Regulation E - Electronic Fund Transfers
Reg E Error Resolution notice
2 options: maybe provided once per year or included in monthly statement. Short and long form. Long form sent when it comes to a passport account. Must be preprinted language on paper statement
Sender
A sender is a consumer in a state who sends a remittance transfer to a designated recipient outside the United States. The transfer must be primarily for personal, family or household purposes. Whether a remittance transfer from an account is for personal, family, or household purposes (and thus, whether the transfer could be a remittance transfer) may be determined by ascertaining the primary purpose of the account. For example, a transfer requested by a business is not a remittance transfer. Additionally, if a transfer is being requested from a non-consumer account, such as a business account or an account held by a financial institution under a bona fide trust agreement, then a remittance transfer provider may deem that the transfer is not requested primarily for personal, family, or household purposes, and the person requesting the transfer is not a "sender." For example, transfers from sole proprietor accounts are not remittance transfers. The rule also provides that if a consumer indicates that the transfer is requested for other purposes, such as business or commercial purposes, the provider can deem the consumer not to be a "sender" for purposes of the rule even if the consumer is requesting the transfer from an account that is used primarily for personal, family or household purposes.
The remittance rule applies to remittance transfers. As discussed previously, a remittance transfer must have certain characteristics.
An electronic transfer of funds Sent by a remittance transfer provider More than $15 Sent by a consumer in the United States Sent to a person or entity in a foreign country
Electronic funds transfers (EFTs)
Any transfer of funds to/from account initiated through an electronicterminal, telephone, computer or magnetic tape for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit an account. - Consumer deposit account
Reg E Coverage
Covers "electronic funds transfers" (EFTs) both in and out of the consumer account.
Timely notice is not given and the active use of the access device continues
If the customer fails to notify the bank of a lost or stolen access device after discovery of the loss or theft, the customer's liability may be unlimited if the access device continues to be used for unauthorized transactions. Specifically, if the customer fails to report a lost or stolen access device and does not report unauthorized transactions made with the access device that appear on the periodic statement within 60 calendar days after the periodic statement is sent, the customer has potential unlimited liability for transactions made after the 60-day period.
Timely notice not given
If the customer fails to notify the bank within two business days after learning of the loss or theft of the access device, the customer's liability shall not exceed the lesser of $500 or the sum of: (i) $50 or the amount of unauthorized transfers that occur within the two business days, whichever is less; and (ii) The amount of unauthorized transfers that occur after the close of two business days and before notice to the bank, provided the bank establishes that these transfers would not have occurred had the customer notified the bank within that two-day period
Timely Notice Given
If the customer notifies the bank within two business days after learning of the loss or theft of the access device, the customer's liability shall not exceed the lesser of $50 or the amount of unauthorized transfers that occur before notice to the bank.
Timing requirements - report unauthorized transfer
If the transaction is unauthorized, but the customer does not report a lost access device or the error in a timely manner, there are different levels of liability for the customer. Regulation E establishes three tiers of liability for unauthorized EFTs. The applicable tier depends on when the customer learned of the loss or theft of an access device, such as a debit card, when the bank received notice, and when the bank transmitted to the customer the periodic statement showing the first unauthorized transaction.
Reg E Intital disclosure
Must be given either when the account is opened or before first EFT is permitted (new ATM/Debit card, ex.)
Notification Rule - third party
Notice by third party Notice of an unauthorized transaction or error provided by a third party on the customer's behalf is a valid notice. A bank may require "appropriate documentation" from the third party to ensure that the person is acting on the customer's behalf.
Constructive notice
Notice can be provided constructively, regardless of when the customer provides actual notice, "when the institution becomes aware of circumstances leading to the reasonable belief that an unauthorized [EFT] to or from the customer's account has been or may be made." IMPORTANT: A bank has no obligation to scan or monitor customer accounts for possible unauthorized transactions.
Reg E Change of Terms Notice
Notice must be given before the adverse change is taken or a fee increased - 21 days prior to written notice is required
Reporting an unauthorized transaction or loss/theft of an access device
Oral or in writing; in person, telephone, online banking,
Provisional Credit (Error Resolution)
Provisional credit is a temporary credit for the amount of the disputed transaction(s) which may be applied to a customer's account in situations in which a transaction is being disputed. Upon completion of the research, a provisional credit may be removed or made permanent, depending upon the outcome of the investigation.
