Although many banking clients are unaware of it, Reg E is a vital source of safety for anyone with a bank account. Most of the time, you won’t even need to be aware of its existence.
Regulation E applies to any electronic fund transfer in which a financial institution permits a debit or credit from a consumer’s account. This reg E establishes the framework and stages for the dispute resolution process. The Consumer Financial Protection Bureau (CFPB) issued reg E in response to the Electronic Fund Transfer Act. Federal regulations protect bank accounts and the people who use them in a variety of ways. Regulation E is one of them, and if you have a checking or savings account, you should understand how it works and avoid violations.
What Is Regulation E?
Regulation E is a Federal Reserve Board regulation that establishes regulations and procedures for electronic funds transfers (EFTs) and gives guidance for electronic debit card issuers.
The Electronic Fund Transfer Act (Regulation E)
Overview
The Electronic Fund Transfer Act (EFTA) of 1978, 15 U.S.C. 1693 et seq., protects individual customers who use electronic fund transfers (EFTs) and remittance transfers, such as:
- Automated teller machines (ATMs) transfers;
- POS (point-of-sale) terminals;
- ACH (automated clearinghouse) systems;
- Telephone bill-payment schemes that include periodic or recurrent transfers;
- Remote banking applications; and
- Funds Transfers.
Regulation E, which incorporates official interpretations, is used to carry out EFTA. The provisions of Regulation E apply to both state and federal credit unions. In federally insured, state-chartered credit unions, NCUA is not the primary enforcement authority for EFTA (FISCUs). Contact your supervisor if you discover EFTA violations at a FISCU and believe the State Supervisory Authority is not adequately addressing the problem.
The Federal Reserve Board (Board) revised Regulation E in 2009 to prohibit overdraft fees for ATM and one-time debit card transactions unless the consumer opts in or voluntarily consents to overdraft services. The Board also revised Regulation E to limit gift card fees and expiration dates, as well as to require that gift card terms be properly stated.
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The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) shifted EFTA regulation authority from the Federal Reserve Board of Governors to the Consumer Financial Protection Bureau (CFPB). The Dodd-Frank Act also revised EFTA and established a new system of consumer safeguards for remittance transfers made by US customers to persons and corporations in other countries.
Regulation E at 12 CFR Part 1005 was reiterated by the CFPB in December 2011. To enforce the Dodd-Frank Act’s remittance protections, the CFPB added subpart B (Requirements for Remittance Transfers) to Regulation E in February 2012.
Regulation E: An Explanation
The Consumer Financial Protection Bureau (CFPB) adopted Regulation E in accordance with the Electronic Fund Transfer Act. This Act “establishes the fundamental rights, obligations, and responsibilities of customers who utilize electronic funds transfer and remittance transfer services, as well as financial institutions and other people who provide these services.”
Federal Regulation E was created to provide a framework for implementing the Electronic Fund Transfer Act’s requirements. In a nutshell, the Act and the ensuing reg E are intended to protect banking customers who transfer money electronically. It also includes instructions for issuers of electronic debit cards.
Why Should Your Company Be Concerned About Reg E?
According to Wortman, compliance with Regulation E is “a federal regulatory framework providing the rights, duties, and responsibilities of participants in Electronic Funds Transfers (EFTs).”
This means that those who use EFTs are legally compelled to observe the rules.
What happens at Reg E Violations?
Fines – Failure to comply with Regulation E may result in liability for real consumer damages, statutory damages of $100 – $1000, class action damages of $500,000 or 1% of net worth, as well as appropriate attorney’s fees and costs as decided by the court. See, for example, 15 U.S.C. 1693m(a).
There is also a criminal responsibility component of Regulation E for willfully supplying false or erroneous information or failing to comply with Reg E.
According to Wortman, just as your business should comply with Reg E to avoid heavy fines, “there’s also an economic motivation for consumer attorneys to pursue actions alleging Reg E violations.” Many such rulings for suspected violations have occurred in the last year alone.
Wortman recalls a particular case against CashCall that resulted in a “$1.5 million settlement fund, including a startling $601,336.74 designated for plaintiffs’ attorneys’ fees.”
This should be enough to persuade any accounts receivable department that the short-term hassle of establishing compliance is well worth the long-term peace of mind.
What Types of Transactions are Governed by Reg E?
According to the CFPB, electronic fund transfers include the following transactions, which come under Reg E:
- Point-of-sale (POS) transfers
- ATM withdrawals
- Funds withdrawal
- Transactions with debit cards
Electronic fund transfers do not include all debits and withdrawals. Reg E does not apply to the following transactions:
- Checks
- Wire Transfers
Introductory or trial offers, in which you pay a small fee to try a product and are then enrolled in a subscription for that product, are frequent. And these are not covered by Regulation E, according to Kelly Pickle, operations officer at Heritage Bank.
