|July 7, 1998
Dear Sir or Madam:
The Independent Bankers Association of America (IBAA) is pleased to offer comments on the Federal Trade Commission's (FTC) request for comment on the guidance it should offer with respect to communications made electronically, as announced in the Federal Register of Wednesday, May 6. The IBAA is the primary voice for the nation's community banks, representing 5,500 institutions at more than 16,000 locations nationwide. Community banks are independently owned and operated banks characterized by attention to customer service, lower fees and a focus on small business, agricultural and consumer lending. IBAA's members hold nearly $375 billion in insured deposits, $445 billion in assets and more than $240 billion in loans for consumers, small businesses and farms in the communities they serve.
The FTC is seeking comment on the type of guidance it should offer on the applicability of its existing rules and guides to new forms of electronic media, such as e-mail, CD-ROMs and the Internet. While banks are technically exempt from FTC rules, the federal banking agencies and the FTC work closely together, and any steps the FTC takes could have an impact on bank use of these media. The FTC is considering issuing a policy statement to reduce any uncertainty on whether its current rules apply to electronic media, with the belief that such a step will encourage self-regulation. The FTC wants to encourage the use of new forms of communication, but it is also concerned about consumer protection. According to the Commission, "the proposed policy statement would not create any new rights, duties, obligations, or defenses, but instead would clarify the rights, duties, obligations, or defenses that currently exist pursuant to the [existing FTC] rules and guides."
The purpose of the proposed policy statement would be to eliminate or reduce any uncertainty as to whether the Commission's rules and guides apply to electronic media. For example, the proposed policy statement would clarify that a "writing" refers to "information that is capable of being preserved in a tangible form and read." The proposed policy statement would also specify that rules on direct mail would apply to e-mail addressed to a particular individual, while rules on advertising would apply to general announcements posted on the Internet. Furthermore, requirements on affirmative disclosures would not be met if the recipient did not have any way to receive the information.
The IBAA believes it will be helpful if the FTC issues guidance on how other FTC rules apply to electronic media. While any rule entails costs, in that there must be training and other steps taken to ensure compliance, it is not likely that the kind of guidance the FTC is proposing (a policy statement outlining how current rules apply to electronic media) will entail substantial costs. However, it is important that any guidelines be kept simple at the outset, since these technologies are still evolving. Since any regulation entails cost, overly stringent guidelines or regulations could stifle the development of certain technologies, depriving both business and consumers of potentially cost-effective delivery mechanisms.
Definitions. Current FTC rules require that certain communications be in a "written" format. Under the proposal, the FTC would define "written" to include any information that is capable of being preserved in a tangible form and read, which would include electronic forms of communication as an alternative. While IBAA believes this provides adequate guidance, we urge the FTC to coordinate their definition with that used by other agencies, since the more variations that exist, the more confusion is likely. Consistency and continuity between government agencies is extremely useful, for both businesses and consumers.
The Federal Reserve Board ("Board") recently issued a proposal to allow electronic communication for disclosures and other correspondence between banks and their customers. In an interim rule under Regulation E (Electronic Fund Transfers), the Board defined electronic communication as follows: "For purposes of this regulation, the term electronic communication means a message transmitted electronically between a consumer and a financial institution in a format that allows visual text to be displayed on equipment such as a personal computer monitor." While the Federal Reserve definition of electronic communication is broader that what the FTC is proposing (the Federal Reserve only requires a visual format and does not include preservation in a tangible form for the communication), the Board also added a second requirement for those disclosures that must be in a format the customer can retain. The retention requirement is met if the communication can be printed or downloaded by the consumer. Thus, the Federal Reserve is taking a two-part approach to electronic communication, distinguishing general communications which may not necessarily be in a format that can be retained, and other communications which must be in a format that can be retained. This two-step approach provides a greater flexibility, while still meeting many of the concerns raised by the FTC.
Direct Mail. Many FTC regulations refer to special requirements for direct mail to consumers, distinguishing between direct mail and advertisements, with direct mail being directed to a specific individual and advertisements being directed to the general public. The FTC proposes to include e-mail addressed to a specific individual as direct mail, subject to all the other rules and regulations that apply to direct mail. The IBAA believes this is appropriate and logical. In both traditional and electronic mail, the concern is the content of the communication with the addressee. If a specific individual is targeted, and his or her name and address are part of the communication, then it is only logical that it be considered direct mail, whether the delivery mechanism is through traditional format or through electronic mechanisms.
