VIDEO: Reg E - Don't Require a Written Notice
In this Compliance Clip (video), Adam discusses a common Regulation E error involving how financial institutions handle consumer error claims. He explores why requiring written notice before taking action can create compliance concerns and highlights key considerations for staff, policies, and procedures.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about requiring written notice for the Reg E error resolution procedure.
What we have is the Federal Reserve recently released a version of their publication, The Consumer Compliance Outlook, and in there they included some of the top Reg E error resolution requirement violations. I wanted to cover this because I've seen this as a common error in financial institutions over the years. Some financial institutions incorrectly require consumers to provide written notice before they begin an error investigation.
Under Regulation E, there are provisions for consumer protection where consumers are allowed to dispute transactions that are considered to be in error, and they're defined in a number of different ways. We're not going to get into the specifics in this video, but basically, when there's fraud on an account, a consumer is allowed to dispute that. And the procedures for resolving errors are quite complicated. A consumer will notify you that there's an error, and then you've got 10 days to resolve it. If you don't resolve it in 10 days, you can extend it to 45 or 90 days, and then you've got to provide notice. Some are calendar days, some are business days, some are two days, some are three days. And it's quite a complicated process to comply with Regulation E and the error resolution procedures.
But here, what this specific violation we want to hone in on is that some institutions were incorrectly requiring customers to provide a written notice before beginning an investigation of an error that was submitted by the customer.
Now, the requirement under Regulation E is this: a financial institution must begin its investigation promptly upon receipt of an oral or written notice. It may not delay until it has received a written confirmation. So, the way it works is when a customer disputes a transaction and submits an error request for us to investigate, they can give us that notice either in writing or verbally. And what the requirements under Regulation E tell us is that we must start our investigation promptly. Whether it's in writing or given to us verbally. There's no requirement for the dispute to come in writing whatsoever under Regulation E.
Now, it's confusing because a financial institution is permitted, if they disclose properly and tell the customer, to require the dispute to be in writing in order to provide provisional credit. And if the customer doesn't give it in writing, they're not required to give provisional credit if they extend their investigation beyond 10 days. But the bottom line is, they still have to begin their investigation promptly as soon as they've received it, either verbally or in writing.
So, when it comes verbally, we cannot require the dispute to be in writing before we begin the investigation. If we do that and we don't start our investigation until we get it in writing, that's going to be a violation of Regulation E and also likely a UDAP concern, an unfair, deceptive, or abusive act and practice concern. Because we're going against what the disclosures and the regulation have told the consumer, and we're doing something different. That's when UDAP usually gets involved, and it's when we're not doing what we've told the customer we're going to do, and we're not doing what's required under law.
And so that is the requirement is a financial institution must begin its investigation promptly upon receipt of an oral notice.
Now, the regulators in this publication, the Consumer Compliance Outlook from the Federal Reserve, said that there were some causes of this error. The causes included staff lacking Regulation E expertise, receiving inadequate training, or were working with unclear policies and procedures. And so they provided some risk mitigation strategies.
They said it's important for financial institutions through training, that front line staff know when an oral error notice triggers the institution's air resolution requirements. And again, the error resolution requirements start as soon as you receive an error under your error resolution procedures.
Again, you can require something in writing in order to get provisional credit, but that's a whole different topic. The investigation has to begin when you receive something in writing. Now, it's actually a bit more complex because if the error comes in very late, you don't have to follow the error resolution procedure rules, but it's a best practice, it's best to always start it immediately once you've received the notice verbally.
Now, again, this Compliance Clip is only touching on a very specific topic. The error resolution procedures are very complex. They're very complex. And if you want to take a deeper dive into the world of Regulation E and error resolution procedures, we have two programs available in our store where we take a deep dive into that.
One program is called Reg E Error Resolutions focused just on the dispute process under Regulation E. And the second one is called a Regulation E Bootcamp that covers all of the parts of Regulation E, not just error resolution procedures. So it's important to take a look at that, because there are some other nuances, too. I understand sometimes your third-party processor, like Visa, MasterCard, or whoever you utilize to do the investigation, wants something in writing. How are you supposed to submit that request in writing if the customer won't give it to you in writing? Well, the reality is, Regulation E says that you have to start that investigation properly once you receive verbal notification. And so there are some nuances there. We talk about all of that in our training programs that can be found at compliancecohort.com/store.
That's it for this Compliance Clip