“(People) don’t always read the fine print,” Pickle explains. “And they have to cancel within like 30 days or else they’re engaged in this subscription.” These, according to Pickle, should be disputes with the vendor or merchant.
EFTs Statistics
According to the World Cash Report, 43 percent of Americans prefer to make transactions with their debit cards. In the United States, there are 434,000 ATMs and 13.9 million point-of-sale terminals that accept debit cards.
According to the Federal Reserve Payments Study, card-based debit payments have climbed by 10%, while card-based remote payments have increased by 22%. This demonstrates the importance of knowing your rights as a consumer while using ETFs.
The Reg E submission procedure may differ from one bank to the next.
Some banks may ask you to submit your dispute in writing, even if you already discussed it with a representative over the phone.
First Interstate Bank, for example, has an online form. The form, which is used for debit card and ATM card disputes, requests the following information:
- The sum of the disputed transaction
- Type of product or service
- Transaction’s date of completion
- Date on which the transaction was posted to your account
- Whether you’d misplaced your debit card
Heritage Bank is currently modernizing its digital banking technology, according to Pickle. Customers will be able to dispute a transaction within the app as soon as they see it. However, due to regulation, even technology is experiencing a standstill.
“However, some portions of the rule still require a signature in order for the next phase of that process to take place,” Pickle explains.
Reg E: Error-Dispute Protection
Regulation E provides significant advantages if you have a bank account. It explains your options for disputing ATM or debit card transactions if you believe an electronic funds transfer was done in error.
This includes both intentional and unintentional blunders. Assume you wish to discontinue a TV streaming subscription service, but you discover an additional charge for membership after you cancel. You could request a refund from the streaming provider, and if they refuse, you could dispute the transaction with your bank under Reg E laws.
Reg E allows you to dispute the following categories of mistakes:
- Unauthorized electronic financial transfers (EFTs)
- Incomplete electronic fund transfers to or from your account
- Failure to include an electronic payments transfer on your bank statement
- Your bank’s computational or bookkeeping faults in relation to an electronic money transfer
- Receipt of the wrong amount of money from an ATM or other electronic terminal
- Errors related to preauthorized transactions
- Requests for more information or clarification about an electronic money transfer.
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However, the CFPB’s standards do not apply to all forms of electronic transactions. The following are not included in the list:
- Inquiries concerning account balances on a regular basis
- Information requests for tax or recordkeeping purposes
- Duplicate copies of paperwork, such as bank statements, are requested.
Depending on your bank’s regulations, the procedure for filing a dispute may differ. For example, your bank may allow you to file a dispute online using an electronic form, or you may be required to visit a branch and complete the dispute paperwork in person.
Certain pieces of information may be required when disputing what you think to be an error. For example, you might need to inform your bank:
- When did the disputed transaction or error happen?
- The monetary value of the transaction you wish to dispute
- The nature of the transaction, e.g., paying for services, purchasing items, etc.
- The date of the transaction or error
- When the transaction was recorded in your account
If your Reg E dispute involves a lost or stolen debit card, you must also notify the bank when you first discovered the card was missing. In terms of timing, Reg E provides banks with criteria for resolving disputes.
Banks, in particular, must evaluate claims and decide if a mistake occurred within 10 business days.
Particular Considerations
When reporting problems, consumers should ensure that they are complying with federal requirements in order to ensure that their financial institutions are complying and to avoid liability. Financial organizations should disseminate these requirements internally to ensure that they are not difficult to comply with.
What Language Should Payment Documents Contain to Meet Reg E?
Regulation E establishes the disclosures that must be made during an EFT, as well as what constitutes a disclosure. Disclosures necessary under Regulation E must be explicit and easily intelligible, in writing, and in a form that the customer can keep.
The following are some examples of necessary disclosures:
- A notice outlining the consumer’s responsibility
- A phone number and an address – so that customers can contact you in the event of an unlawful transfer
- The fees associated with a transfer must be disclosed.
- Instructions for ceasing payments
- The institution’s liability and a synopsis of the error remediation method
How long could your Reg E Dispute last?
According to the FDIC, Reg E compels your bank to investigate your dispute within 10 business days of receiving your claim. However, for newly opened bank accounts, this could take up to 20 working days.
For investigations that cannot be completed within 10-20 business days, your bank may need to take up to 45 days. In such cases, your bank must normally offer a provisional credit within 10 days of receiving your dispute.
Monitoring your account can also help you avoid potential liabilities.
If you report a debit card loss or theft within two business days, your responsibility will be limited to the lesser of $50 or the amount of the unlawful withdrawals that happened prior to alerting your bank.
