The pandemic has pushed more and more people toward using Peer-to-Peer Transfers (P2P) services, like Cash App, Paypal, and Zelle. These apps allow users to link their deposit account to the app and use the app to transfer funds to others. Scammers have increasingly been enticing people to use these apps to transfer funds to them, which has led more customers to report these transactions to their bank as an error under Reg. E. Our Hotline staff answers many questions about the bank’s role in investigating and correcting potential errors involving these P2P services. As these apps have been growing in popularity in recent years, it is important the bank understands its regulatory responsibility when it comes to errors involving these apps.
Regulation E generally governs electronic funds transfers (EFTs) and the dispute resolution process when a customer disputes an EFT with the bank. For our purposes though, Reg. E provides a handy provision in § 1005.14(a) that may shift the responsibility for error resolution from the bank to the P2P service provider:
“A person that provides an electronic fund transfer service to a consumer but that does not hold the consumer’s account is subject to all requirements of this part if the person:
(1) Issues a debit card (or other access device) that the consumer can use to access the consumer’s account held by a financial institution; and (2) Has no agreement with the account-holding institution regarding such access.”
The first prong of our analysis is whether the P2P issues an access device. This prong is easy to satisfy in our situation since the P2P app itself is an access device since it can be used to initiate EFTs. If your customer can link their deposit account to one of these apps and then use the app to transfer funds, this section may apply.
Second, we look to whether there the bank and the P2P service provider have contracted with one another. For most apps, there is no contract present. However, you’d need to confirm before using this section of Reg. E to deny your customer’s dispute claim. If you have an agreement with the P2P service provider, then the Reg. E general requirements will apply to the bank and you will also need to review the contractual provisions regarding disputes. If you don’t have an agreement with the P2P service provider, they may be responsible for error resolution involving the EFTs they facilitate under Reg. E.
You may want to review your Reg. E procedures to make sure your staff is asking the appropriate questions when a customer disputes a transaction. Gathering the appropriate information may tell you whether the above provision can help. You can find a great refresher of your Reg. E responsibilities here, a tool to calculate your liability and the appropriate timing here, and tools to help you communicate with customers about Reg. E in our Reg. E toolkit. If you have any questions about this, Compliance Alliance is here for you.