July 22, 2013
Eric Dewey, CRCM
FDIC Compliance Examiner
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This presentation does not constitute legal advice or
provide the official position of the FDIC.
It also does not provide sufficient information to
make final determinations about your institution’s
approach to EFT error-resolution compliance. As
appropriate, consult with legal counsel regarding
your institution’s specific approach.
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•
•
Definition of Error - includes some “merchant disputes”
Notice from consumer
 by any means, oral or written
 within 60 days of periodic statement
•
•
Reasonable investigation
Resolution within prescribed time limits
 10 days
 45 days with provisional credit
 Extended time limits for certain types of transactions
•
Notice of resolution
 Honoring items for 5 days post-notification in cases of no error
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• Regulation E rules are federal law
• VISA/MC and NACHA rules are simply contractual
agreements
• VISA/MC or NACHA rules with regard to timeframes for
bank’s chargeback rights cannot be used to justify the
denial of the consumer’s rights under Regulation E
• If Regulation E error-resolution rules require crediting the
consumer, but VISA/MC or NACHA chargeback rights
have expired, the bank may be required to take the loss
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What follows are some fact patterns that have resulted
in banks being cited for violations of Regulation E.
Please keep in mind that:
• Examinations are risk-focused
• Examiners have differing levels of awareness of errorresolution processes
• “Industry standard” practices may not be fully compliant with
the law
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Your bank uses the standard template Regulation E
disclosures offered by your third-party provider, which meet
all regulatory requirements.
When a customer orally disputes an electronic debit on their
deposit account, your bank requires the customer to
complete a sworn affidavit before the customers claim is
investigated.
In addition, whenever your bank “feels” that the customer is
making a false dispute claim, the customer is required to file
a police report and agree in writing to appear in court as a
witness, before their dispute will be processed.
What do you think?
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In addition to violating Regulation E, the FDIC found these
practices to be unfair.
Requiring
consumers to satisfy significant additional
requirements beyond the regulation may amount to denial of the
claim. Although the amount of each error resolution claim might
be small, in the aggregate they are likely to be substantial. In this
case, one transaction involved an alleged error of more than
$5,000.
The
injuries were not reasonably avoidable by the consumer.
There
were no countervailing benefits identified.
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Your bank uses the standard template Regulation E
disclosures offered by your third-party provider, which meet
all regulatory requirements.
When a customer notifies the Bank of a dispute involving a
third-party merchant transaction, before the Bank will begin
its investigation the customer is instructed to contact the
merchant and try to resolve the error. If the merchant denies
the error, the customer may return to the Bank to begin the
dispute process.
What do you think?
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In addition to violating Regulation E, the FDIC found these
practices to be deceptive.



The Initial Disclosure was misleading. It states that telephone
notice was the best way to reduce losses, but when customers
called the bank declined to initiate an investigation until the
customer attempted to resolve the matter with the merchant.
A reasonable consumer would think that the Bank would follow
the procedures in the Initial Disclosure, and would not know
that the additional requirement violated Regulation E.
The bank's additional requirements, which violate Regulation E,
are material.
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Consider this situation:
You shop for medications online, and find one merchant
offering a 3 month supply of your medications for only $50.
You carefully authorize an EFT for $50 to purchase the
medications.
However, when your statement arrives, the merchant has
charged you $150 for the medications. (As a good financial
professional, you carefully read all of the disclosures from
the merchant, and there is nothing that authorizes the
additional $100 charge).
Do you have dispute rights under Regulation E?
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Now consider this situation:
You shop for clothes online, and find a merchant offering a
jacket for $50 that you like. You carefully authorize an EFT
for $50 to purchase the jacket.
However, when your jacket arrives, it is not the size or color
you ordered.
Do you have dispute rights under Regulation E?
Why, or why not?
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Your bank uses the standard template Regulation E
disclosures offered by your third-party provider, which meet
all regulatory requirements.
In addition, your bank discloses a $25 Debit Card
Chargeback fee on disputed EFT transactions.
Is this fee allowed under Regulation E?
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See Comment 3 to Section 11(c) of Regulation E.
It states that, if a billing error has occurred you cannot not
impose a charge related to any aspect of the errorresolution process (including charges for documentation or
investigation).
It goes on to say that, because the EFTA grants the
consumer error-resolution rights, the institution “should
avoid any chilling effect on the good-faith assertion of
errors that might result if charges are assessed” even when
no billing error has occurred.
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Your bank uses the standard template Regulation E
disclosures offered by your third-party provider, which meet
all regulatory requirements.
A customer calls to report unauthorized use within two days
of the occurrence. Your bank imposes $250 of liability on
the customer (more than the $50 limit) because the
customer wrote their PIN number on the back of the card.
What do you think?
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Comments 2 to Section 6(b) in the Official Interpretations of
Regulation E comes into play here:

Comment 2 states that negligence by the consumer cannot be
used as the basis for imposing greater liability than is
permissible under Regulation E, and specifically uses the
example of writing the PIN on a debit card or on a piece of
paper kept with the card.
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Your bank uses the standard template Regulation E
disclosures offered by your third-party provider, which meet
all regulatory requirements.
However, due to the higher incidence of fraud on non-US
transactions, you also require customers to waive their
dispute rights for any transactions conducted outside the
state or country.
What do you think?
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Now look at Comment 3 to Section 6(b) in the Official
Interpretations of Regulation E:

Comment 3 states that the extent of the consumer's liability is
determined solely by the consumer's promptness in reporting
the loss or theft of an access device, and that no agreement
between the consumer and an institution may impose greater
liability for an unauthorized transfer than the limits provided in
Regulation E.
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
Will customers/auditors/examiners think is there a gap between
what your disclosures say and what you’re actually doing?

Whose perspective is more important in thinking about what is
“reasonable” – the bank’s or the consumer’s?

Reg E disputes can be expensive to process. Are they more
expensive than a UD(A)AP violation?

What’s that third-party up to, anyway? (Even if they are your core
processor).

Now that I’ve covered the regulatory requirements, what about
UD(A)AP risks?

If every bank is doing it, does that make it okay, or is it really just
abusive?
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


FIL 26-2004 “Unfair or Deceptive Acts or Practices by
State-Chartered Banks”, March 11, 2004
FTC Policy Statement on Deception (October 14,
1983), appended to Cliffdale Associates, Inc., 103
F.T.C. 110, 174 (1984)
http://www.ftc.gov/bcp/policystmt/ad-decept.htm
FTC Policy Statement on Unfairness (October 14,
1983), appended to International Harvester Co. , Inc.,
103 F.T.C. 949, 1070 (1984)
http://www.ftc.gov/bcp/policystmt/ad-unfair.htm
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


FDIC Examination Manual on Abusive practices
http://www.fdic.gov/regulations/compliance/manu
al/pdf/VII-1.1.pdf
CFPB Examination Manual
http://www.consumerfinance.gov/guidance/
supervision/manual/
12 C.F.R. 1005 and Official Interpretations
http://www.ecfr.gov/
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