March 10, 2006

Ms. Jennifer J. Johnson
Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, N.W.
Washington, D.C. 20551

Attention: Docket No. R-1247

Re: Electronic Fund Transfers
       71 FR 1473 (January 10, 2006)

Dear Ms. Johnson:

America’s Community Bankers (ACB) is pleased to comment on the interim final rule issued by the Board of Governors of the Federal Reserve System that amends Regulation E, which implements the Electronic Fund Transfer Act. The interim final rule provides that certain payroll card accounts are covered by Regulation E and requires depository institutions to provide periodic statement information and account disclosures to payroll card holders.

Under the interim final rule, a payroll card account established directly or indirectly by an employer on behalf of a consumer to which electronic funds transfer (EFT) of the consumer’s wages, salary or other employee compensation are made on a recurring basis would be an “account” covered by Regulation E. Regulation E would apply regardless of whether the funds are held in individual employee accounts or in a pooled account, with “subaccounts” maintained by a depository institution (or by a third party) that enable a determination of the amounts of money owed to particular employees. Regulation E would not apply to 1) other types of stored value cards (e.g., gift cards) or 2) a card used for a one-time EFT of a salary-related payment, such as a bonus, or a card used solely to disburse non-salary-related payments, such as petty cash or a travel per diem card.

ACB Position

ACB believes that it is good public policy to provide Regulation E coverage to payroll cards that mimic traditional deposit accounts. We appreciate the Federal Reserve’s efforts to narrowly define payroll card products in the interim final rule and urge the Federal Reserve to continue to give financial institutions the flexibility necessary to develop new payroll card products that suit the needs of their customers.

Many community banks have been reluctant to enter the stored value market. Regulatory uncertainties persist regarding the application of Regulation E, Regulation CC, and the USA Patriot Act. Moreover, many community banks must partner with third party vendors to make stored value products economically feasible. As community banks monitor the stored value market, we expect additional product development as the regulatory treatment of this product is clarified.

Definition of Payroll Card Account

ACB is pleased that the Federal Reserve has narrowly defined “payroll cards” to include only those types of products that are truly intended to serve as “accounts.” We agree that Regulation E should apply only to payroll cards to which EFT’s are made on a recurring basis.

As noted in the proposal, some forms of payroll card products are intended only to provide an alternative to a paycheck and function like a one-time use card. They are designed to provide one-time payments and do not function like a traditional deposit account that accepts multiple credits and debits and identifies a specific individual with a specific account number and account balance. In contrast, other stored value products have deposit account characteristics. For example, issuing banks may maintain records of the funds that belong to a specific cardholder. Some payroll cards may be reloadable, the cardholder’s name may be printed on the face of the card, the card may have a PIN or signature based security feature, the cardholder may be able to make additional deposits to the card, use the card at an ATM, or use the card to pay for goods at merchants that accept traditional credit and debit cards. Only cards that represent this kind of ongoing banking relationship should be subject to Regulation E.

ACB also believes that payroll card products should be subject to Regulation E only when a clear and unmistakable account can be identified with a particular consumer. We believe that this approach should apply to all regulatory aspects of stored value products, including Regulation CC, which implements the Expedited Funds Availability Act, the USA Patriot Act and its implementing regulations, and the FDIC’s deposit insurance regulations. Compliance with these requirements would be difficult, if not impossible, for payroll cards, gift cards, and other stored value products that are designed to function as a cash equivalent. These products are not designed to identify a specific person as owning the funds underlying a particular card.

Periodic Statement Option

ACB strongly supports the alternative periodic statement options provided in the interim final rule. Institutions may provide payroll card holders with a traditional periodic statement or may:

• Make account balance information available via a local or toll-free telephone line.
• Make available to the consumer an electronic list of transactions (e.g., via Internet website).
• Provide a 60-day written history upon the consumer’s oral or written request.

This provision provides important flexibility and regulatory relief for institutions that are reaching out to migrant workers and the unbanked. Migrant workers only live in a given location a few months each year. If financial institutions were required to mail periodic statements to each payroll card recipient, it is likely that many account statements would be returned to the issuing institution because the worker has moved on to another geographic location. We believe that these individuals would be less likely to leave a forwarding address than traditional bank customers.

Functional Concerns

While we support the public policy behind the interim final rule, we are concerned about some of the interim final rule’s practical implications. Specifically, we have concerns regarding:

• The requirement that an institution provide 60 days of account transaction information when using one of the alternative periodic statement options; and
• The feasibility of determining whether a consumer has “electronically accessed” an account for purposes of error resolution and limitation of liability.

Account History. ACB members report that some customer information systems are capable of providing only a 30-day or a 45-day account history, and therefore are unable to provide 60 days of account information required by the interim final rule. This software issue will not preclude these community banks from providing payroll card products; however, these institutions will not be able to provide account information using any of the periodic statement alternatives described in the interim final rule. They will be required to either provide traditional periodic statements to payroll card holders or update their computer systems to provide 60 days of account information. Therefore, ACB requests the Federal Reserve to amend the interim final rule to require institutions using one of the periodic statement alternatives to provide 30 or 45 days of account transaction information.

“Electronically Accessed.” ACB is concerned that not all community banks are able to readily comply with the interim final rule’s provisions regarding limitation of liability for unauthorized EFT’s. The interim final rule provides two triggers for beginning the 60-day period for limiting liability for unauthorized EFTs. If the consumer requests a written history of account transactions, the 60-day period begins on the date the institution sends the written history. If the customer obtains transaction information electronically, the 60-day period begins on the date the account is electronically accessed.

Several ACB members have indicated that their existing computer and telephone systems do not generate a record every time a customer accesses account information using a PIN number or other identification device. In these circumstances, an institution will only know that a consumer electronically accessed the account if a transaction was completed (e.g. transfer of funds from the stored value card to another account).

Payroll card products that function similarly to debit cards should be subject to comparable liability provisions. We agree that the 60-day period for limiting liability is appropriate for payroll card consumers that request a written account history. However, due to the difficulty in determining whether a consumer has “electronically accessed” a payroll card account, we request the Federal Reserve to consider alternatives to this provision.

Similar Regulation

Even though community banks are just beginning to explore the payroll card market, we are concerned that imposing differential regulation on depository institutions and less regulated providers of stored value products may discourage innovation and could conceivably eliminate insured institutions as major participants in the development of payroll card products. We urge the Federal Reserve to ensure that all providers of payroll card products are treated equally under any amendment to Regulation E.

Conclusion

Thank you for the opportunity to address this important matter. Should you have any questions, please contact the undersigned at 202-857-3121 or [email protected] or Krista Shonk at 202-857-3187 or [email protected].

Sincerely,


Patricia Milon
Chief Legal Officer and
Senior Vice President,
Regulatory Affairs