WASHINGTON – Credit unions should not be limited in how they electronically communicate with their members for delivery of online financial services, say CUNA and NAFCU. In comment letters to the Fed, the two trades pounded home this point. Gramm-Leach-Bliley required that the Fed undergo a study and prepare a report about its banking regulations, and how they affect the delivery of online financial services. The five regulations most affected by delivery of online services are Reg B (Equal Credit Opportunity), Reg E (Electronic Funds Transfer), Reg M (Consumer Leasing), Reg Z (Truth in Lending) and Reg DD (Truth in Savings). CUNA and NAFCU both focused on what exactly constitutes an "electronic address." "The bottomline is that we didn't think they should pinpoint any particular technology. There are security issues with general AOL-type e-mail," said Gwenn Baker, NAFCU's Director of Regulatory Affairs. The Fed's proposed definition of "electronic address" specifies that it shouldn't be a creditor's own system of communication; instead the Fed is leaning towards traditional e-mail. Baker said CUs have systems in-place for communicating with members and presenting disclosures that are not driven by traditional e-mail. This includes intranets, secure CU-only Web sites, both of which would be excluded under the Fed's current definition of electronic address. CUNA pointed out that the E-Signature Act was purposely vague in terms of what technologies would have to be used, so therefore the Fed shouldn't mandate the use of specific technologies for electronic communication between financials and consumers. "This definition imposes burdens on financial institutions because it requires the financial institutions to use traditional e-mail and would seem to preclude the use of communication through home banking intranet systems. This technological requirement restricts the ability of these institutions and their consumers to utilize electronic commerce," stated CUNA in its letter to the Fed. Mary Dunn, CUNA's Associate General Counsel, said CUNA is excited that the Fed is conducting this survey that could wind up helping find better ways for financials to deliver services online, however, in the area of electronic addresses, the Fed is off the mark. "The purpose of the Fed's exercise here is to look at ways their regulations are hamstringing and limiting the use of technology. Requiring communication through traditional e-mail is doing just that," said Dunn. Baker pointed out that if the Fed is set on one technology, such as e-mail, each time a better mode of delivery comes available, the Fed would have to consider amending the rules. Baker said that NAFCU has heard from credit unions that are concerned about having member account information or disclosures sent over traditional e-mail, which isn't the most secure of online communications. "There are some credit unions that have already developed systems that they believe are more secure. This would preclude the use of those systems," said Baker. The Fed needs to consider security, said CUNA. "CUNA is very concerned about the Board's preference for traditional e-mail because this method is a particularly vulnerable method for conducting financial transactions. Much of traditional e-mail is not secure or safe for transmitting personal financial information over the Internet," stated CUNA in its letter. Navy FCU, not only the largest CU but the CU with the most number of online banking users (608,000) has been particularly vocal on this issue. "We never have (used e-mail) and we won't in terms of certain information," said Loren Moeller, public relations spokesperson for Navy. Moeller said the CU is much more comfortable with presenting disclosures, statements and other member info within the CU's Web site. "That's our secure online access. We can verify who you are. Everything is encrypted. We've been using this tool for a long time," said Moeller. She also noted that with e-mail there's always the question of whether or not a member will even read the e-mail. "A lot of people just filter out things that look like junk. When they have to log-on to account access, we can present notices to them there," said Moeller. The trades also asked the Fed to revise its interim rules so that members can instantly open accounts and sign-up for loans online, even though those members choose not to accept electronic disclosures at those times. Baker said a member who applies for a loan over the phone or via the fax can then have the disclosures mailed to their home. "Why shouldn't that be consistent with the online channel?" she said. Currently, the Fed's interim rules require that a financial notify a member if it has posted a disclosure on its Web site for the member's retrieval. Regulation E, however, currently allows consumers to pick up statements at a financial's location, and the financial does not have to notify the member indicating that the disclosures are available. CUNA asked that the Fed eliminate the requirement for financials to notify consumers that a disclosure is available online. Other CUNA recommendations include amending Reg D so that consumers can make unlimited withdrawals or transfers online; revising Reg D to include exemptions so its restrictions do not discourage consumers from conducting online transactions; keeping regulations and definitions regarding time constraints the same for both online and offline transactions; and updating geographic definitions and guidelines and revise new supervisory policies regarding the selection of IT business partners. [email protected]

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