Reg E and the Effect of Late Notice

Article contributor / Diana Kern, Client Learning Strategist

Regulation E (Reg E) is a straightforward concept, yet the language can be complicated. And applying the regulation to each situation is often not a black-or-white matter — many scenarios fall into a gray area.

In this article, we’ll study one paragraph from an often-forgotten section of Reg E that offers additional guidance. The section is titled “Official Interpretations” and can help you work through gray-area scenarios and make the best decisions for your financial institution and consumer cardholders.

If you process cardholder error claims, you probably understand there’s a timely notification period related to “…60 days after the institution sends the periodic statement…” That timeframe applies to two subsections: 1005.6, Liability of consumer for unauthorized transfers and 1005.11, Procedures for resolving errors. The gray area, and mistake sometimes made, is concluding you have no obligation to your consumer once that timeframe has passed.

Approximately 85% of Reg E error claims on debit card EFTs initially state “unauthorized” as the error reason. In that scenario, your compliance obligation isn’t over even if the notice of error isn’t timely. The Official Interpretations paragraph related to the error resolution subsection reads:

7. Effect of late notice. An institution is not required to comply with the requirements of this section for any notice of error from the consumer that is received by the institution later than 60 days from the date on which the periodic statement first reflecting the error is sent. Where the consumer's assertion of error involves an unauthorized EFT, however, the institution must comply with § 1005.6 before it may impose any liability on the consumer.

Simply put, your requirement to follow the error resolution procedures (§ 1005.11) may have expired, but the consumer’s liability calculation, and the potential to get back some or all their funds (§ 1005.6) hasn’t. Of course, your ability to investigate any claim diminishes as time passes. Your decision on whether the EFT truly was unauthorized, as the consumer claimed, might need to be made with little or no evidence available.

Refer to 1005.6, Liability of consumer for unauthorized transfers for guidance on determining a consumer’s liability, if any, based on when the error is reported. Refer to 1005.11, Procedures for resolving errors for guidance on your requirements to investigate, including provisional credit and length of investigation.

We’ll explore additional Reg E Official Interpretations guidance in upcoming editions of Magnify.

Source: Code of Federal Regulations: Title 12 / Chapter X / Part 1005