Not providing timely notice, that is, not notifying your bank within two days of discovering your debit card is gone, will increase your possible liability.
Misconceptions
There are various regulatory myths that stand in the way of expediting the reg E dispute resolution process. As a result, it is critical to choose which practices should be implemented and which should be phased out.
FIs violate the rules by assuming that providing provisional credit counts as the initial move-in examining a Reg E claim, which is necessary to prolong the resolution period from 10 to 45 days. This widely held misconception of reg E is legally erroneous, and it has resulted in regulatory fines and penalties for issuers.
Penalties
Noncompliance with this law is punishable by a $1,000 fine per infringement, up to 1% of the FI’s assets.
Reg E Fraud Liability
Another important safeguard provided by Regulation E is your personal accountability for fraudulent or unauthorized transactions if your debit card is lost or stolen. There are precise liability restrictions in the event of a lost or stolen debit card, which are dependent on when you notify your bank.
The following fraud liability limits apply under Regulation E:
If a Lost or Stolen Card Is Reported | Your Maximum Liability Is |
| Before any unauthorized charges are made | $0 |
| Within two business days after learning your card has been lost or stolen | $50 |
| More than two business days after learning about the loss or theft, but less than 60 calendar days after your statement is sent to you | $500 |
| More than 60 calendar days after your statement is sent to you | All the money taken from your ATM/debit card account, as well as money taken through unauthorized transactions from other accounts linked to your debit card account |
In other words, the longer you wait to report a lost or stolen debit card, the greater your culpability for any unauthorized payments becomes. These time constraints can be extended under Regulation E, but only if you can demonstrate exceptional circumstances that prevented you from reporting the loss or theft of your debit card sooner.
How to Safeguard Your Bank Accounts
Bank accounts can be a convenient and secure method to manage your money, save for the future, and pay expenses. While Reg E and other consumer banking regulations protect you, there are some things you can do to protect yourself more actively.
If you’d rather avoid having to exercise your rights under Reg E, keep the following recommendations in mind:
#1. Avoid excessively disclosing your account details.
Never give out your debit card, bank account number, or PIN to someone you don’t know. If someone asks for your debit card over the phone or by email, don’t give it to them without first verifying the request.
#2. Make use of banking alerts.
Whether you have one or numerous bank accounts, it is critical that you know your account numbers. Keeping this information in a secure area, such as a safe or a password-protected computer file, can help keep identity thieves at bay. And, if you need to submit a Reg E dispute, you’ll have it at your fingertips.
Setting up bank alerts and notifications might assist you in keeping an eye on your accounts for possible suspicious behavior. You could, for example, set up a transaction alert to warn you whenever money is credited to or debited from your account. You can then use your online banking account to view the transaction information.
#3. Examine your statements.
Check your monthly statements for any unexpected or suspicious charges. If you notice anything that appears to be wrong or fraudulent, inform your bank immediately to limit your culpability for any damages.
#4. Think about using a mobile wallet app.
Connecting your debit card to a secure mobile wallet app may provide further protection against identity theft and fraud. Mobile wallet apps protect your bank account information by generating a one-of-a-kind identifying token for each transaction. This token is only valid for one transaction, thus it cannot be reproduced to make additional debit card charges.
Your bank may be able to offer you some additional features or tools to help you protect your accounts. You might be able to set up two-factor authentication for online or mobile banking, for example. This might make money management even safer.
Why the sudden interest in Reg E?
Regulation E has witnessed a resurgence in prominence as a result of the establishment of the Consumer Financial Protection Bureau and the recent trend toward more consumer protection. The evolving payment technologies have also had an impact on Regulation E’s applicability.
There has been a significant trend in recent years for service providers to process payments online. This increases the danger of regulatory scrutiny and private lawsuits. Companies should consider cooperating with vendors who have solid processes in place to ensure Reg E compliance.
Have there been any specific cases involving Regulation E?
Regulation E compliance has been the subject of private lawsuit claims, putative class actions, and regulatory proceedings. Furthermore, Wortman warns that consumer attorneys may be financially motivated to pursue Reg E violations. He notably recalls a case against Cashcall last year that resulted in a total of $601,336.74 in plaintiffs’ attorney’s fees.
With these sanctions in place, it’s reasonable to say that every responsible organization should be concerned about adhering to payment requirements.
The Act on Electronic Signatures in Global and National Commerce
Because consumer authorization is required for electronic transfers, it can be obtained through signature or other means authenticated by the consumer, such as the electronic signature. The Electronic Signatures in Global and National Commerce Act, enacted in 2000, is a federal statute. It recognized the validity of electronic signatures and electronic records used in interstate commerce. This law was enacted to ensure that contracts conducted online are recognized as legally binding.
Each state has its own set of regulations governing electronic signatures and records. However, the federal legislation is the only one that addresses e-commerce expressly.
