted.
(c) Commercial reasonableness of a security procedure is a question of law to be determined by considering the wishes of the customer expressed to the bank, the circumstances of the customer known to the bank, including the size, type, and frequency of payment orders normally issued by the customer to the bank, alternative security procedures offered to the customer, and security procedures in general use by customers and receiving banks similarly situated. A security procedure is deemed to be commercially reasonable if (i) the security procedure was chosen by the customer after the bank offered, and the customer refused, a security procedure that was commercially reasonable for that customer, and (ii) the customer expressly agreed in writing to be bound by any payment order, whether or not authorized, issued in its name and accepted by the bank in compliance with the security procedure chosen by the customer.
(d) The term sender in this Article includes the customer in whose name a payment order is issued if the order is the authorized order of the customer under subsection (a), or it is effective as the order of the customer under subsection (b).
(e) This section applies to amendments and cancellations of payment orders to the same extent it applies to payment orders.
(f) Except as provided in this section and in section 4A-203(a)(1), rights and obligations arising under this section or section 4A-203 may not be varied by agreement.

Section 4A-203. Unenforceability of Certain Verified Payment Orders

(a) If an accepted payment order is not, under section 4A-202(a), an authorized order of a customer identified as sender, but is effective as an order of the customer pursuant to section 4A-202(b), the following rules apply:
(1) By express written agreement, the receiving bank may limit the extent to which it is entitled to enforce or retain payment of the payment order.
(2) The receiving bank is not entitled to enforce or retain payment of the payment order if the customer proves that the order was not caused, directly or indirectly, by a person (i) entrusted at any time with duties to act for the customer with respect to payment orders or the security procedure, or (ii) who obtained access to transmitting facilities of the customer or who obtained, from a source controlled by the customer and without authority of the receiving bank, information facilitating breach of the security procedure, regardless of how the information was obtained or whether the customer was at fault. Information includes any access device, computer software, or the like.
(b) This section applies to amendments of payment orders to the same extent it applies to payment orders.

Section 4A-204. Refund of Payment and Duty of Customer To Report with Respect to Unauthorized Payment Order

(a) If a receiving bank accepts a payment order issued in the name of its customer as sender which is (i) not authorized and not effective as the order of the customer under section 4A-202, or (ii) not enforceable, in whole or in part, against the customer under section 4A- 203, the bank shall refund any payment of the payment order received from the customer to the extent the bank is not entitled to enforce payment and shall pay interest on the refundable amount calculated from the date the bank received payment to the date of the refund. However, the customer is not entitled to interest from the bank on the amount to be refunded if the customer fails to exercise ordinary care to determine that the order was not authorized by the customer and to notify the bank of the relevant facts within a reasonable time not exceeding 90 days after the date the customer received notification from the bank that the order was accepted or that the customer’s account was debited with respect to the order. The bank is not entitled to any recovery from the customer on account of a failure by the customer to give notification as stated in this section.
(b) Reasonable time under subsection (a) may be fixed by agreement as stated in section 1-204(1), but the obligation of a receiving bank to refund payment as stated in subsection (a) may not otherwise be varied by agreement.

Section 4A-205. Erroneous Payment Orders

(a) If an accepted payment order was transmitted pursuant to a security procedure for the detection of error and the payment order (i) erroneously instructed payment to a beneficiary not intended by the sender, (ii) erroneously instructed payment in an amount greater than the amount intended by the sender, or (iii) was an erroneously transmitted duplicate of a payment order previously sent by the sender, the following rules apply:
(1) If the sender proves that the sender or a person acting on behalf of the sender pursuant to section 4A-206 complied with the security procedure and that the error would have been detected if the receiving bank had also complied, the sender is not obliged to pay the order to the extent stated in paragraphs (2) and (3).
(2) If the funds transfer is completed on the basis of an erroneous payment order described in clause (i) or (iii) of subsection (a), the sender is not obliged to pay the order and the receiving bank is entitled to recover from the beneficiary any amount paid to the beneficiary to the extent allowed by the law governing mistake and restitution.
(3) If the funds transfer is completed on the basis of a payment order described in clause (ii) of subsection (a), the sender is not obliged to pay the order to the extent the amount received by the beneficiary is greater than the amount intended by the sender. In that case, the receiving bank is entitled to recover from the beneficiary the excess amount received to the extent allowed by the law governing mistake and restitution.
(b) If (i) the sender of an erroneous payment order described in subsection (a) is not obliged to pay all or part of the order, and (ii) the sender receives notification from the receiving bank that the order was accepted by the bank or that the sender’s account was debited with respect to the order, the sender has a duty to exercise ordinary care, on the basis of information available to the sender, to discover the error with respect to the order and to advise the bank of the relevant facts within a reasonable time, not exceeding 90 days, after the bank’s notification was received by the sender. If the bank proves that the sender failed to perform that duty, the sender is liable to the bank for the loss the bank proves it incurred as a result of the failure, but the liability of the sender may not exceed the amount of the sender’s order.
(c) This section applies to amendments to payment orders to the same extent it applies to payment orders.

Section 4A-206. Transmission of Payment Order Through Funds-Transfer or Other Communication System

(a) If a payment order addressed to a receiving bank is transmitted to a funds-transfer system or other third-party communication system for transmittal to the bank, the system is deemed to be an agent of the sender for the purpose of transmitting the payment order to the bank. If there is a discrepancy between the terms of the payment order transmitted to the system and the terms of the payment order transmitted by the system to the bank, the terms of the payment order of the sender are those transmitted by the system. This section does not apply to a funds-transfer system of the Federal Reserve Banks.
(b) This section applies to cancellations and amendments of payment orders to the same extent it applies to payment orders.

Section 4A-207. Misdescription of Beneficiary

(a) Subject to subsection (b), if, in a payment order received by the beneficiary’s bank, the name, bank account number, or other identification of the beneficiary refers to a nonexistent or unidentifiable person or account, no person has rights as a beneficiary of the order and acceptance of the order cannot occur.
(b) If a payment order received by the beneficiary’s bank identifies the beneficiary both by name and by an identifying or bank account number and the name and number identify different persons, the following rules apply:
(1) Except as otherwise provided in subsection (c), if the beneficiary’s bank does not know that the name and number refer to different persons, it may rely on the number as the proper identification of the beneficiary of the order. The beneficiary’s bank need not determine whether the name and number refer to the same person.
(2) If the beneficiary’s bank pays the person identified by name or knows that the name and number identify different persons, no person has rights as beneficiary except the person paid by the beneficiary’s bank if that person was entitled to receive payment from the originator of the funds transfer. If no person has rights as beneficiary, acceptance of the order cannot occur.
(c) If (i) a payment order described in subsection (b) is accepted, (ii) the originator’s payment order described the beneficiary inconsistently by name and number, and (iii) the beneficiary’s bank pays the person identified by number as permitted by subsection (b)(1), the following rules apply:
(1) If the originator is a bank, the originator is obliged to pay its order.
(2) If the originator is not a bank and proves that the person identified by number was not entitled to receive payment from the originator, the originator is not obliged to pay its order unless the originator’s bank proves that the originator, before acceptance of the originator’s order, had notice that payment of a payment order issued by the originator might be made by the beneficiary’s bank on the basis of an identifying or bank account number even if it identifies a person different from the named beneficiary. Proof of notice may be made by any admissible evidence. The originator’s bank satisfies the burden of proof if it proves that the originator, before the payment order was accepted, signed a writing stating the information to which the notice relates.
(d) In a case governed by subsection (b)(1), if the beneficiary’s bank rightfully pays the person identified by number and that person was not entitled to receive payment from the originator, the amount paid may be recovered from that person to the extent allowed by the law governing mistake and restitution as follows:
(1) If the originator is obliged to pay its payment order as stated in subsection (c), the originator has the right to recover.
(2) If the originator is not a bank and is not obliged to pay its payment order, the originator’s bank has the right to recover.

Section 4A-208. Misdescription of Intermediary Bank or Beneficiary’s Bank

(a) This subsection applies to a payment order identifying an intermediary bank or the beneficiary’s bank only by an identifying number.
(1) The receiving bank may rely on the number as the proper identification of the intermediary or beneficiary’s bank and need not determine whether the number identifies a bank.
(2) The sender is obliged to compensate the receiving bank for any loss and expenses incurred by the receiving bank as a result of its reliance on the number in executing or attempting to execute the order.
(b) This subsection applies to a payment order identifying an intermediary bank or the beneficiary’s bank both by name and an identifying number if the name and number identify different persons.
(1) If the sender is a bank, the receiving bank may rely on the number as the proper identification of the intermediary or beneficiary’s bank if the receiving bank, when it executes the sender’s order, does not know that the name and number identify different persons. The receiving bank need not determine whether the name and number refer to the same person or whether the number refers to a bank. The sender is obliged to compensate the receiving bank for any loss and expenses incurred by the receiving bank as a result of its reliance on the number in executing or attempting to execute the order.
(2) If the sender is not a bank and the receiving bank proves that the sender, before the payment order was accepted, had notice that the receiving bank might rely on the number as the proper identification of the intermediary or beneficiary’s bank even if it identifies a person different from the bank identified by name, the rights and obligations of the sender and the receiving bank are governed by subsection (b)(1), as though the sender were a bank. Proof of notice may be made by any admissible evidence. The receiving bank satisfies the burden of proof if it proves that the sender, before the payment order was accepted, signed a writing stating the information to which the notice relates.
(3) Regardless of whether the sender is a bank, the receiving bank may rely on the name as the proper identification of the intermediary or beneficiary’s bank if the receiving bank, at the time it executes the sender’s order, does not know that the name and number identify different persons. The receiving bank need not determine whether the name and number refer to the same person.
(4) If the receiving bank knows that the name and number identify different persons, reliance on either the name or the number in executing the sender’s payment order is a breach of the obligation stated in section 4A-302(a)(1).

Section 4A-209. Acceptance of Payment Order

(a) Subject to subsection (d), a receiving bank other than the beneficiary’s bank accepts a payment order when it executes the order.
(b) Subject to subsections (c) and (d), a beneficiary’s bank accepts a payment order at the earliest of the following times:
(1) When the bank (i) pays the beneficiary as stated in section 4A- 405(a) or 4A-405(b), or (ii) notifies the beneficiary of receipt of the order or that the account of the beneficiary has been credited with respect to the order unless the notice indicates that the bank is rejecting the order or that funds with respect to the order may not be withdrawn or used until receipt of payment from the sender of the order;
(2) When the bank receives payment of the entire amount of the sender’s order pursuant to section 4A-403(a)(1) or 4A-403(a)(2); or
(3) The opening of the next funds-transfer business day of the bank following the payment date of the order if, at that time, the amount of the sender’s order is fully covered by a withdraw able credit balance in an authorized account of the sender or the bank has otherwise received full payment from the sender, unless the order was rejected before that time or is rejected within (i) one hour after that time, or (ii) one hour after the opening of the next business day of the sender following the payment date if that time is later. If notice of rejection is received by the sender after the payment date and the authorized account of the sender does not bear interest, the bank is obliged to pay interest to the sender on the amount of the order for the number of days elapsing after the payment date to the day the sender receives notice or learns that the order was not accepted, counting that day as an elapsed day. If the withdraw able credit balance during that period falls below the amount of the order, the amount of interest payable is reduced accordingly
. (c) Acceptance of a payment order cannot occur before the order is received by the receiving bank. Acceptance does not occur under subsection (b)(2) or (b)(3) if the beneficiary of the payment order does not have an account with the receiving bank, the account has been closed, or the receiving bank is not permitted by law to receive credits for the beneficiary’s account.
(d) A payment order issued to the originator’s bank cannot be accepted until the payment date if the bank is the beneficiary’s bank, or the execution date if the bank is not the beneficiary’s bank. If the originator’s bank executes the originator’s payment order before the execution date or pays the beneficiary of the originator’s payment order before the payment date and the payment order is subsequently canceled pursuant to section 4A-211(b), the bank may recover from the beneficiary any payment received to the extent allowed by the law governing mistake and restitution.

