Compliance Update with Amy K

Is your credit union in compliance with E-SIGN requirements? Consumer must be provided certain disclosures in a clear and conspicuous statement – a compliance refresher. 

​by Amy Kleinschmit, Chief Compliance Officer 

Compliance Refresher – E-SIGN
If your credit union sends out e-statements and other disclosures electronically, make sure you are complying with E-SIGN disclosure and consent requirements.
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To say that the regulations that affect credit unions require a few disclosures here and there would be an extreme understatement, there are numerous disclosures and notices that are required to be given to members. In most cases the regulation will allow the credit union to deliver the notice or disclosure electronically. This can be a good cost effective method that also reduces paper waste. However, in most cases the regulation only allows electronic delivery if the credit union complies with consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act).

For example, Regulation E provides “The disclosures required by this part may be provided to the consumer in electronic form, subject to compliance with the consumer-consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.).” 12 CFR 1005.4(a)(1) This language is almost copied verbatim under rules for providing copies of appraisals under Regulation B – “The copies required by § 1002.14(a)(1) may be provided to the applicant in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.).” 12 CFR 1002.14(a)(5). Similar language can be found in Truth in Savings, Regulation X and Z, just to name a few.

Obtaining consumer consent and complying with E-SIGN is very important when conforming with the regulation that is requiring the particular notice and/or disclosure. If providing the disclosure electronically, failing to comply with E-SIGN may mean that the disclosure will not be considered provided in the time frame that the regulation requires.

Consider commentary for the TRID disclosures that are required for most closed-end mortgages. 12 CFR 1026.19(e) requires that the Loan Estimate be delivered or placed in the mail not later than the third business day after the creditor receives the consumer’s application and not later than the seventh business day before consummation of the transaction. Very specific timing requirements to say the least. Commentary to 19(e)(1)(iv)-2 stresses the importance of the consumer consent element, “Creditors using electronic delivery methods, such as email, must also comply with § 1026.37(o)(3)(iii), which provides that the disclosures in § 1026.37 [Loan Estimate] may be provided to the consumer in electronic form, subject to compliance with the consumer consent and other applicable provisions of the E-Sign Act. For example, if a creditor delivers the disclosures required under § 1026.19(e)(1)(i) [loan estimate] to a consumer via email, but the creditor did not obtain the consumer's consent to receive disclosures via email prior to delivering the disclosures, then the creditor does not comply with § 1026.37(o)(3)(iii), and the creditor does not comply with § 1026.19(e)(1)(i), assuming the disclosures were not provided in a different manner in accordance with the timing requirements of § 1026.19(e)(1)(iii).”

E-SIGN requires that the consumer affirmatively consent to use electronic records and has not withdrawn such consent. Remember - “Affirmative consent” means opting-IN. Furthermore, the consumer must consent electronically, or confirm his or her consent electronically, in a manner that reasonably demonstrates that the consumer can access information in the electronic form that will be used to provide the information that is the subject of the consent. Translation – having the member sign a piece of paper in the office does not complete the opt-in process; there must be an “electronic” confirmation that reasonably demonstrates that the consumer can access information in the electronic form.

Remember, you can’t require the member to receive electronic disclosures/notice, they must OPT-IN.

Disclosure requirements - Prior to providing consent the consumer must be provided certain disclosures in a clear and conspicuous statement. These disclosures include:

• Informing the consumer of any right/option of the consumer to have the record provided or made available on paper/non-electronic form;
• Informing the consumer of their right to withdraw the consent to have the record provided or made available in an electronic form and of any conditions, consequences (which may include termination of the parties' relationship), or fees in the event of such withdrawal;
• Informing the consumer of whether the consent applies only to the particular transaction which gave rise to the obligation to provide the record, or to identified categories of records that may be provided or made available during the course of the parties' relationship;
• Describing the procedures the consumer must use to withdraw consent;
• Describing the procedures the consumer must use to update information needed to contact the consumer electronically;
• Informing the consumer how, after the consent, the consumer may, upon request, obtain a paper copy of an electronic record, and whether any fee will be charged for such copy; and
• A statement of the hardware and software requirements for access to and retention of the electronic records.

 
Subsequent disclosure and member consent may be required if the credit union changes the hardware or software requirements that are needed to access/retain electronic records if that change creates a material risk that the consumer will not be able to access/retain a subsequent electronic record. In that case the credit union will need to provide a revised hardware and software statement and a statement that the consumer has the right to withdraw consent without the imposition of any fees for such withdrawal and without the imposition of any condition or consequence that was not disclosed initially. Finally, the credit union will need to obtain consent again from the consumer electronically or have the consumer confirm his or her consent electronically, in a manner that reasonably demonstrates that the consumer can access information in the electronic form that will be used to provide the information that is the subject of the consent.

Remember, E-SIGN does not affect the content or timing of any disclosure or other record required to be provided or made available to any consumer under any statute, regulation, or other rule of law.
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There are a number of exceptions under the Act. For example, E-SIGN does not apply to any notice of –

• the cancellation or termination of utility services (including water, heat, and power);
• default, acceleration, repossession, foreclosure, or eviction, or the right to cure, under a credit agreement secured by, or a rental agreement for, a primary residence of an individual;
• the cancellation or termination of health insurance or benefits or life insurance benefits (excluding annuities).

InfoSight has a handy checklist and FAQs, in addition, CU Policy Pro has a model policy regarding E-SIGN, specifically 2227, and E-statements, policy 2226.

Should you have any questions or concerns regarding this or any other compliance topic, please do not hesitate to contact Amy Kleinschmit.

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