It is less clear, however, whether items posted on a bulletin board, even though addressed to a specific individual, should be considered direct mail. An item posted on an Internet bulletin board is not subject to the same delivery system as e-mail addressed to an individual. The e-mail will presumably be delivered, just as an item placed for delivery with the postal service will presumably be delivered to the individual addressed. However, merely posting an item on a bulletin board does not guarantee its delivery.(1) At this time, as the technology and electronic systems are still evolving, the IBAA recommends that merely posting an item on an electronic bulletin board not be considered direct mail.(2)
Web page or banner advertisements targeted to certain consumers. The IBAA does not believe that targeted advertising should be characterized as direct mail. Rather, these forms of communication are more analogous to regular advertising. Companies often use various marketing techniques to direct their advertising to certain groups, and using the same techniques through the sophistication of electronics does not ultimately alter how these messages are categorized. The important element here is that the message is not directed for delivery to a specific individual. Like most advertising, which is not directed to a specific individual, these items should not be considered as direct mail. Restrictions and required disclosures on advertising should provide sufficient protection for consumers.
Push Technology and Consumer-Selected Channels. Using the same reasoning, the IBAA does not believe that these other delivery mechanisms should be considered direct mail. The focus should be on the addressee or audience, not the delivery system. If a particular individual is addressed, then the message can be categorized as direct mail. However, if the item is directed to a general audience, then it should be considered advertising. While modern technology sometimes makes this distinction difficult to make, focusing on the addressee and not the delivery mechanism should be the basis for the distinction between direct mail and advertising.
When Information Should be Supplied in Writing. There are certain times when it is appropriate to require that information supplied to a consumer be in writing. For example, disclosures that provide the details of an account agreement or terms and conditions of a transaction should be in a format that the consumer can retain. However, it is also important to encourage the use of developing technologies. Therefore, the IBAA recommends that the FTC take an approach similar to that being considered by the Federal Reserve. As long as the information is in a form that the consumer can download or print, that should be sufficient. This allows the communication to take place electronically, but it also ensures that the information can be retained by the consumer.
Consideration of the Consumer's Access to Technology. The ability of a consumer to receive information electronically is perhaps one of the more complex issues in electronic communications. If a general advertisement is offered to the public, and it is transmitted electronically, then it should not matter whether a specific consumer has access to that advertisement.
It is a different matter, though, if specific information is being directed to a particular individual. The Federal Reserve is considering the approach that electronic communication for specific transactions is acceptable as long as the customer and the financial institution agree, and it would be worthwhile for the FTC to coordinate their efforts with the Federal Reserve.
Some have suggested that the sender confirm with consumers that they have the appropriate equipment to accept electronic communications. However, while it is appropriate to ensure that customers understand and acknowledge that they agree to accept electronic communications as a substitute for paper ones, requiring the sender to ensure that customers have the proper hardware and software in place would add an additional burden that might discourage movement into these new technologies. The owner of the equipment should be responsible for ensuring that the equipment is compatible and properly operating to send and receive electronic communications.(3)
While it is appropriate to offer guidelines in how existing rules and regulations apply to some of the new forms of electronic communication, it is important to recognize that these are developing technologies. As such, it is extremely important that the technologies be allowed the flexibility to develop as the market dictates. Regulation could have the unintended consequence of discourage certain technologies or driving the market into specific technologies. Guidelines which allow flexibility but which explain how current rules and regulations apply to these new technologies will provide helpful guidance to both businesses and consumers without unduly restricting their development.
The IBAA believes that FTC guidance will be useful to both businesses and consumers in understanding how current FTC rules and regulations come into play with these new technologies. We strongly urge the FTC to coordinate these and other efforts with the Federal Reserve Board to promote uniformity and continuity between different government agencies.
Thank you for the opportunity to comment.
William L. McQuillan
1. This is one of the issues that the Federal Reserve raised concerns about in its consideration of electronic communication, since merely posting an item does not guarantee receipt. The Federal Reserve has indicated that more is necessary for there to be effective communication.
2. This would be consistent with the Federal Reserve approach that merely posting an item is not considered effective delivery. The FTC can continue to monitor the use of electronic bulletin boards and reconsider this in the future if warranted.
3. This is so especially since many consumers upgrade and replace their personal computers and ancillary equipment frequently, since what was state of the art in home computing twelve months ago is nearly obsolete today.