Section 4A-210. Rejection of Payment Order

(a) A payment order is rejected by the receiving bank by a notice of rejection transmitted to the sender orally, electronically, or in writing. A notice of rejection need not use any particular words and is sufficient if it indicates that the receiving bank is rejecting the order or will not execute or pay the order. Rejection is effective when the notice is given if transmission is by a means that is reasonable in the circumstances. If notice of rejection is given by a means that is not reasonable, rejection is effective when the notice is received. If an agreement of the sender and receiving bank establishes the means to be used to reject a payment order, (i) any means complying with the agreement is reasonable and (ii) any means not complying is not reasonable unless no significant delay in receipt of the notice resulted from the use of the noncomplying means.
(b) This subsection applies if a receiving bank other than the beneficiary’s bank fails to execute a payment order despite the existence on the execution date of a withdraw able credit balance in an authorized account of the sender sufficient to cover the order. If the sender does not receive notice of rejection of the order on the execution date and the authorized account of the sender does not bear interest, the bank is obliged to pay interest to the sender on the amount of the order for the number of days elapsing after the execution date to the earlier of the day the order is canceled pursuant to section 4A-211(d) or the day the sender receives notice or learns that the order was not executed, counting the final day of the period as an elapsed day. If the withdraw able credit balance during that period falls below the amount of the order, the amount of interest is reduced accordingly.
(c) If a receiving bank suspends payments, all unaccepted payment orders issued to it are deemed rejected at the time the bank suspends payments.
(d) Acceptance of a payment order precludes a later rejection of the order. Rejection of a payment order precludes a later acceptance of the order.

Section 4A-211. Cancellation and Amendment of Payment Order

(a) A communication of the sender of a payment order canceling or amending the order may be transmitted to the receiving bank orally, electronically, or in writing. If a security procedure is in effect between the sender and the receiving bank, the communication is not effective to cancel or amend the order unless the communication is verified pursuant to the security procedure or the bank agrees to the cancellation or amendment.
(b) Subject to subsection (a), a communication by the sender canceling or amending a payment order is effective to cancel or amend the order if notice of the communication is received at a time and in a manner affording the receiving bank a reasonable opportunity to act on the communication before the bank accepts the payment order.
(c) After a payment order has been accepted, cancellation or amendment of the order is not effective unless the receiving bank agrees or a funds-transfer system rule allows cancellation or amendment without agreement of the bank.
(1) With respect to a payment order accepted by a receiving bank other than the beneficiary’s bank, cancellation or amendment is not effective unless a conforming cancellation or amendment of the payment order issued by the receiving bank is also made.
(2) With respect to a payment order accepted by the beneficiary’s bank, cancellation or amendment is not effective unless the order was issued in execution of an unauthorized payment order, or because of a mistake by a sender in the funds transfer which resulted in the issuance of a payment order (i) that is a duplicate of a payment order previously issued by the sender, (ii) that orders payment to a beneficiary not entitled to receive payment from the originator, or (iii) that orders payment in an amount greater than the amount the beneficiary was entitled to receive from the originator. If the payment order is canceled or amended, the beneficiary’s bank is entitled to recover from the beneficiary any amount paid to the beneficiary to the extent allowed by the law governing mistake and restitution.
(d) An unaccepted payment order is canceled by operation of law at the close of the fifth funds-transfer business day of the receiving bank after the execution date or payment date of the order.
(e) A canceled payment order cannot be accepted. If an accepted payment order is canceled, the acceptance is nullified and no person has any right or obligation based on the acceptance. Amendment of a payment order is deemed to be cancellation of the original order at the time of amendment and issue of a new payment order in the amended form at the same time.
(f) Unless otherwise provided in an agreement of the parties or in a funds-transfer system rule, if the receiving bank, after accepting a payment order, agrees to cancellation or amendment of the order by the sender or is bound by a funds-transfer system rule allowing cancellation or amendment without the bank’s agreement, the sender, whether or not cancellation or amendment is effective, is liable to the bank for any loss and expenses, including reasonable attorney’s fees, incurred by the bank as a result of the cancellation or amendment or attempted cancellation or amendment.
(g) A payment order is not revoked by the death or legal incapacity of the sender unless the receiving bank knows of the death or of an adjudication of incapacity by a court of competent jurisdiction and has reasonable opportunity to act before acceptance of the order.
(h) A funds-transfer system rule is not effective to the extent it conflicts with subsection (c)(2).

Section 4A-212. Liability and Duty of Receiving Bank Regarding Unaccepted Payment Order

If a receiving bank fails to accept a payment order that it is obliged by express agreement to accept, the bank is liable for breach of the agreement to the extent provided in the agreement or in this Article, but does not otherwise have any duty to accept a payment order or, before acceptance, to take any action, or refrain from taking action, with respect to the order except as provided in this Article or by express agreement. Liability based on acceptance arises only when acceptance occurs as stated in section 4A-209, and liability is limited to that provided in this Article. A receiving bank is not the agent of the sender or beneficiary of the payment order it accepts, or of any other party to the funds transfer, and the bank owes no duty to any party to the funds transfer except as provided in this Article or by express agreement.

Part 3–Execution of Sender’s Payment Order by Receiving Bank

Section 4A-301. Execution and Execution Date

(a) A payment order is executed by the receiving bank when it issues a payment order intended to carry out the payment order received by the bank. A payment order received by the beneficiary’s bank can be accepted but cannot be executed.
(b) Execution date of a payment order means the day on which the receiving bank may properly issue a payment order in execution of the sender’s order. The execution date may be determined by instruction of the sender but cannot be earlier than the day the order is received and, unless otherwise determined, is the day the order is received. If the sender’s instruction states a payment date, the execution date is the payment date or an earlier date on which execution is reasonably necessary to allow payment to the beneficiary on the payment date.

Section 4A-302. Obligations of Receiving Bank in Execution of Payment Order

(a) Except as provided in subsections (b) through (d), if the receiving bank accepts a payment order pursuant to section 4A-209(a), the bank has the following obligations in executing the order:
(1) The receiving bank is obliged to issue, on the execution date, a payment order complying with the sender’s order and to follow the sender’s instructions concerning (i) any intermediary bank or funds- transfer system to be used in carrying out the funds transfer, or (ii) the means by which payment orders are to be transmitted in the funds transfer. If the originator’s bank issues a payment order to an intermediary bank, the originator’s bank is obliged to instruct the intermediary bank according to the instruction of the originator. An intermediary bank in the funds transfer is similarly bound by an instruction given to it by the sender of the payment order it accepts.
(2) If the sender’s instruction states that the funds transfer is to be carried out telephonically or by wire transfer or otherwise indicates that the funds transfer is to be carried out by the most expeditious means, the receiving bank is obliged to transmit its payment order by the most expeditious available means, and to instruct any intermediary bank accordingly. If a sender’s instruction states a payment date, the receiving bank is obliged to transmit its payment order at a time and by means reasonably necessary to allow payment to the beneficiary on the payment date or as soon thereafter as is feasible.
(b) Unless otherwise instructed, a receiving bank executing a payment order may (i) use any funds-transfer system if use of that system is reasonable in the circumstances, and (ii) issue a payment order to the beneficiary’s bank or to an intermediary bank through which a payment order conforming to the sender’s order can expeditiously be issued to the beneficiary’s bank if the receiving bank exercises ordinary care in the selection of the intermediary bank. A receiving bank is not required to follow an instruction of the sender designating a funds-transfer system to be used in carrying out the funds transfer if the receiving bank, in good faith, determines that it is not feasible to follow the instruction or that following the instruction would unduly delay completion of the funds transfer.
(c) Unless subsection (a)(2) applies or the receiving bank is otherwise instructed, the bank may execute a payment order by transmitting its payment order by first class mail or by any means reasonable in the circumstances. If the receiving bank is instructed to execute the sender’s order by a particular means, the receiving bank may issue its payment order by transmitting its payment order by the means stated or by any means as expeditious as the means stated.
(d) Unless instructed by the sender, (i) the receiving bank may not obtain payment of its charges for services and expenses in connection with the execution of the sender’s order by issuing a payment order in an amount equal to the amount of the sender’s order less the amount of the charges, and (ii) may not instruct a subsequent receiving bank to obtain payment of its charges in the same manner.

Section 4A-303. Erroneous Execution of Payment Order

(a) A receiving bank that (i) executes the payment order of the sender by issuing a payment order in an amount greater than the amount of the sender’s order, or (ii) issues a payment order in execution of the sender’s order and then issues a duplicate order, is entitled to payment of the amount of the sender’s order under section 4A-402(c) if that subsection is otherwise satisfied. The bank is entitled to recover from the beneficiary of the erroneous order the excess payment received to the extent allowed by the law governing mistake and restitution.
(b) A receiving bank that executes the payment order of the sender by issuing a payment order in an amount less than the amount of the sender’s order is entitled to payment of the amount of the sender’s order under section 4A-402(c) if (i) that subsection is otherwise satisfied and (ii) the bank corrects its mistake by issuing an additional payment order for the benefit of the beneficiary of the sender’s order. If the error is not corrected, the issuer of the erroneous order is entitled to receive or retain payment from the sender of the order it accepted only to the extent of the amount of the erroneous order. This subsection does not apply if the receiving bank executes the sender’s payment order by issuing a payment order in an amount less than the amount of the sender’s order for the purpose of obtaining payment of its charges for services and expenses pursuant to instruction of the sender.
(c) If a receiving bank executes the payment order of the sender by issuing a payment order to a beneficiary different from the beneficiary of the sender’s order and the funds transfer is completed on the basis of that error, the sender of the payment order that was erroneously executed and all previous senders in the funds transfer are not obliged to pay the payment orders they issued. The issuer of the erroneous order is entitled to recover from the beneficiary of the order the payment received to the extent allowed by the law governing mistake and restitution.

