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Error Resolutions Under Regulation E

By Jon Tavares, JD, LLM, CRCM, NCCO 6 Dec 2017

A few weeks ago, I wrote an article about the two different 60-day rules in Reg. E and brushed over the error resolution procedures. A lot of you were interested in a deeper discussion of the error resolution procedures and I am not one to ignore the needs and desires of my fans.

 

Before we begin any discussion of the Reg. E error resolution procedures, we must first look at what is an error and what is not an error. An error includes:  

  • an unauthorized electronic fund transfer (EFT);
  • an incorrect EFT to or from the consumer's account;
  • the omission of an EFT from a periodic statement;
  • a computational or bookkeeping error made by the institution relating to an EFT;
  • the consumer's receipt of an incorrect amount of money from an ATM or other electronic terminal;
  • an EFT not properly identified on a receipt, periodic statement, or notice of preauthorized transfer; or the consumer's request for documentation or for additional information or clarification concerning an EFT, including a request the consumer makes to determine whether an error exists.

A routine inquiry about the consumer's account balance, a request for information for tax or other recordkeeping purposes, or a request for duplicate copies of documentation is not an error.  

 

Unauthorized EFTs 

The most common error you are going to face is an unauthorized EFT. So, let's take a closer look at what is and is not an unauthorized EFT. An unauthorized EFT is an EFT from a consumer's account initiated by a person other than the consumer without actual authority to initiate the transfer and from which the consumer receives no benefit. But, an unauthorized EFT does not include an EFT initiated: (i) by a person who was furnished the access device to the consumer's account by the consumer, unless the consumer has notified the institution that transfers by that person are no longer authorized; (ii) with fraudulent intent by the consumer or any person acting in concert with the consumer; or (ii) by the financial institution or its employee. When a consumer gives an access device to another person, transactions by that person (even those in excess of the authority granted) are not unauthorized EFTs unless the consumer has informed the institution that the person is no longer authorized to make transactions on the account. For example, I want to buy the latest Stellar Battles comic book, but I am slaving away over a hot keyboard writing articles, so I ask the Fetching Mrs. Tavares to go down to the comic book store for me and buy the comic book with my debit card. While there, a first edition Wonderful Woman comic catches her eye and she buys it for only $500. While I only gave her permission to buy a $5 comic book, the $505 transaction is not an unauthorized EFT. An unauthorized EFT does not include buyer's remorse or a situation where a consumer authorizes a transaction, such as an online purchase, but the product or service is not provided. That said, if the transaction is completed with a Visa or MasterCard branded debit card, the consumer may pursue a chargeback through the Visa/MasterCard rules.

 

The consumer provides notice

The error resolution procedures begin when a consumer provides notice to the institution that an error has occurred. An error notice is any communication from the consumer that enables the institution to identify the consumer's name and account number and that indicates why the consumer believes that an error has occurred, including (to the extent possible) the date, time, and amount of the error. As discussed in my previous article, if the notice of the error is not received within 60 days from the date the first periodic statement on which the error is first reflected, you do not need to comply with the error resolution procedures, but you may not impose any liability in excess of that provided for in 12 CFR § 1005.6. An error notice includes any oral or written communication. While you can require that the consumer provide written confirmation of an error within 10 business days of the receipt of an oral error notice, you cannot require that the notice be made in writing. In other words, once the consumer notifies you orally, you have received an error notice and the clock has started ticking. You can require that a consumer provide notice only at a specific telephone number or address if that number or address is disclosed to the consumer and you maintain procedures to refer the consumer to the specified telephone number or address if the consumer attempts to provide the notice in a different manner. Additionally, while you may require written confirmation, you cannot require that the consumer provide the written confirmation on any specific form. You also cannot impose any additional requirements before you process the error notification. The most common example is a police report. Many institutions were requiring consumers who assert error notifications regarding unauthorized EFTs to file a police report before they begin their investigation. This is a no-no! Again, once the consumer gives you enough information to identify the consumer, the consumer's account, and the alleged error, you must begin your error resolution procedures.

 

The investigation 

Once you have received the error notification, you must promptly investigate the alleged error. You generally have 10 business days to complete your investigation. If the institution is unable to complete its investigation within the 10-day period, it can extend the time up to 45 calendar days by provisionally crediting the consumer the amount of the alleged error. This means that you must start the investigation promptly. You cannot wait the 10 business days, give a provisional credit, and then begin your investigation; you can only extend the period when you are unable to complete the investigation within the 10 days. The institution need not provisionally credit the consumer if the institution requires a written confirmation of an oral error notice, at the time of the oral notice the institution informed the consumer of this requirement including the address to send the confirmation, and the consumer did not send the confirmation. Additionally, if the account is a brokerage account subject to Regulation T, you do not need to provide a provisional credit. If the alleged error involves an unauthorized EFT and you have given the initial disclosures at account opening, you may withhold up to $50 of the provisional credit. Within two business days of providing the provisional credit, you must inform the consumer of the amount and the date of the provisional credit and give the consumer full use of the funds during the investigation. If you determine that an error occurred, you must correct the error, including refunding any amount that you did not provisionally credit, within one business day of determining that the error occurred. For example, you give the provisional credit on day 10 and on day 11 determine that the error occurred. You must correct the error no later than day 12 (unless it is not a business day) and cannot wait until day 45. You must also report the results of the investigation to the consumer within 3 business days of completing your investigation. If the account is a new account (the first deposit was made within 30 days of the alleged error), the 10-day period is automatically extended to 20 business days. If the alleged error was not initiated in the US, was a point-of-sale transaction or was on a new account, the 45-day period is automatically extended to 90 days.

 

What if there is no error? 

If you determine that no error occurred, you must provide a written notice to the consumer. The written notice must explain the investigation's findings and must notify the consumer of their right to request the documents the institution relied on in making its determination. If the consumer requests those documents, you must promptly provide copies of those documents. If, because of your investigation, you will debit the provisional credit, you must notify the consumer of the date and the amount of the debiting. You must also notify the consumer that you will honor any checks, drafts, preauthorized transfers to third parties, etc. from the consumer's account for five business days after the notification is sent. You must honor the items as specified in the notice and may not charge an overdraft fee to the extent that the item would have been paid had the provisional credit had not been debited. Alternatively, you may provide in your notice that the provisional credit will not be debited for five business days from the provision of the notice. If you determine that an error occurred but it was not the error that the consumer described, you must comply with the procedures for correcting an error and for notifying the consumer that the asserted error did not occur. For example, I claim that the $505 comic book purchase is an error because I only gave the Fetching Mrs. Tavares permission to buy the Stellar Battles comic and not the Wonderful Woman comic. You determine that it was not an error because I gave her my card but during the investigation you determine the Charlie the Comic Guy skimmed my card and was making fraudulent transactions with a skimmed card, you would have to refund me the amount of the fraudulent transactions (to the extent that the provisional credit did not cover them); notify me that you determined the transactions by Charlie were fraudulent; and notify me that the transaction by the Fetching Mrs. Tavares was not an error, that I have a right to request copies of the documents you relied upon in your investigation, and that you will be debiting the provisional credit (if applicable).

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