Regulation E is one of the most consumer friendly regulations outlining the rights and responsibilities of both the consumer and financial institutions. It most well-known for the variety of protections it provides to consumers related to error resolution. This regulation applies to electronic funds transfers and remittance transfers and it’s critical that banks understand the requirements and liabilities as outlined in the regulation.
Regulation E has been around since 1978, but has become an increasingly more prevalent area of compliance over the past decade or so as automated teller machines (ATM), point of sale (POS), electronic fund transfers (EFT), and automate clearing house (ACH) transactions have become the norm among consumers for conducting financial transactions. While there haven’t been many changes since its implementation, financial institutions shouldn’t become too comfortable and still brush up on the compliance expectations every now and again. Since there is has been such an influx in electronic transactions in recent years, this in turn means an influx in the number of error complaints. Be ready for the intensified scrutiny you may face from regulators as they review and examine your financial institutions error-resolution processing and overall regulatory compliance.
With the holidays just around the corner, and a likelihood of increased error claims, let’s cover a simple breakdown of what should be included in your bank’s error-resolution process. First, your bank should be familiar with Section 1005.11 of Regulation E which defines an error and provides specific procedures which must be followed. It is critical to understand what is defined as an error so that the bank can adequately respond. Keep in mind that consumer negligence doesn’t necessarily alleviate the bank from a certain level of responsibility. For example, a customer who writes their pin number on the back of the debit card are still afforded the protections of Regulation E. While writing a pin number on the bank of a debit card is negligent to some degree, it still meets the definition of an error if the card were used without the customer’s consent. Therefore, the bank would have to follow the requirements of Regulation E in this situation just as they would if the pin number were not included on the back of the debit card and unauthorized transactions were conducted. Next, the bank should have procedures in place which cover the process from start to finish, from receiving the error claim to resolving the claim. One thing to note here is that the bank can require an error to be reported in writing, however, the bank must still begin their investigation of an error on the day the error is received, even if the first claim is made verbally. Ensure that the bank follows the proper error investigation time limits, including any extensions. Keep in mind that the regulation is very specific regarding the timeframes in which the bank must receive, investigate, and resolve an error. Examiners will expect to see this process documented in your procedures and followed in practice. So again, with the holidays quickly approaching, review your bank’s Regulation E – Error Resolutions to ensure they are up to date, accurate, and properly implemented. Don’t let the bank get caught up in an unwanted holiday surprise.
Reference: Comment for 1005.11 Procedures for Resolving Errors | Consumer Financial Protection Bureau (consumerfinance.gov)