Section 4A-304. Duty of Sender to Report Erroneously Executed Payment Order

If the sender of a payment order that is erroneously executed as stated in section 4A-303 receives notification from the receiving bank that the order was executed or that the sender’s account was debited with respect to the order, the sender has a duty to exercise ordinary care to determine, on the basis of information available to the sender, that the order was erroneously executed and to notify the bank of the relevant facts within a reasonable time not exceeding 90 days after the notification from the bank was received by the sender. If the sender fails to perform that duty, the bank is not obliged to pay interest on any amount refundable to the sender under section 4A-402(d) for the period before the bank learns of the execution error. The bank is not entitled to any recovery from the sender on account of a failure by the sender to perform the duty stated in this section.

Section 4A-305. Liability for Late or Improper Execution or Failure To Execute Payment Order

(a) If a funds transfer is completed but execution of a payment order by the receiving bank in breach of section 4A-302 results in delay in payment to the beneficiary, the bank is obliged to pay interest to either the originator or the beneficiary of the funds transfer for the period of delay caused by the improper execution. Except as provided in subsection (c), additional damages are not recoverable.
(b) If execution of a payment order by a receiving bank in breach of section 4A-302 results in (i) non completion of the funds transfer, (ii) failure to use an intermediary bank designated by the originator, or (iii) issuance of a payment order that does not comply with the terms of the payment order of the originator, the bank is liable to the originator for its expenses in the funds transfer and for incidental expenses and interest losses, to the extent not covered by subsection (a), resulting from the improper execution. Except as provided in subsection (c), additional damages are not recoverable.
(c) In addition to the amounts payable under subsections (a) and (b), damages, including consequential damages, are recoverable to the extent provided in an express written agreement of the receiving bank.
(d) If a receiving bank fails to execute a payment order it was obliged by express agreement to execute, the receiving bank is liable to the sender for its expenses in the transaction and for incidental expenses and interest losses resulting from the failure to execute. Additional damages, including consequential damages, are recoverable to the extent provided in an express written agreement of the receiving bank, but are not otherwise recoverable.
(e) Reasonable attorney’s fees are recoverable if demand for compensation under subsection (a) or (b) is made and refused before an action is brought on the claim. If a claim is made for breach of an agreement under subsection (d) and the agreement does not provide for damages, reasonable attorney’s fees are recoverable if demand for compensation under subsection (d) is made and refused before an action is brought on the claim.
(f) Except as stated in this section, the liability of a receiving bank under subsections (a) and (b) may not be varied by agreement.

Part 4–Payment

Section 4A-401. Payment Date

Payment date of a payment order means the day on which the amount of the order is payable to the beneficiary by the beneficiary’s bank. The payment date may be determined by instruction of the sender but cannot be earlier than the day the order is received by the beneficiary’s bank and, unless otherwise determined, is the day the order is received by the beneficiary’s bank.

Section 4A-402. Obligation of Sender To Pay Receiving Bank

(a) This section is subject to sections 4A-205 and 4A-207.
(b) With respect to a payment order issued to the beneficiary’s bank, acceptance of the order by the bank obliges the sender to pay the bank the amount of the order, but payment is not due until the payment date of the order.
(c) This subsection is subject to subsection (e) and to section 4A- 303. With respect to a payment order issued to a receiving bank other than the beneficiary’s bank, acceptance of the order by the receiving bank obliges the sender to pay the bank the amount of the sender’s order. Payment by the sender is not due until the execution date of the sender’s order. The obligation of that sender to pay its payment order is excused if the funds transfer is not completed by acceptance by the beneficiary’s bank of a payment order instructing payment to the beneficiary of that sender’s payment order.
(d) If the sender of a payment order pays the order and was not obliged to pay all or part of the amount paid, the bank receiving payment is obliged to refund payment to the extent the sender was not obliged to pay. Except as provided in sections 4A-204 and 4A-304, interest is payable on the refundable amount from the date of payment.
(e) If a funds transfer is not completed as stated in subsection (c) and an intermediary bank is obliged to refund payment as stated in subsection (d) but is unable to do so because not permitted by applicable law or because the bank suspends payments, a sender in the funds transfer that executed a payment order in compliance with an instruction, as stated in section 4A-302(a)(1), to route the funds transfer through that intermediary bank is entitled to receive or retain payment from the sender of the payment order that it accepted. The first sender in the funds transfer that issued an instruction requiring routing through that intermediary bank is subrogated to the right of the bank that paid the intermediary bank to refund as stated in subsection (d).
(f) The right of the sender of a payment order to be excused from the obligation to pay the order as stated in subsection (c) or to receive refund under subsection (d) may not be varied by agreement.

Section 4A-403. Payment by Sender To Receiving Bank

(a) Payment of the sender’s obligation under section 4A-402 to pay the receiving bank occurs as follows:
(1) If the sender is a bank, payment occurs when the receiving bank receives final settlement of the obligation through a Federal Reserve Bank or through a funds-transfer system.
(2) If the sender is a bank and the sender (i) credited an account of the receiving bank with the sender, or (ii) caused an account of the receiving bank in another bank to be credited, payment occurs when the credit is withdrawn or, if not withdrawn, at midnight of the day on which the credit is withdraw able and the receiving bank learns of that fact.
(3) If the receiving bank debits an account of the sender with the receiving bank, payment occurs when the debit is made to the extent the debit is covered by a withdraw able credit balance in the account.
(b) If the sender and receiving bank are members of a funds-transfer system that nets obligations multilaterally among participants, the receiving bank receives final settlement when settlement is complete in accordance with the rules of the system. The obligation of the sender to pay the amount of a payment order transmitted through the funds-transfer system may be satisfied, to the extent permitted by the rules of the system, by setting off and applying against the sender’s obligation the right of the sender to receive payment from the receiving bank of the amount of any other payment order transmitted to the sender by the receiving bank through the funds-transfer system. The aggregate balance of obligations owed by each sender to each receiving bank in the funds- transfer system may be satisfied, to the extent permitted by the rules of the system, by setting off and applying against that balance the aggregate balance of obligations owed to the sender by other members of the system. The aggregate balance is determined after the right of setoff stated in the second sentence of this subsection has been exercised.
(c) If two banks transmit payment orders to each other under an agreement that settlement of the obligations of each bank to the other under section 4A-402 will be made at the end of the day or other period, the total amount owed with respect to all orders transmitted by one bank shall be set off against the total amount owed with respect to all orders transmitted by the other bank. To the extent of the setoff, each bank has made payment to the other.
(d) In a case not covered by subsection (a), the time when payment of the sender’s obligation under section 4A-402(b) or 4A-402(c) occurs is governed by applicable principles of law that determine when an obligation is satisfied.

Section 4A-404. Obligation of Beneficiary’s Bank To Pay and Give Notice to Beneficiary

(a) Subject to sections 4A-211(e), 4A-405(d), and 4A-405(e), if a beneficiary’s bank accepts a payment order, the bank is obliged to pay the amount of the order to the beneficiary of the order. Payment is due on the payment date of the order, but if acceptance occurs on the payment date after the close of the funds-transfer business day of the bank, payment is due on the next funds-transfer business day. If the bank refuses to pay after demand by the beneficiary and receipt of notice of particular circumstances that will give rise to consequential damages as a result of nonpayment, the beneficiary may recover damages resulting from the refusal to pay to the extent the bank had notice of the damages, unless the bank proves that it did not pay because of a reasonable doubt concerning the right of the beneficiary to payment.
(b) If a payment order accepted by the beneficiary’s bank instructs payment to an account of the beneficiary, the bank is obliged to notify the beneficiary of receipt of the order before midnight of the next funds-transfer business day following the payment date. If the payment order does not instruct payment to an account of the beneficiary, the bank is required to notify the beneficiary only if notice is required by the order. Notice may be given by first class mail or any other means reasonable in the circumstances. If the bank fails to give the required notice, the bank is obliged to pay interest to the beneficiary on the amount of the payment order from the day notice should have been given until the day the beneficiary learned of receipt of the payment order by the bank. No other damages are recoverable. Reasonable attorney’s fees are also recoverable if demand for interest is made and refused before an action is brought on the claim.
(c) The right of a beneficiary to receive payment and damages as stated in subsection (a) may not be varied by agreement or a funds- transfer system rule. The right of a beneficiary to be notified as stated in subsection (b) may be varied by agreement of the beneficiary or by a funds-transfer system rule if the beneficiary is notified of the rule before initiation of the funds transfer.

Section 4A-405. Payment by Beneficiary’s Bank To Beneficiary

(a) If the beneficiary’s bank credits an account of the beneficiary of a payment order, payment of the bank’s obligation under section 4A- 404(a) occurs when and to the extent (i) the beneficiary is notified of the right to withdraw the credit, (ii) the bank lawfully applies the credit to a debt of the beneficiary, or (iii) funds with respect to the order are otherwise made available to the beneficiary by the bank.
(b) If the beneficiary’s bank does not credit an account of the beneficiary of a payment order, the time when payment of the bank’s obligation under section 4A-404(a) occurs is governed by principles of law that determine when an obligation is satisfied.
(c) Except as stated in subsections (d) and (e), if the beneficiary’s bank pays the beneficiary of a payment order under a condition to payment or agreement of the beneficiary giving the bank the right to recover payment from the beneficiary if the bank does not receive payment of the order, the condition to payment or agreement is not enforceable.
(d) A funds-transfer system rule may provide that payments made to beneficiaries of funds transfer made through the system are provisional until receipt of payment by the beneficiary’s bank of the payment order it accepted. A beneficiary’s bank that makes a payment that is provisional under the rule is entitled to refund from the beneficiary if (i) the rule requires that both the beneficiary and the originator be given notice of the provisional nature of the payment before the funds transfer is initiated, (ii) the beneficiary, the beneficiary’s bank and the originator’s bank agreed to be bound by the rule, and (iii) the beneficiary’s bank did not receive payment of the payment order that it accepted. If the beneficiary is obliged to refund payment to the beneficiary’s bank, acceptance of the payment order by the beneficiary’s bank is nullified and no payment by the originator of the funds transfer to the beneficiary occurs under section 4A-406.
(e) This subsection applies to a funds transfer that includes a payment order transmitted over a funds-transfer system that (i) nets obligations-multilaterally among participants, and (ii) has in effect a loss-sharing agreement among participants for the purpose of providing funds necessary to complete settlement of the obligations of one or more participants that do not meet their settlement obligations. If the beneficiary’s bank in the funds transfer accepts a payment order and the system fails to complete settlement pursuant to its rules with respect to any payment order in the funds transfer, (i) the acceptance by the beneficiary’s bank is nullified and no person has any right or obligation based on the acceptance, (ii) the beneficiary’s bank is entitled to recover payment from the beneficiary, (iii) no payment by the originator to the beneficiary occurs under section 4A-406, and (iv) subject to section 4A-402(e), each sender in the funds transfer is excused from its obligation to pay its payment order under section 4A- 402(c) because the funds transfer has not been completed.

