A Federal Reserve interim rule could remove regulatory barriers to the growth of electronic bill payment and presentment.
The rule, which took effect Wednesday but is still subject to change, is part of a sweeping overhaul of several Fed regulations designed to accommodate electronic commerce and Internet banking. It would let banks send electronic versions of account statements in lieu of costlier paper documents. In its current form, the rule governs only Regulation DD, the Fed's Truth in Savings guideline for deposit accounts.
The Fed is also proposing the use of electronic communications in transactions governed by Regulations B (Equal Credit Opportunity), E (Electronic Fund Transfers), M (Consumer Leasing), and Z (Truth in Lending). Comments on the whole proposal, including the Regulation DD rule, are due to the Fed on Oct. 29.
Many of these regulations have provisions detailing how banks must convey information, such as loan payments due, how fees are determined, what consumers must do when credit cards are lost or stolen, and why credit was denied.
The Fed proposal "will have a huge impact because it basically sanctions the ability to deliver invoices electronically," said Avivah Litan, a research director at GartnerGroup, a consulting company based in Stamford, Conn.
Credit cards account for 20% of the nation's 15 billion annual bills, according to GartnerGroup. Loan repayments for mortgages and other consumer loans represent another 16% of the total.
"Right now there is a lot of nervousness among billers in terms of regulations," Ms. Litan said. "This removes a major barrier."
Under the Fed proposal consumers could opt for electronic communication in place of paper, allowing banks to send statements and other notices through e-mail or their Web sites. Institutions would have to send alerts to customers telling them when information has been posted to a Web site.
Robert Rowe, an attorney and regulatory adviser to the Independent Community Bankers Association, said the Fed proposal is an attempt to keep pace with technological innovation.
Bankers are generally interested in venturing into electronic avenues but also conservative by nature, and will not step forward to test the boundaries until the Fed resolves regulatory issues, Mr. Rowe said.
He said the ICBA has not responded to the Fed's request for comment yet but that it would likely support the proposal.
"I can't imagine anyone opposing it," Mr. Rowe said. "It gives everyone a certain comfort level, it is optional for banks, and it takes us one step closer to getting away from a paper-bound society."
Nessa Feddis, senior counsel for government relations at the American Bankers Association, said the Washington-based group would respond favorably to the Fed's proposals.
But, she said, "I do not think you will see a great rush" of banks using electronic communications. "It requires banks to run two systems, and there might not be sufficient demand for electronic statements to create a second expensive system."
John Wood, a senior attorney with the Fed, said that even if electronic disclosures are approved, banks would still have to maneuver through a minefield of state laws governing electronic funds transfers and Truth in Savings-type guidelines.
"It would be a question of whether states would amend or interpret their own laws to permit the same kinds of things the Fed allows at the federal level," he said.
At least one bank is already testing the legal boundaries.
Eighteen months ago, Security First Network Bank, the first Internet-only bank, stopped sending account statements in the mail, in response to customer complaints about receiving paper, said Eric Hartz, president. Customers preferred to get their account information -- including images of checks paid -- on-line.
The bank now sends statements only to customers who specifically request it, about 11% of its 27,000 accounts. This saves Security First Network about $1 a month per statement in printing and postage costs, Mr. Hartz said.
Security First, which was acquired by Royal Bank of Canada last year, achieved a special-case exemption from the Office of Thrift Supervision and the Federal Reserve after spending eight months selling the regulators on the idea.
"It took an awful lot of time to get it done because they wanted to make sure that it was all on the up-and-up," Mr. Hartz said.
