Overview
The Electronic Funds Transfer Act (EFTA) and its partner law Regulation E came about to protect people who use electronic banking services, including ATMs.
Consequences of not following Reg E and how QFD helps keep compliant
How does Reg E apply to disputes?
Disclosures & Notices
| Document | Summary |
|---|---|
| Initial Disclosures | This document is provided when a customer opens an account or before the first electronic transfer on the account, summarizes customer liability for unauthorized transfers, fund transfer services offered by the bank, and related fees |
| Change-in-terms Notices | banks must provide a notice to customers advising of adverse changes they intend on making (fees increases) at least 21 days before the changes are in effect |
| Electronic Transfer Receipt | For electronic transfers, banks must make available a receipt that confirms the customer’s account, description of transfer/purchase, amount, date, and location of the electronic terminal. |
| Periodic Statements | monthly if electronic transfer occurred, quarterly if no electronic transfer occurred |
| Error Resolution Notice | bank must regularly send error resolution procedures to customers, such as an annual notice or along with periodic statements |
| Provisional Credit Letter | The customer must be notified within two business days if a provisional credit is granted. |
| Investigation Conclusion | Upon concluding the investigation, the bank must notify the customer within three business days. Denials must always be provided in writing. |
Covered Transactions
Covered transactions occur on consumer accounts established for personal, family, or household purposes (not business accounts). Although there are no Regulation E protections on business accounts, business account claims may have some fraud protection provided by the card association.
- Definition: Electronic Fund Transfer (EFT) – transaction initiated through an electronic terminal (POS), telephone, computer, or magnetic tape that instructs a bank to credit/debit an account
- POS transfers
- ATM transfers
- Direct deposits
- Automated withdrawals
- Telephone, fax, computer-initiated transfers
- Online purchases
- Personal checks used as a source of info to initiate a one-time transfer (ex: give check to landlord to set up automatic payments)
Transactions that are not Covered
- Transfers within the same bank
- Transfers between two accounts (moving money into your savings account from your checking account)
- Bank crediting the account (refunding fees, interest earned)
- Transfers from a consumer account into bank’s account (loan payment)
- Transfers between familial customers using the same bank
- Wire transfers (note – some foreign wire transfers are covered)
Definition – electronically moving funds between banks, using a transfer network - Sales of securities or commodities (stocks and assets)
- Activity that is initiated by a phone call between a customer and bank employee
- Trusts and HSA
Unauthorized Transactions
An unauthorized transaction is a transaction that is not authorized and that the consumer does not benefit from. In fraud cases, the customer can be held liable for up to $500 if they waited more than two business days to report fraud, from the date they learned their card was lost or stolen. The dollar amount the customer could be held liable to varies based on the timing of the unauthorized transactions, however, the bank must be able to clearly show when the customer was actually aware of the theft in order to establish customer liability. Since it's difficult to prove when the customer learned of the theft, this rule is seldom applied.
| Scenario | Consumer Liability |
|---|---|
| Consumer notified the bank of the lost/stolen device within two business days of learning of the missing device, thus no charges occurred Transactions that didn’t use a card/access device have no liability made within the 60-day period (recurring transactions) | No Consumer Liability |
| Consumer notified the bank of the lost/stolen device within two business days of learning of the missing device, however, charges occurred | $50 Consumer Liability |
| Consumer did not notify the bank of the lost/stolen device within two business days of learning of the missing device, charges occurred Consumer is liable for $50 during the first 2 business days and any loss that happened after the 2 business days up to when they advised the bank of the loss | $500 Consumer Liability |
Consumer did not report unauthorized activity within 60 days after the periodic statement would have been available | Unlimited Consumer Liability |
Preauthorized Transactions
Preauthorized transactions are transfers that are authorized by the customer in advance to occur at regular intervals. The preauthorization agreement must be provided at the time of enrollment and confirm that the customer gives authorization in writing and a copy must be provided or made available to the customer.
Errors
Errors include unauthorized or incorrect electronic fund transfers into or out of the account, bookkeeping or technical error made by the issuer or acquirer, incorrect amount of money received from an ATM
Errors do not include general account inquiries like asking for the balance or when their next statement will be out, requesting duplicate copies of statements, receipts, or other alike documents, requesting a receipt for an ATM transaction for less than $15
Error resolution protocol must be followed when the notice of error is received no later than 60 days after the statement in which the error was posted on is available
Notice of error needs to include:
- Customer’s name and account number
- Explanation of the perceived error
- Transaction info: date, amount, merchant
Notice of error can be orally or written.
Errors: Although there are seven types of errors that are covered by Regulation E, only three trigger a claim:
- Unauthorized electronic funds transfer (EFT)
- Incorrect electronic funds transfer (EFT)
- Incorrect amount of money received from an electronic terminal (ATM)
Provisional Credit
Provisional credit is a temporary credit applied to the customer’s account while the claim is investigated. A provisional credit must be granted within ten business days if an investigation cannot be completed within that time, provided the customer has returned written confirmation or submitted the dispute online.
If a dispute is submitted on a new account (the disputed transaction falls within the first 30 days of the account's first deposit), the provisional credit timeframe is increased to twenty business days.
Banks have 10 business days to complete the investigation. If the investigation cannot be completed within that timeframe, the bank must provide a provisional credit.
The 10-business day timeframe can be extended to 20 business days if the error occurred within 30 days after the first deposit into the account. This allows more time to issue the provisional credit or complete the investigation.
Investigation timeframe: For card-based disputes, the timeframe to complete the investigation depends on several factors:
- New accounts - 90 days
- International transactions - 90 days
- POS debit transactions - 90 days
- Domestic ATM transactions - 45 days
The investigation can be extended to 45 calendar days from the error notice receive date if the bank:
- Provided a provisional credit and any interest charges
- Advises the customer of the provisional credit (date and amount) within 2 business days of crediting the account
- Allows the customer to use the provisional credit funds during the investigation
The investigation can be extended to 90 calendar days from the error notice receive date if the disputed transaction:
- Wasn’t initiated within a state
- Resulted from a point-of-sale debit card transaction
- Occurred within 30 calendar days after the first deposit into the account
Fraud cases: The bank cannot require nor delay the investigation for police reports or documentation confirming forgery. The bank must provide the provisional credit if the investigation goes beyond 10 days.
Investigation results: No error
If the investigation concludes that no error occurred, the bank must provide the customer the results of the investigation including a written explanation of the findings and a disclosure advising of the customer’s right to request copies of the documents used in the investigation.
The bank must also debit the customer’s account to retrieve the provisional credit.
1.The bank immediately debits the account and notifies the customer (date and amount). The bank may also include instructions of repayment if debiting the provisional credit would result in an overdraft.
2.The bank does not immediately debit the account and instead, advises the customer that their account will be debited in 5 business day.
Other Reg E protections
Overdraft protection – Reg E prohibits banks from charging ATM or transaction fees that overdraw the account.
Remittance rule – Reg E puts in place disclosures, error resolution, and refund rights to customers who use remittance transfers to people or business abroad.
Consumer negligence cannot be used as a basis for customer liability. For example, liability for an unauthorized transaction cannot be determined solely by the customer writing their PIN on their debit card.