Section 4A-406. Payment by Originator to Beneficiary; Discharge of Underlying Obligation

(a) Subject to sections 4A-211(e), 4A-405(d), and 4A-405(e), the originator of a funds transfer pays the beneficiary of the originator’s payment order (i) at the time a payment order for the benefit of the beneficiary is accepted by the beneficiary’s bank in the funds transfer and (ii) in an amount equal to the amount of the order accepted by the beneficiary’s bank, but not more than the amount of the originator’s order.
(b) If payment under subsection (a) is made to satisfy an obligation, the obligation is discharged to the same extent discharge would result from payment to the beneficiary of the same amount in money, unless (i) the payment under subsection (a) was made by a means prohibited by the contract of the beneficiary with respect to the obligation, (ii) the beneficiary, within a reasonable time after receiving notice of receipt of the order by the beneficiary’s bank, notified the originator of the beneficiary’s refusal of the payment, (iii) funds with respect to the order were not withdrawn by the beneficiary or applied to a debt of the beneficiary, and (iv) the beneficiary would suffer a loss that could reasonably have been avoided if payment had been made by a means complying with the contract. If payment by the originator does not result in discharge under this section, the originator is subrogated to the rights of the beneficiary to receive payment from the beneficiary’s bank under section 4A-404(a).
(c) For the purpose of determining whether discharge of an obligation occurs under subsection (b), if the beneficiary’s bank accepts a payment order in an amount equal to the amount of the originator’s payment order less charges of one or more receiving banks in the funds transfer, payment to the beneficiary is deemed to be in the amount of the originator’s order unless upon demand by the beneficiary the originator does not pay the beneficiary the amount of the deducted charges.
(d) Rights of the originator or of the beneficiary of a funds transfer under this section may be varied only by agreement of the originator and the beneficiary.

Part 5–Miscellaneous Provisions

Section 4A-501. Variation by Agreement and Effect of Funds-Transfer System Rule

(a) Except as otherwise provided in this Article, the rights and obligations of a party to a funds transfer may be varied by agreement of the affected party.
(b) Funds-transfer system rule means a rule of an association of banks (i) governing transmission of payment orders by means of a funds- transfer system of the association or rights and obligations with respect to those orders, or (ii) to the extent the rule governs rights and obligations between banks that are parties to a funds transfer in which a Federal Reserve Bank, acting as an intermediary bank, sends a payment order to the beneficiary’s bank. Except as otherwise provided in this Article, a funds-transfer system rule governing rights and obligations between participating banks using the system may be effective even if the rule conflicts with this Article and indirectly affects another party to the funds transfer who does not consent to the rule. A funds-transfer system rule may also govern rights and obligations of parties other than participating banks using the system to the extent stated in sections 4A-404(c), 4A-405(d), and 4A-507(c).

Section 4A-502. Creditor Process Served on Receiving Bank; Setoff by Beneficiary’s Bank

(a) As used in this section, creditor process means levy, attachment, garnishment, notice of lien, sequestration, or similar process issued by or on behalf of a creditor or other claimant with respect to an account.
(b) This subsection applies to creditor process with respect to an authorized account of the sender of a payment order if the creditor process is served on the receiving bank. For the purpose of determining rights with respect to the creditor process, if the receiving bank accepts the payment order the balance in the authorized account is deemed to be reduced by the amount of the payment order to the extent the bank did not otherwise receive payment of the order, unless the creditor process is served at a time and in a manner affording the bank a reasonable opportunity to act on it before the bank accepts the payment order.
(c) If a beneficiary’s bank has received a payment order for payment to the beneficiary’s account in the bank, the following rules apply:
(1) The bank may credit the beneficiary’s account. The amount credited may be set off against an obligation owed by the beneficiary to the bank or may be applied to satisfy creditor process served on the bank with respect to the account.
(2) The bank may credit the beneficiary’s account and allow withdrawal of the amount credited unless creditor process with respect to the account is served at a time and in a manner affording the bank a reasonable opportunity to act to prevent withdrawal.
(3) If creditor process with respect to the beneficiary’s account has been served and the bank has had a reasonable opportunity to act on it, the bank may not reject the payment order except for a reason unrelated to the service of process.
(d) Creditor process with respect to a payment by the originator to the beneficiary pursuant to a funds transfer may be served only on the beneficiary’s bank with respect to the debt owned by that bank to the beneficiary. Any other bank served with the creditor process is not obliged to act with respect to the process.

Section 4A-503. Injunction or Restraining Order with Respect to Funds Transfer

For proper cause and in compliance with applicable law, a court may restrain (i) a person from issuing a payment order to initiate a funds transfer, (ii) an originator’s bank from executing the payment order of the originator, or (iii) the beneficiary’s bank from releasing funds to the beneficiary or the beneficiary from withdrawing the funds. A court may not otherwise restrain a person from issuing a payment order, paying or receiving payment of a payment order, or otherwise acting with respect to a funds transfer.

Section 4A-504. Order In Which Items and Payment Orders May Be Charged to Account; Order of Withdrawals from Account

(a) If a receiving bank has received more than one payment order of the sender or one or more payment orders and other items that are payable from the sender’s account, the bank may charge the sender’s account with respect to the various orders and items in any sequence.
(b) In determining whether a credit to an account has been withdrawn by the holder of the account or applied to a debt of the holder of the account, credits first made to the account are first withdrawn or applied.

Section 4A-505. Preclusion of Objection to Debit of Customer’s Account

If a receiving bank has received payment from its customer with respect to a payment order issued in the name of the customer as sender and accepted by the bank, and the customer received notification reasonably identifying the order, the customer is precluded from asserting that the bank is not entitled to retain the payment unless the customer notifies the bank of the customer’s objection to the payment within one year after the notification was received by the customer.

Section 4A-506. Rate of Interest

(a) If, under this Article, a receiving bank is obliged to pay interest with respect to a payment order issued to the bank, the amount payable may be determined (i) by agreement of the sender and receiving bank, or (ii) by a funds-transfer system rule if the payment order is transmitted through a funds-transfer system.
(b) If the amount of interest is not determined by an agreement or rule as stated in subsection (a), the amount is calculated by multiplying the applicable Federal Funds rate by the amount on which interest is payable, and then multiplying the product by the number of days for which interest is payable. The applicable Federal Funds rate is the average of the Federal Funds rates published by the Federal Reserve Bank of New York for each of the days for which interest is payable divided by 360. The Federal Funds rate for any day on which a published rate is not available is the same as the published rate for the next preceding day for which there is a published rate. If a receiving bank that accepted a payment order is required to refund payment to the sender of the order because the funds transfer was not completed, but the failure to complete was not due to any fault by the bank, the interest payable is reduced by a percentage equal to the reserve requirement on deposits of the receiving bank.

Section 4A-507. Choice of Law

(a) The following rules apply unless the affected parties otherwise agree or subsection (c) applies:
(1) The rights and obligations between the sender of a payment order and the receiving bank are governed by the law of the jurisdiction in which the receiving bank is located.
(2) The rights and obligations between the beneficiary’s bank and the beneficiary are governed by the law of the jurisdiction in which the beneficiary’s bank is located.
(3) The issue of when payment is made pursuant to a funds transfer by the originator to the beneficiary is governed by the law of the jurisdiction in which the beneficiary’s bank is located.
(b) If the parties described in each paragraph of subsection (a) have made an agreement selecting the law of a particular jurisdiction to govern rights and obligations between each other, the law of that jurisdiction governs those rights and obligations, whether or not the payment order or the funds transfer bears a reasonable relation to that jurisdiction.
(c) A funds-transfer system rule may select the law of a particular jurisdiction to govern (i) rights and obligations between participating banks with respect to payment orders transmitted or processed through the system, or (ii) the rights and obligations of some or all parties to a funds transfer any part of which is carried out by means of the system. A choice of law made pursuant to clause (i) is binding on participating banks. A choice of law made pursuant to clause (ii) is binding on the originator, other sender, or a receiving bank having notice that the funds-transfer system might be used in the funds transfer and of the choice of law by the system when the originator, other sender, or receiving bank issued or accepted a payment order. The beneficiary of a funds transfer is bound by the choice of law if, when the funds transfer is initiated, the beneficiary has notice that the funds-transfer system might be used in the funds transfer and of the choice of law by the system. The law of a jurisdiction selected pursuant to this subsection may govern, whether or not that law bears a reasonable relation to the matter in issue.
(d) In the event of inconsistency between an agreement under subsection (b) and a choice-of-law rule under subsection (c), the agreement under subsection (b) prevails.
(e) If a funds transfer is made by use of more than one funds- transfer system and there is inconsistency between choice-of-law rules of the systems, the matter in issue is governed by the law of the selected jurisdiction that has the most significant relationship to the matter in issue.

Section 213.1 – Authority, scope, purpose, and enforcement.
Section 213.2 – Definitions.
Section 213.3 – General disclosure requirements.
Section 213.4 – Content of disclosures.
Section 213.5 – Renegotiations, extensions, and assumptions.
Section 213.6 – [Reserved]
Section 213.7 – Advertising.
Section 213.8 – Record retention.
Section 213.9 – Relation to state laws.

Appendix B to Part 213–Federal Enforcement Agencies
Appendix C to Part 213–Issuance of Staff Interpretations

Sec. 213.1 Authority, scope, purpose, and enforcement.

a) Authority. The regulation in this part, known as Regulation M, is issued by the Board of Governors of the Federal Reserve System to implement the consumer leasing provisions of the Truth in Lending Act, which is Title I of the Consumer Credit Protection Act, as amended (15 U.S.C. 1601 et seq.).
b) Scope and purpose. This part applies to all persons that are lessors of personal property under consumer leases as those terms are defined in Sec. 213.2(e)(1) and (h). The purpose of this part is:
1) To ensure that lessees of personal property receive meaningful disclosures that enable them to compare lease terms with other leases and, where appropriate, with credit transactions;
2) To limit the amount of balloon payments in consumer lease transactions; and
3) To provide for the accurate disclosure of lease terms in advertising.
c) Enforcement and liability. Section 108 of the act contains the administrative enforcement provisions. Sections 112, 130, 131, and 185 of the act contain the liability provisions for failing to comply with the requirements of the act and this part.

Sec. 213.2 Definitions.

