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Reg E and denying error claims

Article Contributor / Diana Kern, AAP, Sr. Financial Solutions Consultant

While Regulation E leaves a lot of gray area about what exactly constitutes sufficient evidence to deny an error claim, it’s clear on what’s required once you’ve made the decision to deny. Failure to meet the requirements can put you in a sticky situation during a compliance exam. Don’t make these mistakes:

  1. Neglecting to “…include a written explanation…” of your findings. Doing this correctly means giving the consumer a reason why you concluded no error occurred, or why you determined the error is different than the consumer claimed initially. And it means being prepared to provide your evidence or to proactively supply it to the consumer.
  2. Debiting provisional credit on a date other than what was stated in the notice.
  3. Improperly handling subsequent items presented on the account.

Reg E states these requirements for consumer notification and provisional credit handling:

(d) Procedures if financial institution determines no error or different error occurred. In addition to following the procedures specified in paragraph (c) of this section, the financial institution shall follow the procedures set forth in this paragraph (d) if it determines that no error occurred or that an error occurred in a manner or amount different from that described by the consumer:

  1. (1) Written explanation. The institution's report of the results of its investigation shall include a written explanation of the institution's findings and shall note the consumer's right to request the documents that the institution relied on in making its determination. Upon request, the institution shall promptly provide copies of the documents.
  2. (2) Debiting provisional credit. Upon debiting a provisionally credited amount, the financial institution shall:

(i) Notify the consumer of the date and amount of the debiting;
(ii) Notify the consumer that the institution will honor checks, drafts, or similar instruments payable to third parties and preauthorized transfers from the consumer's account (without charge to the consumer as a result of an overdraft) for five business days after the notification. The institution shall honor items as specified in the notice, but need honor only items that it would have paid if the provisionally credited funds had not been debited.

Check out our previous articles on Regulation E topics in the Magnify archive.

Source: Code of Federal Regulations