Regulation E, which implements the Electronic Fund Transfers Act, provides protections for consumers when they engage in transactions known as electronic fund transfers (EFTs), which includes transfers through automated teller machines (ATMs), point-of-sale terminals and automated clearinghouse (ACH) systems. Regulation E outlines procedures that banks must follow when investigating and resolving EFT errors reported by consumers.1 Institutions occasionally miss completing all steps when resolving errors subject to Regulation E.
Examiners find that bank staff members may struggle to comply with these requirements, particularly if the bank receives EFT error notices infrequently. Banks that comply with the regulation tend to have detailed procedures on how to handle EFT error investigations. They also tend to provide staff training and track compliance with procedures. The rest of this article describes some key compliance program elements that examiners find at banks that effectively manage this Regulation E-related risk.
Prepare detailed EFT investigation procedures
The procedures should address several areas.
What errors trigger the EFT error resolution process?
The procedures should help staff understand what types of errors fall within the procedures. In general, the bank must investigate several types of errors under Regulation E. Common EFT errors include:
- An unauthorized EFT transaction, such as an unauthorized withdrawal from an ATM account.
- An incorrect EFT to or from a consumer’s account, such as an ACH withdrawal for an incorrect amount.
- A consumer’s incorrect receipt of money from an ATM withdrawal.2
How should bank staff conduct these investigations?
Internal bank procedures should explain how the EFT error resolution investigation should work. Specifically, the procedures should outline the tasks bank staff members need to complete and when they need to complete them. Banks generally have an initial period of 10 days to investigate an EFT error; however, they can extend this to 45 days under certain conditions. Most importantly, the bank needs to provisionally credit the customer’s account for the amount of the error (and make these funds fully available) to extend the investigation time frame. It must also provide the consumer with notice of the amount and date of the credit, something that banks sometimes fail to do. Under limited circumstances, the bank can extend the investigation to 90 days.3
What should bank staff do upon completing the investigation?
Internal bank procedures should also describe what processes bank staff should follow upon completing an investigation to ensure compliance with Regulation E requirements. Examiners occasionally see banks miss some aspects of this post-investigation process. It is important that procedures distinguish between how to respond if confirming an error and determining that no error occurred. Different notice and timing rules apply to these findings. For example, the bank must correct the error within one business day after confirming that an error occurred and inform the consumer (either orally or in writing) within three business days of the completed investigation that the bank has corrected the error and, if applicable, made the provisional credit final.4 Examiners see situations where banks will complete some of these tasks, such as making the provisional credit final, but not notify the customer that this occurred.
If an error has not occurred, the bank must explain its findings in writing within three business days after concluding its investigation. Upon debiting the provisional credit, the bank must notify the consumer of the date and amount of the debit. Banks occasionally miss this notice requirement as well.5
Confirm internal practices and monitor vendors
As discussed, bank staff may miss certain error resolution steps or not complete the steps in a timely way. Developing a process for tracking the completion of the error resolution timing and notification requirements can serve as an effective control for ensuring that bank staff complete all steps in the error resolution process as required.
In addition, some banks rely on third-party vendors to investigate errors and streamline the error resolution process. Such vendors can provide valuable support for the bank as long as the bank confirms that the vendor’s error resolution practices comply with Regulation E. Bank staff should monitor these investigations to ensure compliance with applicable timing requirements.
Provide staff training
Another key aspect to having strong error resolution practices is ensuring that bank staff receive training on Regulation E requirements. Training should cover regulatory requirements and help familiarize staff with the bank’s internal Regulation E error resolution procedures.