For the purposes of this part the following definitions apply:
a) Act means the Truth in Lending Act (15 U.S.C. 1601 et seq.) and the Consumer Leasing Act is chapter 5 of the Truth in Lending Act.
b) Advertisement means a commercial message in any medium that directly or indirectly promotes a consumer lease transaction.
c) Board refers to the Board of Governors of the Federal Reserve System.
d) Closed-end lease means a consumer lease other than an open-end lease as defined in this section.
e)(1) Consumer lease means a contract in the form of a bailment or lease for the use of personal property by a natural person primarily for personal, family, or household purposes, for a period exceeding four months and for a total contractual obligation not exceeding $25,000, whether or not the lessee has the option to purchase or otherwise become the owner of the property at the expiration of the lease. Unless the context indicates otherwise, in this part “lease” means “consumer lease.”
2) The term does not include a lease that meets the definition of a credit sale in Regulation Z (12 CFR 226.2(a)). It also does not include a lease for agricultural, business, or commercial purposes or a lease made to an organization.
3) This part does not apply to a lease transaction of personal property which is incident to the lease of real property and which provides that:
i) The lessee has no liability for the value of the personal property at the end of the lease term except for abnormal wear and tear; and
ii) The lessee has no option to purchase the leased property.
f) Gross capitalized cost means the amount agreed upon by the lessor and the lessee as the value of the leased property and any items that are capitalized or amortized during the lease term, including but not limited to taxes, insurance, service agreements, and any outstanding balance from a prior loan or lease. Capitalized cost reduction means the total amount of any rebate, cash payment, net trade-in allowance, and non cash credit that reduces the gross capitalized cost. The adjusted capitalized cost equals the gross capitalized cost less the capitalized cost reduction, and is the amount used by the lessor in calculating the base periodic payment.
g) Lessee means a natural person who enters into or is offered a consumer lease.
h) Lessor means a person who regularly leases, offers to lease, or arranges for the lease of personal property under a consumer lease. A person who has leased, offered, or arranged to lease personal property more than five times in the preceding calendar year or more than five times in the current calendar year is subject to the act and this part.
i) Open-end lease means a consumer lease in which the lessee’s liability at the end of the lease term is based on the difference between the residual value of the leased property and its realized value.
j) Organization means a corporation, trust, estate, partnership, cooperative, association, or government entity or instrumentality.
k) Person means a natural person or an organization.
l) Personal property means any property that is not real property under the law of the state where the property is located at the time it is offered or made available for lease.
m) Realized value means:
1) The price received by the lessor for the leased property at disposition;
2) The highest offer for disposition of the leased property; or
3) The fair market value of the leased property at the end of the lease term.
n) Residual value means the value of the leased property at the end of the lease term, as estimated or assigned at consummation by the lessor, used in calculating the base periodic payment.
o) Security interest and security mean any interest in property that secures the payment or performance of an obligation.
p) State means any state, the District of Columbia, the Commonwealth of Puerto Rico, and any territory or possession of the United States.

Sec. 213.3 General disclosure requirements.

a) General requirements. A lessor shall make the disclosures required by Sec. 213.4, as applicable. The disclosures shall be made clearly and conspicuously in writing in a form the consumer may keep, in accordance with this section.
1) Form of disclosures. The disclosures required by Sec. 213.4 shall be given to the lessee together in a dated statement that identifies the lessor and the lessee; the disclosures may be made either in a separate statement that identifies the consumer lease transaction or in the contract or other document evidencing the lease. Alternatively, the disclosures required to be segregated from other information under paragraph (a)(2) of this section may be provided in a separate dated statement that identifies the lease, and the other required disclosures may be provided in the lease contract or other document evidencing the lease. In a lease of multiple items, the property description required by Sec. 213.4(a) may be given in a separate statement that is incorporated by reference in the disclosure statement required by this paragraph.
2) Segregation of certain disclosures. The following disclosures shall be segregated from other information and shall contain only directly related information: Secs. 213.4(b) through (f), (g)(2), (h)(3), (i)(1), (j), and (m)(1). The headings, content, and format for the disclosures referred to in this paragraph (a)(2) shall be provided in a manner substantially similar to the applicable model form in appendix A of this part.
3) Timing of disclosures. A lessor shall provide the disclosures to the lessee prior to the consummation of a consumer lease.
4) Language of disclosures. The disclosures required by Sec. 213.4 may be made in a language other than English provided that they are made available in English upon the lessee’s request.
b) Additional information; nonsegregated disclosures. Additional information may be provided with any disclosure not listed in paragraph (a)(2) of this section, but it shall not be stated, used, or placed so as to mislead or confuse the lessee or contradict, obscure, or detract attention from any disclosure required by this part.
c) Multiple lessors or lessees. When a transaction involves more than one lessor, the disclosures required by this part may be made by one lessor on behalf of all the lessors. When a lease involves more than one lessee, the lessor may provide the disclosures to any lessee who is primarily liable on the lease.
d) Use of estimates. If an amount or other item needed to comply with a required disclosure is unknown or unavailable after reasonable efforts have been made to ascertain the information, the lessor may use a reasonable estimate that is based on the best information available to the lessor, is clearly identified as an estimate, and is not used to circumvent or evade any disclosures required by this part.
e) Effect of subsequent occurrence. If a required disclosure becomes inaccurate because of an event occurring after consummation, the inaccuracy is not a violation of this part.
f) Minor variations. A lessor may disregard the effects of the following in making disclosures:
1) That payments must be collected in whole cents;
2) That dates of scheduled payments may be different because a scheduled date is not a business day;
3) That months have different numbers of days; and
4) That February 29 occurs in a leap year.

Sec. 213.4 Content of disclosures.

For any consumer lease subject to this part, the lessor shall disclose the following information, as applicable:
a) Description of property. A brief description of the leased property sufficient to identify the property to the lessee and lessor.
b) Amount due at lease signing. The total amount to be paid prior to or at consummation, using the term “amount due at lease signing.” The lessor shall itemize each component by type and amount, including any refundable security deposit, advance monthly or other periodic payment, and capitalized cost reduction; and in motor-vehicle leases, shall itemize how the amount due will be paid, by type and amount, including any net trade-in allowance, rebates, non cash credits, and cash payments in a format substantially similar to the model forms in appendix A of this part.
c) Payment schedule and total amount of periodic payments. The number, amount, and due dates or periods of payments scheduled under the lease, and the total amount of the periodic payments.
d) Other charges. The total amount of other charges payable to the lessor, itemized by type and amount that are not included in the periodic payments. Such charges include the amount of any liability the lease imposes upon the lessee at the end of the lease term; the potential difference between the residual and realized values referred to in paragraph (k) of this section is excluded.
e) Total of payments. The total of payments, with a description such as “the amount you will have paid by the end of the lease.” This amount is the sum of the amount due at lease signing (less any refundable amounts), the total amount of periodic payments (less any portion of the periodic payment paid at lease signing), and other charges under paragraphs (b), (c), and (d) of this section. In an open-end lease, a description such as “you will owe an additional amount if the actual value of the vehicle is less than the residual value” shall accompany the disclosure.
f) Payment calculation. In a motor-vehicle lease, a mathematical progression of how the scheduled periodic payment is derived, in a format substantially similar to the applicable model form in appendix A of this part, which shall contain the following:
1) Gross capitalized cost. The gross capitalized cost, including a disclosure of the agreed upon value of the vehicle, a description such as “the agreed upon value of the vehicle [state the amount] and any items you pay for over the lease term (such as service contracts, insurance, and any outstanding prior loan or lease balance),” and a statement of the lessee’s option to receive a separate written itemization of the gross capitalized cost. If requested by the lessee, the itemization shall be provided before consummation.
2) Capitalized cost reduction. The capitalized cost reduction, with a description such as “the amount of any net trade-in allowance, rebate, non cash credit, or cash you pay that reduces the gross capitalized cost.”
3) Adjusted capitalized cost. The adjusted capitalized cost, with a description such as “the amount used in calculating your base [periodic] payment.”
4) Residual value. The residual value, with a description such as “the value of the vehicle at the end of the lease used in calculating your base [periodic] payment.”
5) Depreciation and any amortized amounts. The depreciation and any amortized amounts, which is the difference between the adjusted capitalized cost and the residual value, with a description such as “the amount charged for the vehicle’s decline in value through normal use and for any other items paid over the lease term.”
6) Rent charge. The rent charge, with a description such as “the amount charged in addition to the depreciation and any amortized amounts.” This amount is the difference between the total of the base periodic payments over the lease term minus the depreciation and any amortized amounts.
7) Total of base periodic payments. The total of base periodic payments with a description such as “depreciation and any amortized amounts plus the rent charge.”
Lease payments. The lease payments with a description such as “the number of payments in your lease”.
9) Base periodic payment. The total of the base periodic payments divided by the number of payment periods in the lease.
10) Itemization of other charges. An itemization of any other charges that are part of the periodic payment.
11) Total periodic payment. The sum of the base periodic payment and any other charges that are part of the periodic payment.
g) Early termination–(1) Conditions and disclosure of charges. A statement of the conditions under which the lessee or lessor may terminate the lease prior to the end of the lease term; and the amount or a description of the method for determining the amount of any penalty or other charge for early termination, which must be reasonable.
2) Early-termination notice. In a motor-vehicle lease, a notice substantially similar to the following: “Early Termination. You may have to pay a substantial charge if you end this lease early. The charge may be up to several thousand dollars. The actual charge will depend on when the lease is terminated. The earlier you end the lease, the greater this charge is likely to be.”
h) Maintenance responsibilities. The following provisions are required:
1) Statement of responsibilities. A statement specifying whether the lessor or the lessee is responsible for maintaining or servicing the leased property, together with a brief description of the responsibility;
2) Wear and use standard. A statement of the lessor’s standards for wear and use (if any), which must be reasonable; and
3) Notice of wear and use standard. In a motor-vehicle lease, a notice regarding wear and use substantially similar to the following: “Excessive Wear and Use. You may be charged for excessive wear based on our standards for normal use.” The notice shall also specify the amount or method for determining any charge for excess mileage.
i) Purchase option. A statement of whether or not the lessee has the option to purchase the leased property, and:
1) End of lease term. If at the end of the lease term, the purchase price; and
2) During lease term. If prior to the end of the lease term, the purchase price or the method for determining the price and when the lessee may exercise this option.
j) Statement referencing nonsegregated disclosures. A statement that the lessee should refer to the lease documents for additional information on early termination, purchase options and maintenance responsibilities, warranties, late and default charges, insurance, and any security interests, if applicable.
k) Liability between residual and realized values. A statement of the lessee’s liability, if any, at early termination or at the end of the lease term for the difference between the residual value of the leased property and it’s realized value.
l) Right of appraisal. If the lessee’s liability at early termination or at the end of the lease term is based on the realized value of the leased property, a statement that the lessee may obtain, at the lessee’s expense, a professional appraisal by an independent third party (agreed to by the lessee and the lessor) of the value that could be realized at sale of the leased property. The appraisal shall be final and binding on the parties.
m) Liability at end of lease term based on residual value. If the lessee is liable at the end of the lease term for the difference between the residual value of the leased property and its realized value:
1) Rent and other charges. The rent and other charges, paid by the lessee and required by the lessor as an incident to the lease transaction, with a description such as “the total amount of rent and other charges imposed in connection with your lease [state the amount].”
2) Excess liability. A statement about a rebuttable presumption that, at the end of the lease term, the residual value of the leased property is unreasonable and not in good faith to the extent that the residual value exceeds the realized value by more than three times the base monthly payment (or more than three times the average payment allocable to a monthly period, if the lease calls for periodic payments other than monthly); and that the lessor cannot collect the excess amount unless the lessor brings a successful court action and pays the lessee’s reasonable attorney’s fees, or unless the excess of the residual value over the realized value is due to unreasonable or excessive wear or use of the leased property (in which case the rebuttable presumption does not apply).
3) Mutually agreeable final adjustment. A statement that the lessee and lessor are permitted, after termination of the lease, to make any mutually agreeable final adjustment regarding excess liability.
n) Fees and taxes. The total dollar amount for all official and license fees, registration, title, or taxes required to be paid to the lessor in connection with the lease.
o) Insurance. A brief identification of insurance in connection with the lease including:
1) Voluntary insurance. If the insurance is provided by or paid through the lessor, the types and amounts of coverage and the cost to the lessee; or
2) Required insurance. If the lessee must obtain the insurance, the types and amounts of coverage required of the lessee.
p) Warranties or guarantees. A statement identifying all express warranties and guarantees from the manufacturer or lessor with respect to the leased property that apply to the lessee.
q) Penalties and other charges for delinquency. The amount or the method of determining the amount of any penalty or other charge for delinquency, default, or late payments, which must be reasonable.
r) Security interest. A description of any security interest, other than a security deposit disclosed under paragraph (b) of this section, held or to be retained by the lessor; and a clear identification of the property to which the security interest relates.
s) Limitations on rate information. If a lessor provides a percentage rate in an advertisement or in documents evidencing the lease transaction, a notice stating that “this percentage may not measure the overall cost of financing this lease” shall accompany the rate disclosure. The lessor shall not use the term “annual percentage rate,” “annual lease rate,” or any equivalent term.

