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Fed Tackles Payroll Card Accounts And More During Spring

Saturday, July 1, 2006

The Fed's Board of Governors released the following guidance and advisories in recent months. For more information, see Supervisory and Regulatory Guidance at or call your contact in Banking Supervision.

Payroll Card Accounts Covered Under Reg E

A rule effective July 1 provides that payroll card accounts are covered by the Board's Regulation E, electronic fund transfers. Payroll card accounts are established by an employer for an employee to which transfers of wages or other compensation are made on a recurring basis. Banks may provide regular periodic paper statements or make available information, including fees for electronic funds transfers, through alternatives granted in Regulation E.

Borrower Loan Deferred Repayment Proposed

The federal financial regulatory agencies have proposed guidance on nontraditional mortgage products. The guidance focuses on effective risk management of loans that lets borrowers defer repayment of principal and, sometimes, interest. These products include "interest-only" mortgages and "payment option" adjustable-rate mortgages.

The guidance relates to appropriate borrower repayment analysis, the potential for collateral-dependent loans, below-market introductory interest rates and lending to sub-prime borrowers. Finally, the guidance concerns consumer protection issues raised because borrowers may not fully understand the terms of these products.

The guidance should be finalized by this summer.

Limit Placed on External Auditor Liability

The federal financial regulatory agencies have issued a final advisory addressing concerns caused when financial institutions agree to limit their external auditors' liability. Generally, banks should not indemnify external auditors against third-party claims. Nor should an institution release the auditors from potential claims the institution might assert.

Finally, institutions should not limit remedies available against external auditors.