Reg Z & Electronic HELOC Disclosures
May or Must? That is the (abbreviated) question.  The full question: If members submit an application for a home equity line of credit (HELOC) online, must we provide disclosures electronically?
In December 2007, the Federal Reserve made changes to Regulation Z to clarify the role of electronic delivery of disclosures. However, the confusion has continued.
The changes added a paragraph on providing disclosures for applications that are accessed electronically:
This seems simple - a credit union may provide disclosures in electronic form. A little digging in the preamble, however, clarifies this "may" is not the credit union's option but, rather, indicates there are certain situations where paper disclosures are appropriate even if the member accessed an application in electronic form. Â
So, when must a credit union provide electronic disclosures when a member accesses an application electronically?
The Official Staff Commentary to Regulation Z has the answer:
1. Form of disclosures. Whether disclosures must be in electronic form depends upon the following:
i. If a consumer accesses a home equity credit line application electronically (other than as described under ii. below), such as online at a home computer, the creditor must provide the disclosures in electronic form (such as with the application form on its Web site) in order to meet the requirement to provide disclosures in a timely manner on or with the application. If the creditor instead mailed paper disclosures to the consumer, this requirement would not be met.
ii. In contrast, if a consumer is physically present in the creditor's office, and accesses a home equity credit line application electronically, such as via a terminal or kiosk (or if the consumer uses a terminal or kiosk located on the premises of an affiliate or third party that has arranged with the creditor to provide applications to consumers), the creditor may provide disclosures in either electronic or paper form, provided the creditor complies with the timing, delivery, and retainability requirements of the regulation."Â Official Staff Commentary to 12 C.F.R. 226.5b(a)(3)Â (emphasis added).
If members can access applications electronically using our online banking and we must provide the disclosures electronically, how do we do so? The Official Staff Commentary to Regulation Z:
Creditors must provide the disclosures required by this section (including the brochure) on or with a blank application that is made available to the consumer in electronic form, such as on a creditor's Internet Web site. Creditors have flexibility in satisfying this requirement. Methods creditors could use to satisfy the requirement include, but are not limited to, the following examples:
i. The disclosures could automatically appear on the screen when the application appears;
ii. The disclosures could be located on the same web page as the application (whether or not they appear on the initial screen), if the application contains a clear and conspicuous reference to the location of the disclosures and indicates that the disclosures contain rate, fee, and other cost information, as applicable;
iii. Creditors could provide a link to the electronic disclosures on or with the application as long as consumers cannot bypass the disclosures before submitting the application. The link would take the consumer to the disclosures, but the consumer need not be required to scroll completely through the disclosures; or
iv. The disclosures could be located on the same web page as the application without necessarily appearing on the initial screen, immediately preceding the button that the consumer will click to submit the application.
Whatever method is used, a creditor need not confirm that the consumer has read the disclosures."Â Official Staff Commentary to 12 C.F.R. 226.5b(a)(1).
The May vs. Must dilemma is just one of the many compliance situations where a regulation itself does not fully answer the question but the preamble or staff commentary shed additional insight and context on the issue.