Sec. 213.5 Renegotiations, extensions, and assumptions.

a) Renegotiation. A renegotiation occurs when a consumer lease subject to this part is satisfied and replaced by a new lease undertaken by the same consumer. A renegotiation requires new disclosures, except as provided in paragraph (d) of this section.
b) Extension. An extension is a continuation, agreed to by the lessor and the lessee, of an existing consumer lease beyond the originally scheduled end of the lease term, except when the continuation is the result of a renegotiation. An extension that exceeds six months requires new disclosures, except as provided in paragraph (d) of this section.
c) Assumption. New disclosures are not required when a consumer lease is assumed by another person, whether or not the lessor charges an assumption fee.
d) Exceptions. New disclosures are not required for the following, even if they meet the definition of a renegotiation or an extension:
1) A reduction in the lease charge;
2) The deferment of one or more payments, whether or not a fee is charged;
3) The extension of a lease for not more than six months on a month-to-month basis or otherwise;
4) A substitution of leased property with property that has a substantially equivalent or greater economic value, provided no other lease terms are changed;
5) The addition, deletion, or substitution of leased property in a multiple-item lease, provided the average periodic payment does not change by more than 25 percent; or
6) An agreement resulting from a court proceeding.

Sec. 213.6 [Reserved]

Sec. 213.7 Advertising.

a) General rule. An advertisement for a consumer lease may state that a specific lease of property at specific amounts or terms is available only if the lessor usually and customarily leases or will lease the property at those amounts or terms.
b) Clear and conspicuous standard. Disclosures required by this section shall be made clearly and conspicuously.
1) Amount due at lease signing. Except for the statement of a periodic payment, any affirmative or negative reference to a charge that is a part of the total amount due at lease signing under paragraph (d)(2)(ii) of this section, such as the amount of any capitalized cost reduction (or no capitalized cost reduction is required), shall not be more prominent than the disclosure of the total amount due at lease signing.
2) Advertisement of a lease rate. If a lessor provides a percentage rate in an advertisement, the rate shall not be more prominent than any of the disclosures in Sec. 213.4, with the exception of the notice in Sec. 213.4(s) required to accompany the rate; and the lessor shall not use the term “annual percentage rate,” “annual lease rate,” or equivalent term.
c) Catalogs and multipage advertisements. A catalog or other multipage advertisement that provides a table or schedule of the required disclosures shall be considered a single advertisement if, for lease terms that appear without all the required disclosures, the advertisement refers to the page or pages on which the table or schedule appears.
d) Advertisement of terms that require additional disclosure.–(1) Triggering terms. An advertisement that states any of the following items shall contain the disclosures required by paragraph (d)(2) of this section, except as provided in paragraphs (e) and (f) of this section:
i) The amount of any payment;
ii) A statement of any capitalized cost reduction or other payment (or that no payment is required) prior to or at consummation or by delivery, if delivery occurs after consummation.
iii) A statement of any capitalized cost reduction or other payment required prior to or at consummation, or that no payment is required.
2) Additional terms. An advertisement stating any item listed in paragraph (d)(1) of this section shall also state the following items:
i) That the transaction advertised is a lease;
ii) The total amount due at lease signing, or that no payment is required;
iii) The number, amounts, due dates or periods of scheduled payments, and total of such payments under the lease;
iv) A statement of whether or not the lessee has the option to purchase the leased property, and where the lessee has the option to purchase at the end of the lease term, the purchase-option price. The method of determining the purchase-option price may be substituted in disclosing the lessee’s option to purchase the leased property prior to the end of the lease term;
v) A statement of the amount, or the method for determining the amount, of the lessee’s liability (if any) at the end of the lease term; and
vi) A statement of the lessee’s liability (if any) for the difference between the residual value of the leased property and its realized value at the end of the lease term.
e) Alternative disclosures–merchandise tags. A merchandise tag stating any item listed in paragraph (d)(1) of this section may comply with paragraph (d)(2) of this section by referring to a sign or display prominently posted in the lessor’s place of business that contains a table or schedule of the required disclosures.
f) Alternative disclosures–television or radio advertisements.–(1) Toll-free number or print advertisement. An advertisement made through television or radio stating any item listed in paragraph (d)(1) of this section complies with paragraph (d)(2) of this section if the advertisement states the items listed in paragraphs (d)(2)(i) through (iii) of this section, and:
i) Lists a toll-free telephone number along with a reference that such number may be used by consumers to obtain the information required by paragraph (d)(2) of this section; or
ii) Directs the consumer to a written advertisement in a publication of general circulation in the community served by the media station, including the name and the date of the publication, with a statement that information required by paragraph (d)(2) of this section is included in the advertisement. The written advertisement shall be published beginning at least three days before and ending at least ten days after the broadcast.
2) Establishment of toll-free number. (i) The toll-free telephone number shall be available for no fewer than ten days, beginning on the date of the broadcast.
ii) The lessor shall provide the information required by paragraph (d)(2) of this section orally, or in writing upon request.

Sec. 213.8 Record retention.

A lessor shall retain evidence of compliance with the requirements imposed by this part, other than the advertising requirements under Sec. 213.7, for a period of not less than two years after the date the disclosures are required to be made or an action is required to be taken.

Sec. 213.9 Relation to state laws.

a) Inconsistent state law. A state law that is inconsistent with the requirements of the act and this part is preempted to the extent of the inconsistency. If a lessor cannot comply with a state law without violating a provision of this part, the state law is inconsistent within the meaning of section 186(a) of the act and is preempted, unless the state law gives greater protection and benefit to the consumer. A state, through an official having primary enforcement or interpretative responsibilities for the state consumer leasing law, may apply to the Board for a preemption determination.
b) Exemptions.–(1) Application. A state may apply to the Board for an exemption from the requirements of the act and this part for any class of lease transactions within the state. The Board will grant such an exemption if the Board determines that:
i) The class of leasing transactions is subject to state law requirements substantially similar to the act and this part or that lessees are afforded greater protection under state law; and
ii) There is adequate provision for state enforcement.
2) Enforcement and liability. 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. No exemption will extend to the civil liability provisions of sections 130, 131, and 185 of the act.

Appendix B to Part 213–Federal Enforcement Agencies

The following list indicates which federal agency enforces Regulation M (12 CFR Part 213) for particular classes of business. Any questions concerning compliance by a particular business should be directed to the appropriate enforcement agency. 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. National banks and federal branches and federal agencies of foreign banks District office of the Office of the Comptroller of the Currency for the district in which the institution is located.

2. 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 Bank serving the District in which the institution is located.

3. Nonmember insured banks and insured state branches of foreign banks Federal Deposit Insurance Corporation Regional Director for the region in which the institution is located.

4. Savings institutions insured under the Savings Association Insurance Fund of the FDIC and federally chartered savings banks insured under the Bank Insurance Fund of the FDIC (but not including state-chartered savings banks insured under the Bank Insurance Fund) Office of Thrift Supervision regional director for the region in which the institution is located.

5. Federal credit unions Regional office of the National Credit Union Administration serving the area in which the federal credit union is located.

6. Air carriers Assistant General Counsel for Aviation Enforcement and Proceedings, Department of Transportation, 400 Seventh Street, S.W., Washington, DC 20590

7. Those subject to Packers and Stockyards Act Nearest Packers and Stockyards Administration area supervisor.

8. Federal Land Banks, Federal Land Bank Associations, Federal Intermediate Credit Banks, and Production Credit Associations Farm Credit Administration, 490 L’Enfant Plaza, S.W., Washington, DC 20578

9. All other lessors (lessors operating on a local or regional basis should use the address of the FTC regional office in which they operate) Division of Credit Practices, Bureau of Consumer Protection, Federal Trade Commission, Washington, DC 20580

Appendix C to Part 213–Issuance of Staff Interpretations

Officials in the Board’s Division of Consumer and Community Affairs are authorized to issue official staff interpretations of this Regulation M (12 CFR Part 213). These interpretations provide the formal protection afforded under section 130(f) of the act. Except in unusual circumstances, interpretations will not be issued separately but will be incorporated in an official commentary to Regulation M (Supplement I of this part), which will be amended periodically. No staff interpretations will be issued approving lessor’s forms, statements, or calculation tools or methods.

Subpart A–General
Section 226.1 – Authority, purpose, coverage, organization, enforcement and liability.
Section 226.2 – Definitions and rules of construction.
Section 226.3 – Exempt transactions.
Section 226.4 – Finance charge.

Sec. 226.1 Authority, purpose, coverage, organization, enforcement and liability.