Reg E Disclosures
Statement of rights to dispute
Sharon has been on business travel for a week. Because she was on business travel, she only used her company credit card, so she did not realize that her debit card had been stolen. When she returned home, she checked her banking transactions online, and discovered a week's worth of unauthorized transactions made using her debit card. That amount came to $800. Sharon contacted her bank immediately to report the unauthorized use. How much will the bank have to reimburse Sharon? A. $750 because she reported the loss or theft within two business days of discovering the loss B. $800 because Sharon was on business travel C. $300 because her maximum liability is $500 since she did not report the loss or theft within two business days D. None of it because she did not report in a timely manner
The correct answer is a. B is incorrect because the fact that Sharon was on business travel does not change the fact that the card was her personal debit card. C is incorrect because Regulation E states that the claim must be made within two days of discovering the loss, so Sharon met the timing requirements. D is incorrect because the loss was reported promptly upon discovery.
Megan lost her debit card but did not realize it until she received her April bank statement. If Megan notifies the bank by the end of May, what is Megan's potential liability for transfers occurring within the 60 day statement period? A. The lesser of $500 or the sum of the lesser of $50 or the amount of unauthorized transfers in the first two business days, whichever is less, and the amount of unauthorized transfers occurring after two business days B. Unlimited liability for all transfers made during the first 30 day period and $500 or the total of all unauthorized transactions during the second 30 day period, whichever is more C. $50 or the total amount of unauthorized transfers occurring in the first two business days, whichever is less D. No liability
The correct answer is a. B, C, and D are incorrect because the potential liability for transactions involving an access device that is reported within the first 60 days is the lesser of $500 or the sum of the lesser of $50 or the amount of unauthorized transfers in the first two business days, whichever is less, and the amount of unauthorized transfers occurring after two business days. This is true provided the institution establishes that the unauthorized EFTs would not have occurred had the customer provided notice within two business days after learning of the loss or theft.
Stan is not very good about balancing his bank statements each month—in fact, he rarely opens them. His motto is ''If the transaction goes through I must have money.'' However, this morning when he stopped by his favorite coffee house to get his latte, his debit card transaction was denied. He knew his direct deposit just posted yesterday so he went home to open his last bank statement and there were several hundred dollars of ACH transactions he never authorized. Stan kept opening old statements and figured out that the unauthorized transactions began almost two years ago with $100 on his January statement and $300 on his February statement. After adding up everything, he realized he was defrauded $7000! Stan contacted his bank that day. How much will Stan be liable for? A. All of it B. None of it C. $6600 of it D. All but $500 of
The correct answer is c. A, B, and D are incorrect because the bank must reimburse Stan the amount of any transactions that occurred within 60 days of the first statement where the transactions originally occurred. (In effect, unauthorized transactions that occurred in the first two months.) All the remaining charges that continued after the first two months are Stan's responsibility, as they would not have occurred if he had notified the bank in a timely manner.
Joan fails to report unauthorized transactions made with an access device that appear on her periodic statement within 60 calendar days after the periodic statement is sent. What is Joan's liability? A. Potential unlimited liability for transactions made before the 60-day period B. Potential unlimited liability for all transactions both before and after the 60-day period C. Potential unlimited liability for transactions made after the 60-day period D. No potential liability
The correct answer is c. A, B, and D are incorrect because the customer has potential unlimited liability for transactions made after the 60-day period.
Robert lost his debit card while dining at a restaurant on Friday. He realized it was missing when he went to pay for gas on Monday. On Tuesday, an unknown person used Robert's debit card to take cash from an ATM. Robert notified the bank on Wednesday that the card was missing. What is Robert's liability? A. $100 B. $150 C. $50 D. No liability
The correct answer is c. A, B, and D are incorrect because, if the customer notifies the financial institution within two business days after learning that the access device was lost or stolen, the financial institution may only hold the customer liable for the lesser of (a) $50 or (b) the amount of unauthorized EFTs that occurred before the institution was notified.
Exceptions to Reg E
Wire transfers (UCC required by state law) Preauthorized agreements (to make transfers between accounts, pay loans at the same bank or between accounts of family members are NOT EFTs (this falls under DD)
Unauthorized electronic fund transfer - under Reg E
electronic fund transfer (EFT) from a customer's account that meets the following criteria: - Initiated by a person other than the customer - Without actual authority to initiate the transfer - From which the customer receives no benefit
State
state is defined by the rule as "any state, territory or possession of the United States; the District of Columbia; the Commonwealth of Puerto Rico; or any political subdivision of the above." U.S. military installations abroad are considered to be inside a state for purposes of the Remittance Rule.
When provisional credit is not mandated
the bank will not be required to provisionally credit (as discussed in the Reg E Error Resolution Requirements course) the customer's account if the written notice is not received within 10 days of the oral notice. When notifying a bank of an unauthorized transaction, the customer should call or write the bank, and provide enough information so that the bank can identify the transaction. That might include the following information: The customer's name The number of the affected account Why the customer believes there is an error The type of error The dollar amount involved The date of the unauthorized transfer or other error
Consumer liability tiers
the tier is based on when the consumer reports the unauthorized transaction(s) to the bank.