VIDEO: What is an Error under Regulation E
In this Compliance Clip (video), Adam discusses what an error is for purposes of Electronic Fund Transfer Act, for Regulation E and for dispute purposes. In just under 8 minutes, this video takes a pretty deep dive into a core element of Regulation E disputes. This would be a great video to pass on to anyone needing to understand an “error” under Regulation E.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to discuss what an error is under the Electronic Fund Transfer Act and Regulation E. Our question here is, “What is an error for purposes of Electronic Fund Transfer Act and Regulation E?” What we're talking about here are disputes. When you have a customer who has a dispute on their account from maybe their debit card, they say they didn't do this transaction. They'll come to you and say, “I didn't do this.” What you have to do is to investigate that dispute. There are Visa MasterCard rules that are completely separate from what we're about to talk about, because there are also separate rules under Regulation E and Electronic Fund Transfer Act.
What we're discussing are errors, because an error by definition is covered under the Electronic Fund Transfer Act and there are specific requirements in 1005.11 that require you to investigate an error when you receive one. That's what we're talking about here, it’s errors for purposes of Electronic Fund Transfer Act, for Regulation E and for dispute purposes.
Of course, the answer to this is going to come from 1005.11 of Regulation E, but it's also going to come from a couple of other places. We’re going to look at the definition section of Regulation E, we're going to talk about the liability section, and we'll also discuss the Frequently Asked Question Number 1 under the CFPB’s Frequently Asked Questions for electronic funds transfers under the category of Error Resolution. Quite a bit of information we're going to cover here.
An error under Electronic Fund Transfer Act and Regulation E includes a number of things. First and foremost, it includes an unauthorized electronic fund transfer. This is what we think of most often when we think of an error. When we think of having to conduct an investigation and do research for the customer, go through our error resolution process and our investigation process. But it's important to understand that unauthorized EFT is not the only thing. Unauthorized EFTS have liability requirements, where the customer can be held liable based on certain things under 1005.6 of Regulation E. However, we're really talking about the error resolution and error investigation processes under 1005.11 of Regulation E.
We'll talk about unauthorized EFT in a little bit, but what we're talking about is what is included in an error. First and foremost, it is an unauthorized EFT. Secondly, it's an incorrect EFT to or from the consumer's account. It also includes the omission from a periodic statement of an EFT to or from the consumer's account that should have been included. It also includes a computation or bookkeeping error made by the financial institution related to an electronic fund transfer. It also includes the consumer's receipt of an incorrect amount of money from an electronic terminal. It also includes an EFT not identified in accordance with the requirements of 1005.9, which are the receipts at electronic terminals and periodic statements, or 1005.10(a), which relates to preauthorized transfers to consumer’s accounts. And it also includes a consumer's request for any documentation requirement required by 1005.9 or 1005.10(a) or for initial information or clarification concerning an electronic fund transfer. All of these things are included as an error under Regulation E 1005.11. Meaning that when you get any one of these things, you have to conduct an investigation in accordance with 1005.11. That is what an error is.
Let's define unauthorized EFT, because it's hard to talk about an error without discussing what an unauthorized EFT is. An unauthorized electronic fund transfer means an electronic fund transfer from a consumer's account initiated by a person other than the consumer without actual authority to initiate the transfer, and from which the consumer receives no benefit. So the consumer receives no benefit and it's done by somebody they did not authorize to initiate the transfer.
The term does not include a number of things. For example, it does not include electronic fund transfer initiated by a person who was furnished the access device to the consumer's account by the actual consumer, unless the consumer has notified the financial institution that transfers by that person are no longer authorized. In which case, you would have canceled the card and then reissued a new card, if you reissue one at all. It also does not include electronic fund transfer initiated with fraudulent intent by the consumer or any person acting in concert with the consumer, and also does not include electronic fund transfer initiated by the financial institution or its employee.
The commentary clarifies a number of things. There's just a couple of things I want to point out. First and foremost, when they talk about a transfer by an institution's employee, what they say is the consumer has no liability for erroneous or fraudulent transfers initiated by an employee of a financial institution. While other unauthorized EFTs have potential consumer liability, an unauthorized EFT by an employee of a financial institution has zero liability. That's what they're talking about there. Also, they say an unauthorized EFT includes a transfer initiated by a person who obtains the access device from the consumer through fraud or robbery. Also, they talk about forced initiation. They say an EFT at an ATM is an unauthorized transfer if the consumer has been induced by force to initiate that transfer. So that is an unauthorized EFT.
Going back to an error. There are a couple of things that are excluded by Regulation E in the definition of an error. An error does not include a number of things. It does not include a routine inquiry about the consumer's account balance. It does not include a request for information for tax or other record keeping purposes. And it does not include a request for duplicate copies of documentation. That is an error.
This is just a Compliance Clip. We're not taking a deep dive into Regulation E, which I hope to have a class at some point that does that. I've done Regulation E previously, but this is really just one little piece of the larger Regulation E process. So hopefully this has been beneficial. This is talking about an error under Regulation E. That's all I have for you in this Compliance Clip.