(a) Authority. This regulation, known as Regulation Z, is issued by the Board of Governors of the Federal Reserve System to implement the Federal Truth in Lending Act, which is contained in title I of the Consumer Credit Protection Act, as amended (15 U.S.C. 1601 et seq.). This regulation also implements title XII, section 1204 of the Competitive Equality Banking Act of 1987 (Pub. L. 100-86, 101 Stat. 552). Information-collection requirements contained in this regulation 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 number 7100-0199.
(b) The purpose of this regulation is to promote the informed use of consumer credit by requiring disclosures about its terms and cost. The regulation gives consumers the right to cancel certain credit transactions that involve a lien on a consumer’s principal dwelling, regulates certain credit card practices, and provides a means for fair and timely resolution of credit billing disputes. The regulation does not govern charges for consumer credit. The regulation requires a maximum interest rate to be stated in variable-rate contracts secured by the consumer’s dwelling. It also imposes limitations on home equity plans that are subject to the requirements of Sec. 226.5b and mortgages that are subject to the requirements of Sec. 226.32.
(c) Coverage. (1) In general, this regulation applies to each individual or business that offers or extends credit when four conditions are met: (i) The credit is offered or extended to consumers; (ii) the offering or extension of credit is done regularly;1 (iii) the credit is subject to a finance charge or is payable by a written agreement in more than 4 installments; and (iv) the credit is primarily for personal, family, or household purposes.
1 The meaning of regularly is explained in the definition of creditor in Sec. 226.2(a).
(2) If a credit card is involved, however, certain provisions apply even if the credit is not subject to a finance charge, or is not payable by a written agreement in more than 4 installments, or if the credit card is to be used for business purposes.
(3) In addition, certain requirements of Sec. 226.5b apply to persons who are not creditors but who provide applications for home equity plans to consumers.
(d) Organization. The regulation is divided into subparts and appendices as follows:
(1) Subpart A contains general information. It sets forth: (i) The authority, purpose, coverage, and organization of the regulation; (ii) the definitions of basic terms; (iii) the transactions that are exempt from coverage; and (iv) the method of determining the finance charge.
(2) Subpart B contains the rules for open-end credit. It requires that initial disclosures and periodic statements be provided, as well as additional disclosures for credit and charge card applications and solicitations and for home equity plans subject to the requirements of Secs. 226.5a and 226.5b, respectively.
(3) Subpart C relates to closed-end credit. It contains rules on disclosures, treatment of credit balances, annual percentage rate calculations, rescission requirements, and advertising.
(4) Subpart D contains rules on oral disclosures, Spanish language disclosure in Puerto Rico, record retention, effect on state laws, state exemptions, and rate limitations.
(5) Subpart E relates to mortgage transactions covered by Sec. 226.32 and reverse mortgage transactions. It contains rules on disclosures, fees, and total annual loan cost rates.
(6) Several appendices contain information such as the procedures for determinations about state laws, state exemptions and issuance of staff interpretations, special rules for certain kinds of credit plans, a list of enforcement agencies, and the rules for computing annual percentage rates in closed-end credit transactions and total annual loan cost rates for reverse mortgage transactions.
(e) Enforcement and liability. Section 108 of the act contains the administrative enforcement provisions. Sections 112, 113, 130, 131, and 134 contain provisions relating to liability for failure to comply with the requirements of the act and the regulation. Section 1204(c) of title XII of the Competitive Equality Banking Act of 1987, Pub. L. 100-86, 101 Stat. 552, incorporates by reference administrative enforcement and civil liability provisions of sections 108 and 130 of the act.

Sec. 226.2 Definitions and rules of construction.

(a) Definitions. For purposes of this regulation, the following definitions apply:
(1) Act means the Truth in Lending Act (15 U.S.C. 1601 et seq.).
(2) Advertisement means a commercial message in any medium that promotes, directly or indirectly, a credit transaction.
(3) [Reserved]
(4) Billing cycle or cycle means the interval between the days or dates of regular periodic statements. These intervals shall be equal and no longer than a quarter of a year. An interval will be considered equal if the number of days in the cycle does not vary more than 4 days from the regular day or date of the periodic statement.
(5) Board means the Board of Governors of the Federal Reserve System.
(6) Business day means a day on which the creditor’s offices are open to the public for carrying on substantially all of its business functions. However, for purposes of rescission under Secs. 226.15 and 226.23, and for purposes of Sec. 226.31, the term means all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a), such as New Year’s Day, the Birthday of Martin Luther King, Jr., Washington’s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.
(7) Card issuer means a person that issues a credit card or that person’s agent with respect to the card.
(8) Cardholder means a natural person to whom a credit card is issued for consumer credit purposes, or a natural person who has agreed with the card issuer to pay consumer credit obligations arising from the issuance of a credit card to another natural person. For purposes of Sec. 226.12(a) and (b), the term includes any person to whom a credit card is issued for any purpose, including business, commercial, or agricultural use, or a person who has agreed with the card issuer to pay obligations arising from the issuance of such a credit card to another person.
(9) Cash price means the price at which a creditor, in the ordinary course of business, offers to sell for cash the property or service that is the subject of the transaction. At the creditor’s option, the term may include the price of accessories, services related to the sale, service contracts and taxes and fees for license, title, and registration. The term does not include any finance charge.
(10) Closed-end credit means consumer credit other than open-end credit as defined in this section.
(11) Consumer means a cardholder or a natural person to whom consumer credit is offered or extended. However, for purposes of rescission under Secs. 226.15 and 226.23, the term also includes a natural person in whose principal dwelling a security interest is or will be retained or acquired, if that person’s ownership interest in the dwelling is or will be subject to the security interest.
(12) Consumer credit means credit offered or extended to a consumer primarily for personal, family, or household purposes.
(13) Consummation means the time that a consumer becomes contractually obligated on a credit transaction.
(14) Credit means the right to defer payment of debt or to incur debt and defer its payment.
(15) Credit card means any card, plate, coupon book, or other single credit device that may be used from time to time to obtain credit. Charge card means a credit card on an account for which no periodic rate is used to compute a finance charge.
(16) Credit sale means a sale in which the seller is a creditor. The term includes a bailment or lease (unless terminable without penalty at any time by the consumer) under which the consumer:
(i) Agrees to pay as compensation for use a sum substantially equivalent to, or in excess of, the total value of the property and services involved; and
(ii) Will become (or has the option to become), for no additional consideration or for nominal consideration, the owner of the property upon compliance with the agreement.
(17) Creditor means: (i) A person (A) who regularly extends consumer credit3 that is subject to a finance charge or is payable by written agreement in more than 4 installments (not including a down payment), and (B) to whom the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract.

3 A person regularly extends consumer credit only if it extended credit (other than credit subject to the requirements of Sec. 226.32) more than 25 times (or more than 5 times for transactions secured by a dwelling) in the preceding calendar year. If a person did not meet these numerical standards in the preceding calendar year, the numerical standards shall be applied to the current calendar year. A person regularly extends consumer credit if, in any 12-month period, the person originates more than one credit extension that is subject to the requirements of Sec. 226.32 or one or more such credit extensions through a mortgage broker.

(ii) For purposes of Secs. 226.4(c)(8) (discounts), 226.9(d) (Finance charge imposed at time of transaction), and 226.12(e) (Prompt notification of returns and crediting of refunds), a person that honors a credit card.
(iii) For purposes of subpart B, any card issuer that extends either open-end credit or credit that is not subject to a finance charge and is not payable by written agreement in more than 4 installments.
(iv) For purposes of subpart B (except for the credit and charge card disclosures contained in Secs. 226.5(a) and 226.9 (e) and (f), the finance charge disclosures contained in Secs. 226.6(a) and 226.7 (d) through (g) and the right of rescission set forth in Sec. 226.15) and subpart C, any card issuer that extends closed-end credit that is subject to a finance charge or is payable by written agreement in more than 4 installments.
(18) Down payment means an amount, including the value of any property used as a trade-in, paid to a seller to reduce the cash price of goods or services purchased in a credit sale transaction. A deferred portion of a down payment may be treated as part of the down payment if it is payable not later than the due date of the second otherwise regularly scheduled payment and is not subject to a finance charge.
(19) Dwelling means a residential structure that contains 1 to 4 units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.
(20) Open-end credit means consumer credit extended by a creditor under a plan in which:
(i) The creditor reasonably contemplates repeated transactions;
(ii) The creditor may impose a finance charge from time to time on an outstanding unpaid balance; and
(iii) The amount of credit that may be extended to the consumer during the term of the plan (up to any limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid.
(21) Periodic rate means a rate of finance charge that is or may be imposed by a creditor on a balance for a day, week, month, or other subdivision of a year.
(22) Person means a natural person or an organization, including a corporation, partnership, proprietorship, association, cooperative, estate, trust, or government unit.
(23) Prepaid finance charge means any finance charge paid separately in cash or by check before or at consummation of a transaction, or withheld from the proceeds of the credit at any time.
(24) Residential mortgage transaction means a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained in the consumer’s principal dwelling to finance the acquisition or initial construction of that dwelling.
(25) Security interest means an interest in property that secures performance of a consumer credit obligation and that is recognized by State or Federal law. It does not include incidental interests such as interests in proceeds, accessions, additions, fixtures, insurance proceeds (whether or not the creditor is a loss payee or beneficiary), premium rebates, or interests in after-acquired property. For purposes of disclosure under Secs. 226.6 and 226.18, the term does not include an interest that arises solely by operation of law. However, for purposes of the right of rescission under Secs. 226.15 and 226.23, the term does include interests that arise solely by operation of law.
(26) State means any state, the District of Columbia, the Commonwealth of Puerto Rico, and any territory or possession of the United States.
(b) Rules of construction. For purposes of this regulation, the following rules of construction apply:
(1) Where appropriate, the singular form of a word includes the plural form and plural includes singular.
(2) Where the words obligation and transaction are used in this regulation, they refer to a consumer credit obligation or transaction, depending upon the context. Where the word credit is used in this regulation, it means consumer credit unless the context clearly indicates otherwise.
(3) Unless defined in this regulation, the words used have the meanings given to them by state law or contract.
(4) Footnotes have the same legal effect as the text of the regulation.

Sec. 226.3 Exempt transactions.

This regulation does not apply to the following:4
4 The provisions in Sec. 226.12 (a) and (b) governing the issuance of credit cards and the liability for their unauthorized use apply to all credit cards, even if the credit cards are issued for use in connection with extensions of credit that otherwise are exempt under this section.

(a) Business, commercial, agricultural, or organizational credit. (1) An extension of credit primarily for a business, commercial or agricultural purpose.
(2) An extension of credit to other than a natural person, including credit to government agencies or instrumentalities.
(b) Credit over $25,000 not secured by real property or a dwelling. An extension of credit not secured by real property, or by personal property used or expected to be used as the principal dwelling of the consumer, in which the amount financed exceeds $25,000 or in which there is an express written commitment to extend credit in excess of $25,000.
(c) Public utility credit. An extension of credit that involves public utility services provided through pipe, wire, other connected facilities, or radio or similar transmission (including extensions of such facilities), if the charges for service, delayed payment, or any discounts for prompt payment are filed with or regulated by any government unit. The financing of durable goods or home improvements by a public utility is not exempt.
(d) Securities or commodities accounts. Transactions in securities or commodities accounts in which credit is extended by a broker-dealer registered with the Securities and Exchange Commission or the Commodity Futures Trading Commission.
(e) Home fuel budget plans. An installment agreement for the purchase of home fuels in which no finance charge is imposed.
(f) Student loan programs. Loans made, insured, or guaranteed pursuant to a program authorized by title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.).

Sec. 226.4 Finance charge.