This permission can be in paper form or an electronic signature, but the format must be recognized as the customer and offer proof of the consumer’s consent to authorize in order to comply with Regulation e
Consumer Safeguards
The Consumer Financial Protection Bureau is in charge of implementing consumer protection laws in order to protect consumers. The Consumer Financial Protection Bureau enforces Regulation E in its capacity.
There are various things you must do under Reg E when there are unlawful transactions on your account as a result of identity theft or a lost or stolen debit card. You have 60 days to notify your bank or financial institution about the unlawful transaction. The time period begins when the first statement detailing the transaction is issued. As a result, it is critical that you thoroughly study your monthly statements when you receive them.
If your ATM or debit card is stolen or lost, you must notify your bank immediately. So, if you make the report within two days, the EFTA limits your responsibility to $50. If you do not report within 60 days, you may be liable for up to $500 in losses.
Once you’ve reported your card as lost or stolen and an unauthorized transaction, your bank institution is required to investigate your claim. It must begin within 10 business days after receiving your notification and may take up to 45 days to finish. If the bank discovers that the transaction was improper at the end of the investigation, it must return the disputed funds to you.
Within three days after the investigation’s conclusion, your bank must inform you of its findings. If it rules in your favor, the company will have one business day to correct the problem.
Remedies
If your bank or financial institution does not credit money back to you or fix an error for an unauthorized EFT, you may launch a lawsuit against it with the Consumer Financial Protection Bureau. You may be able to recover damages in court if you file a case.
You may also be entitled to damages if the institution fails to block an electronic money transfer after you reported your card as lost or stolen and requested that your account be frozen. The money you lost in the illicit electronic fund’s transfer is one of the damages that you may be entitled to recover. You may also be eligible to seek punitive damages in the range of $100 to $1,000, as well as court and attorney’s fees.
Reg E vs Reg Z
Reg Z disputes encompass any credit or lending disputes. Unlike Regulation E, Regulation Z does not compel financial institutions to offer provisional credit after being asked to investigate fraud for 10 days. However, where Reg Z is in issue, financial institutions are required to halt charging interest on disputed amounts owed by account holders.
Can I be held responsible for unauthorized transactions if I lose my ATM card or my debit card is stolen?
It depends on the circumstances. Under Reg E, if you report the loss or theft of your card within two business days of discovering it, you will only be liable for up to $50 of any unauthorized transactions. If you report it after two business days, your liability could be higher.
What happens if I dispute a transaction on my account?
If you dispute a transaction on your account, your financial institution will conduct an investigation and make a determination about the transaction. During this time, the institution may make provisional credit available to you.
How long does it take for a financial institution to resolve a dispute?
Under Reg E, a financial institution must resolve a dispute within 45 days of receiving your dispute. If the institution is unable to resolve the dispute within this time frame, it must provide you with a written explanation of why it is unable to do so.
What happens if my financial institution makes a mistake on my account?
If your financial institution makes a mistake on your account, it is required under Reg E to correct the error as soon as possible. The institution will also provide you with a written explanation of the error and any steps you need to take to resolve it.
Can a financial institution charge me a fee for an overdraft caused by an EFT?
Under Reg E, a financial institution can only charge you an overdraft fee if you have opted in to overdraft coverage for ATM and one-time debit card transactions. If you have not opted in, the institution must decline the transaction instead of charging you a fee.
What is the difference between a point-of-sale (POS) transaction and an ATM transaction?
A point-of-sale (POS) transaction is a transaction that takes place at a merchant, such as a store or restaurant, using a debit card. An ATM transaction is a transaction that takes place at an ATM machine.
Summary
Consider Reg E to be applicable to financial transactions involving money that customers actually held. When transactions include borrowed monies, reg E does not apply.
In order for issuers to stay compliant, investigations must be conducted within the first 10 days of a Reg E dispute.
Reg E FAQs
What is not covered by Reg E?
Regular credit card payments, prepaid phone cards, gift cards, and stored-value cards are not covered by the statute. Reg E requires that you have access to your account statements, transfers, and online bill payment information via the internet.
Who does Regulation E apply to?
Regulation E applies to all persons, including offices of foreign financial institutions in the United States, who provide EFT services to residents of any state, and it applies to any account located in the United States through which EFTs are provided to a resident of any state, regardless of where the transfer occurs.
Does Reg E cover business debit cards?
Reg E applies to debit cards used for consumer purchases. It excludes commercial debit cards.
What are the most frequent Reg E violations?
The following were the most prevalent concerns discovered by FDIC examiners: Debit Card Holds and Transaction Processing is two types of overdraft programs. Violations of Section 8 of the Real Estate Settlement Procedures Act (RESPA).
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