Regulation E Understandings

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.

CFPB Guide

Disclosures & Notices

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.

• Electronic Fund Transfer (EFT) transactions 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 a check to a 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 a bank’s account (loan payment)
• Transfers between familial customers using the same bank
• Wire transfers (note – some foreign wire transfers are covered)
• Sales of securities or commodities (stocks and assets)
• Activity that is initiated by a phone call between a customer and a 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. 

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, and incorrect amounts 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, or 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.
Customers can provide either written or oral notice. If a customer provides oral notice, the bank may require the customer to provide written confirmation of the error within 10 business days after oral notice, provided that the bank disclosed this requirement in its Regulation E account opening disclosures.

The bank's Notice of Error needs to include:

• Customer’s name and account number
• Explanation of the perceived error
• Transaction info: date, amount, merchant

Although there are seven types of errors that are covered by Regulation E, only three trigger a claim:

1. Unauthorized electronic funds transfer (EFT)
2. Incorrect electronic funds transfer (EFT)
3. Incorrect amount of money received from an electronic terminal (ATM)

No Error Occurred Resolution

If the investigation concludes that no error occurred, the bank must provide the customer with 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 for repayment if debiting the provisional credit would result in an overdraft.
   1. Notify the customer that the bank will honor checks (or similar instruments payable to third parties) and pre-authorized transfers from the customer’s account—without charging overdraft fees—for 5 business days after the notification, provided that the items honored would have been paid if the bank had not debited the provisionally credited funds
2. The bank does not immediately debit the account and instead, advises the customer that their account will be debited in 5 business days.
   1. Because the customer is given advance notice, there is no requirement to honor checks and refrain from charging overdraft fees once the provisional credit has been removed
   2. If the customer reasserts the error and the bank completed the initial investigation in compliance with the regulation, the bank has no further responsibilities to the customer

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 10 business days if an investigation cannot be completed within that time. 

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. 

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 businesses abroad.

Consumer negligence
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.

Documentation requirements
Situations may exist where a customer provides written notice within 10 business days, but the bank needs additional documentation in support of an unauthorized electronic transfer, such as affidavits of forgery, notarized statements, police reports, etc. The bank may request, but may not require such documentation, and the bank cannot delay the investigation based on nonreceipt or the customer's reluctance or refusal to provide additional documentation and must still provide the provisional credit if the investigation period extends beyond 10 business days.
Regulation E also does not allow a bank to require a customer to visit a branch to sign notarized documents, even if the bank does not charge for notary services.
Requiring a customer to provide documents other than the written confirmation of error or requiring that documents be notarized is thought to be burdensome and unreasonable for customers and unlikely to provide any real assistance to the bank's investigation and resolution process.

Timeframes

Completing the Investigation

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 provisional credit if the investigation exceeds 10 business days.

10 Days After Notice
Unless a bank is permitted a longer time period to investigate an error, the bank has 10 business days after receiving notice from the customer to investigate if an error occurred. However, if the alleged error involves an electronic fund transfer to or from the account within 30 days after the first deposit into the account, the investigation period is extended to 20 business days instead of 10.

45 Days After Notice

If the bank is unable to complete its investigation within 10 business days, it may extend the period to 45 calendar days from receipt of the notice, provided that the institution takes all of the following actions:

• Provisionally credits the customer’s account for the full amount of the alleged error plus interest, if any
• Informs the customer of the amount and date of the provisional crediting within 2 business days of the crediting
• Allows the customer full use of the provisional funds during the investigation

If the error involved an electronic fund transfer that was not initiated within a state, resulted from a point-of-sale debit card transaction, or occurred within 30 calendar days after the first deposit into the account, the bank can take up to 90 calendar days, provided that the conditions discussed above for extending the time period to 45 calendar days for other transactions are satisfied.

Best Practices

Failure to Initiate Investigation
The failure to start an investigation has been “repeatedly identified” by examiners. Practices cannot discourage consumers from notifying you of an error. Banks must begin an investigation promptly, even after an oral notice. 
Banks cannot require anything additional, such as a written dispute, notarized documents, affidavits, police reports, or in-person visits, or require the consumer to contact the merchant.

Charging Fees
While there were no instances noted of directly charging consumers for error resolution, it was noted that some charges may indirectly violate this prohibition, such as charges for general customer contact. For example, if there is a charge for telephone contact, as is sometimes found on certain prepaid card programs, that charge should not apply if a customer is calling to report an error.

Provisional Credit
It's imperative that banks provide the provisional credit in a timely manner and include interest, where applicable. 

Denying Claims for an Invalid Reason
Claims cannot be denied for reasons that do not directly resolve or refute the customer's claims. For example, a claim cannot be denied for not obtaining the information needed for a chargeback.

Denying Claims Without Adequate Investigation
Claims cannot be denied for failing to provide additional information (beyond what is allowed under Regulation E). Banks need to take care to review all relevant information you have. Review this example from the USAA consent order. In that case, the bank would deny a claim because a customer previously authorized transactions with the same merchant. 

Issues When Denying Claims
One area that sees violations are related to providing notice. Specifically, instances where the notice:

• Is not timely
• Is not in writing
• Does not state that the customer has a right to request the documents relied on (Banks must also be prepared to actually provide the consumer copies of the documents that were used in your investigation, in an understandable form); and/or,
• Does not include required language for reversing provisional credit (i.e. that the bank will honor checks, drafts, and similar instruments as well as preauthorized transfers for five business days, as applicable)

Issuing When Honoring Claims
There have been issues with both the timing of notices and crediting when a claim is honored. Another shortcoming with crediting is not including interest or refunding fees. Issues with the timing of notices have been seen regardless of whether a claim is honored or denied. Banks need to have some type of log or other documentation to spell out when certain milestones during the error resolution process are reached, including when the investigation is complete.