(a) Definition. The finance charge is the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction.
(1) Charges by third parties. The finance charge includes fees and amounts charged by someone other than the creditor, unless otherwise excluded under this section, if the creditor:
(i) requires the use of a third party as a condition of or an incident to the extension of credit, even if the consumer can choose the third party; or
(ii) retains a portion of the third-party charge, to the extent of the portion retained.
(2) Special rule; closing agent charges. Fees charged by a third party that conducts the loan closing (such as a settlement agent, attorney, or escrow or title company) are finance charges only if the creditor:
(i) Requires the particular services for which the consumer is charged;
(ii) Requires the imposition of the charge; or
(iii) Retains a portion of the third-party charge, to the extent of the portion retained.
(3) Special rule; mortgage broker fees. Fees charged by a mortgage broker (including fees paid by the consumer directly to the broker or to the creditor for delivery to the broker) are finance charges even if the creditor does not require the consumer to use a mortgage broker and even if the creditor does not retain any portion of the charge.
(b) Example of finance charge. The finance charge includes the following types of charges, except for charges specifically excluded by paragraphs (c) through (e) of this section:
(1) Interest, time price differential, and any amount payable under an add-on or discount system of additional charges.
(2) Service, transaction, activity, and carrying charges, including any charge imposed on a checking or other transaction account to the extent that the charge exceeds the charge for a similar account without a credit feature.
(3) Points, loan fees, assumption fees, finder’s fees, and similar charges.
(4) Appraisal, investigation, and credit report fees.
(5) Premiums or other charges for any guarantee or insurance protecting the creditor against the consumer’s default or other credit loss.
(6) Charges imposed on a creditor by another person for purchasing or accepting a consumer’s obligation, if the consumer is required to pay the charges in cash, as an addition to the obligation, or as a deduction from the proceeds of the obligation.
(7) Premiums or other charges for credit life, accident, health, or loss-of-income insurance, written in connection with a credit transaction.
(8) Premiums or other charges for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property, written in connection with a credit transaction.
(9) Discounts for the purpose of inducing payment by a means other than the use of credit.
(10) Debt cancellation fees. Charges or premiums paid for debt cancellation coverage written in connection with a credit transaction, whether or not the debt cancellation coverage is insurance under applicable law.
(c) Charges excluded from the finance charge. The following charges are not finance charges:
(1) Application fees charged to all applicants for credit, whether or not credit is actually extended.
(2) Charges for actual unanticipated late payment, for exceeding a credit limit, or for delinquency, default, or a similar occurrence.
(3) Charges imposed by a financial institution for paying items that overdraw an account, unless the payment of such items and the imposition of the charge were previously agreed upon in writing.
(4) Fees charged for participation in a credit plan, whether assessed on an annual or other periodic basis.
(5) Seller’s points.
(6) Interest forfeited as a result of an interest reduction required by law on a time deposit used as security for an extension of credit.
(7) Real-estate related fees. The following fees in a transaction secured by real property or in a residential mortgage transaction, if the fees are bona fide and reasonable in amount:
(i) Fees for title examination, abstract of title, title insurance, property survey, and similar purposes.
(Ii) Fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents.
(Iii) Notary and credit report fees.
(Iv) Property appraisal fees or fees for inspections to assess the value or condition of the property if the service is performed prior to closing, including fees related to pest infestation or flood hazard determinations.
(v) Amounts required to be paid into escrow or trustee accounts if the amounts would not otherwise be included in the finance charge.
(8) Discounts offered to induce payment for a purchase by cash, check, or other means, as provided in section 167(b) of the Act.
(d) Insurance and debt cancellation coverage.–(1) Voluntary credit insurance premiums. Premiums for credit life, accident, health or loss- of-income insurance may be excluded from the finance charge if the following conditions are met:
(i) The insurance coverage is not required by the creditor, and this fact is disclosed in writing.
(Ii) The premium for the initial term of insurance coverage is disclosed. If the term of insurance is less than the term of the transaction, the term of insurance also shall be disclosed. The premium may be disclosed on a unit-cost basis only in open-end credit transactions, closed-end credit transactions by mail or telephone under Sec. 226.17(g), and certain closed-end credit transactions involving an insurance plan that limits the total amount of indebtedness subject to coverage.
(Iii) The consumer signs or initials an affirmative written request for the insurance after receiving the disclosures specified in this paragraph. Any consumer in the transaction may sign or initial the request.
(2) Premiums for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property,5 may be excluded from the finance charge if the following conditions are met:

5 This includes single interest insurance if the insurer waives all right of subrogation against the consumer.

(i) The insurance coverage may be obtained from a person of the consumer’s choice,6 and this fact is disclosed.

6 A creditor may reserve the right to refuse to accept, for reasonable cause, an insurer offered by the consumer.

(Ii) If the coverage is obtained from or through the creditor, the premium for the initial term of insurance coverage shall be disclosed. If the term of insurance is less than the term of the transaction, the term of insurance shall also be disclosed. The premium may be disclosed on a unit-cost basis only in open-end credit transactions, closed-end credit transactions by mail or telephone under Sec. 226.17(g), and certain closed-end credit transactions involving an insurance plan that limits the total amount of indebtedness subject to coverage.
(3) Voluntary debt cancellation fees. (i) Charges or premiums paid for debt cancellation coverage of the type specified in paragraph (d)(3)(ii) of this section may be excluded from the finance charge, whether or not the coverage is insurance, if the following conditions are met:
(A) The debt cancellation agreement or coverage is not required by the creditor, and this fact is disclosed in writing;
(B) The fee or premium for the initial term of coverage is disclosed. If the term of coverage is less than the term of the credit transaction, the term of coverage also shall be disclosed. The fee or premium may be disclosed on a unit-cost basis only in open-end credit transactions, closed-end credit transactions by mail or telephone under Sec. 226.17(g), and certain closed-end credit transactions involving a debt cancellation agreement that limits the total amount of indebtedness subject to coverage;
(C) The consumer signs or initials an affirmative written request for coverage after receiving the disclosures specified in this paragraph. Any consumer in the transaction may sign or initial the request.
(Ii) Paragraph (d)(3)(i) of this section applies to fees paid for debt cancellation coverage that provides for cancellation of all or part of the debtor’s liability for amounts exceeding the value of the collateral securing the obligation, or in the event of the loss of life, health, or income or in case of accident.
(e) Certain security interest charges. If itemized and disclosed, the following charges may be excluded from the finance charge:
(1) Taxes and fees prescribed by law that actually are or will be paid to public officials for determining the existence of or for perfecting, releasing, or satisfying a security interest.
(2) The premium for insurance in lieu of perfecting a security interest to the extent that the premium does not exceed the fees described in paragraph (e)(1) of this section that otherwise would be payable.
(3) Taxes on security instruments. Any tax levied on security instruments or on documents evidencing indebtedness if the payment of such taxes is a requirement for recording the instrument securing the evidence of indebtedness.
(f) Prohibited offsets. Interest, dividends, or other income received or to be received by the consumer on deposits or investments shall not be deducted in computing the finance charge.

This page also lists various governmental and quasi-governmental agencies related to credit, banking, and mortgages.

Federal Reserve Banks

Atlanta	Boston
Chicago	Cleveland
Dallas	Kansas City
Minneapolis	New York
Philadelphia	Richmond
Saint Louis	San Francisco

Board of Governors of the Federal Reserve System
The Federal Reserve System Online
Federal Reserve Education Site

American Association of Residential Mortgage Regulators – AARMR
American Council of State Savings Supervisors (ACSSS)
Community Development Financial Institutions Fund
Conference of State Bank Supervisors (CSBS)
Department Of Veterans Affairs – VA Loan Guaranty Service
Department of Education – Federal Student Aid Programs
Fannie Mae (Federal National Mortgage Association – FNMA)
Federal Deposit Insurance Corporation – FDIC
Federal Financial Institutions Examination Council (FFIEC)
Federal Housing Administration – FHA
Federal Housing Finance Agency – FHFA
Federal Housing Finance Board – FHFB
Federal Trade Commission – FTC
Federal Trade Commission Bureau Of Consumer Protection, Division of Financial Practices
Financial Crimes Enforcement Network – FinCEN
Freddie Mac (Federal Home Loan Mortgage Corp – FHLMC)
Ginnie Mae (Government National Mortgage Association – GNMA)
House Financial Services Committee
HUD – US Department of Housing and Urban Development
HUD Office of Policy Development & Research
National Association of State Credit Union Supervisors (NASCUS)
National Credit Union Administration (NCUA)
Office of the Comptroller of the Currency – OCC
Office of Federal Housing Enterprise Oversight
Office of Thrift Supervision – OTS
Regulations.Gov
Sallie Mae (Student Loans)
Securities and Exchange Commission
United States Department of the Treasury
United States Trustee Program (Department of Justice)
Alabama State Banking Department
Alabama Credit Union Administration
Alaska Division of Banking and Securities
Arizona Department of Financial Institutions
Arkansas State Bank Department
Arkansas State Board of Collection Agencies
California Department of Financial Institutions
Colorado Division of Banking
Connecticut Department of Banking
Delaware Office of the State Bank Commissioner
Florida Department Of Financial Services
Florida Office of Financial Regulation
Georgia Department of Banking and Finance
Guam Department of Revenue and Taxation
Hawaii Division of Financial Institutions
Idaho Department of Finance
Illinois Department of Financial Professional Regulation
Indiana Department of Financial Institutions
Iowa Division of Banking
Iowa Credit Union Division
Kansas Office of the State Bank Commissioner
Kansas Department of Credit Unions
Kentucky Office of Financial Institutions
Louisiana Office of Financial Institutions
Maine Bureau of Financial Institutions
Maine Department of Professional and Financial Regulation
Maine Office of Consumer Credit Regulation
Maryland Office of Financial Regulation
Massachusetts Office of Consumer Affairs and Business Regulation – Division of Banks
Michigan Department of Labor and Economic Growth – Office of Financial and Insurance Services
Minnesota Department of Commerce
Mississippi Department of Banking and Consumer Finance
Missouri Division of Finance
Missouri Division of Credit Unions
Montana Division of Banking and Financial Institutions
Nebraska Department of Banking and Finance
Nevada Division of Financial Institutions
New Hampshire Banking Department
New Jersey Department of Banking and Insurance
New Mexico Regulation and Licensing Department – Financial Institutions Division
New York State Banking Department
New York State Consumer Protection Board
North Carolina Commissioner of Banks
North Carolina Credit Union Commission
North Dakota Department of Financial Institutions
Ohio Division of Financial Institutions
Oklahoma State Banking Department
Oregon Division of Finance and Corporate Securities
Pennsylvania Department of Banking
Puerto Rico Office of the Commissioner of Financial Institutions
Rhode Island Department of Business Regulation
South Carolina Department of Consumer Affairs (SCDCA)
South Carolina State Board of Financial Institutions / Office of the Commissioner of Banking
South Dakota Division of Banking
Southeast Texas Housing Finance Corporation (SETH)
Tennessee Department of Financial Institutions
Texas Department of Banking
Texas Credit Union Department
Utah Department Of Commerce
Utah Department of Financial Institutions
Vermont Department of Banking, Insurance, Securities, and Health Care Administration
Virgin Islands Office of The Lieutenant Governor – Division of Banking and Insurance
Virginia State Corporation Commission – Bureau of Financial Institutions
Washington State Department of Financial Institutions
Washington State Division of Credit Unions
West Virginia Division of Banking
Wisconsin Department of Financial Institutions
Wisconsin DFI Office of Credit Unions
Wyoming Department of Audit – Division of Banking

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