Reg E – What is Regulation E: Electronic Funds Transfer Act

Reg E – What Is Regulation E (Definition and Guide)

Regulation E, also known as Reg E is a regulation put forth by the Federal Reserve Board.  It outlines rules and procedures for electronic funds transfers (EFTs).  It also provides guidelines for banks and issuers of electronic debit cards.

The Federal Reserve System is the U.S. government’s central bank. The Fed was created by Congress in 1913 to provide the nation with a more stable monetary system. Reg E is in place for banks, financial institutions, and consumer protection. Regulation E includes the rules governing electronic fund transfers or EFTs. It also provides guidance to banks and other institutions that issue electronic debit cards.

How does Regulation E work?

Regulation E applies to point-of-sale transactions, transfers made with automatic teller machines, and Automated Clearing House transactions. Reg E was issued following the passage of the Electronic Funds Transfer Act of 1978. Both the federal law and Regulation E offer protections to consumers in addition to those provided by the Federal Deposit Insurance Corporation or FDIC.

Regulation E – Electronic Funds Transfer Act 

The Electronic Fund Transfers Act is a federal law enacted to protect consumers who use electronic methods to transfer funds.  These are known as electronic funds transfers or ETFs. Reg E mandates that banks and other financial institutions correct transaction errors. It also limits the liability of consumers when their cards are lost or stolen.  When financial institutions and banks add electronic fund capabilities to their credit cards, Regulation E applies. It also applies to credit extensions from banks and financial institutions that cover overdrafts.

(a) Authority. The regulation in this part, known as Regulation E, is issued by the Bureau of Consumer Financial Protection (Bureau) pursuant to the Electronic Fund Transfer Act (15 U.S.C. 1693 et seq.). The information-collection requirements have been approved by the Office of Management and Budget under 44 U.S.C. 3501 et seq. and have been assigned OMB No. 3170-0014.

(b) Purpose. This part carries out the purposes of the Electronic Fund Transfer Act, which establishes the basic rights, liabilities, and responsibilities of consumers who use electronic fund transfer and remittance transfer services and of financial institutions or other persons that offer these services. The primary objective of the act and this part is the protection of individual consumers engaging in electronic fund transfers and remittance transfers.  (Source: consumerfinance.gov/policy-compliance/rulemaking/regulations/1005/1/)

Understanding Reg E

Regulation E provides guidelines for consumers and banks or other financial institutions in the context of electronic funds transfers. These include transfers with automated teller machines (ATMs), point-of-sale transactions, and automated clearing house (ACH) systems. Rules pertaining to consumer liability for unauthorized card usage fall under this regulation as well.  Consumers and financial institutions both have an interest in understanding Regulation E’s guidelines.  Regulation E was issued by the Federal Reserve as an implementation of the Electronic Funds Transfers Act.  The Act was passed by the U.S. Congress in 1978 as a means of protecting consumers engaged in these sorts of financial transactions.

Much of Regulation E outlines the procedures consumers must follow in reporting errors with EFTs.  It includes the steps a bank must take to provide recourse. Errors subject to these regulations could include:

• ATM errors – Consumer’s receipt of an incorrect amount of money from an ATM
• Credit card fraud – Unauthorized credit or debit card activity
• Fraudulent wire transfer – An unauthorized wire transfer to or from a consumer’s account.

Generally, banks have a period of 10 business days during which to investigate a reported EFT error.  However, this can be extended to 45 business days.  But, the bank must provisionally credit the consumer’s account with the reportedly missing funds. Banks must then report the results of an investigation to the Federal Reserve and to the consumer.   Regulation E also outlines consumer responsibility for reporting unauthorized ETF activity, typically involving a stolen or missing card.

Reg E Consumer Responsibility

For example, consumers must report lost or stolen credit cards no more than two days after the consumer becomes aware of the theft; otherwise, the bank has no obligation to refund losses.  Regulation E governs the issuance of debit but not credit cards, which are governed by regulations outlined in the Truth in Lending Act and implemented by the Federal Reserve as Regulation Z. However, Regulation E does govern EFT features of credit card usage. (Source: investopedia.com)

Electronic Funds Transfer Statistics 

According to the World Cash Report, 43 percent of Americans report that they prefer to use their debit cards to make purchases. There are 434,000 ATMs in the U.S. and 13.9 million point-of-sale terminals that accept debit cards.

The Federal Reserve Payments Study reveals that debit payments using cards have increased in number by 10 percent, while remote payments with cards have increased by 22 percent. This shows the importance of knowing your rights as a consumer when using ETFs.

Which Electronic Fund Transfers are Protected?

Multiple types of electronic fund transfers are protected under Reg E, including the following:

• ATMs
• Debit cards
• Direct deposit
• Electronic checks
• Internet EFTs
• Pay-by-phone transfers
• Credit card only when using EFT functions

When people want to complete EFTs at ATMs, Reg E mandates that they are allowed 24-hour access to make deposits or withdrawals at the machines. Debit cards are issued by financial institutions and allow consumers to make purchases at businesses or online. These transactions with debit cards are also covered by Regulation E. However, the law does not cover regular credit card payments, prepaid phone cards, gift cards, and stored-value cards.  Protection applies to direct deposits. This includes pre-authorized deposits into your bank account or recurring bill payments that are taken out. Electronic checks are also covered. This is when a paper check is converted into an electronic payment.

Reg E mandates that you are allowed internet access to your account statements, transfers, and online bill payment information. This covers pay-by-phone, which is when you authorize your bank to make payments for you or to transfer funds over the telephone. Finally, while credit cards are generally not covered under Regulation E, it does apply when you use your credit card’s EFT capabilities.  (Source: m1finance.com)

What is not Protected by Reg E? 

There are many financial transactions that Reg E does not cover. It does not protect business accounts or preauthorized plans. These are automatic transfers from an account that is held in a financial institution’s name to an account that is held by the consumer.

Reg E protections and the Electronic Funds Transfer Act also do not apply to all electronic funds transfers. Some financial institutions, vendors, and banks offer cash-value cards that have the value shown on the card itself. Electronic funds transfer with these cards is not covered. These include such things as public transit passes, prepaid telephone cards, and store gift cards. Additionally, Regulation E does not give consumers the right to stop payments on electronic transfers they have made.

Reg E – Institutional Requirements

Financial institutions and banks have multiple requirements that they must follow under Reg E and the Electronic Funds Transfer Act regarding electronic funds transfers.

• Liability Disclosures – They must provide disclosures to consumers that provide them with information about liability for unauthorized transfers and transactions. It must outline the procedures that consumers follow to report electronic funds transfer errors.
• Notification and contact information – The disclosure must provide the contact information of the people who should be notified in case an unauthorized transaction occurs.
• Claims information – It should provide the proper procedure to report the transaction and the procedure on how to file a claim.
• Types of transfers, fees, and limitations – The types of transfers that you are allowed to make and the fees that are associated with each of them must be listed. It must also tell you about any limitations that might exist. For example, if your financial institution limits the number of electronic funds transfers that you can make from your account each month, you should be told this.
• Customer rights – You should also be told by your bank or a financial institution of your rights, including your right to receive statements and point-of-sale purchase receipts.
• Liability disclosure – Your institution should disclose its liability to you in the event that it fails to stop or make certain transactions on your behalf.
• Privacy policy – Your financial institution must also disclose the circumstances under which it will share your account information with third parties.

It should also include information about how long you have to make a report, how to report an error, and how to ask for more information. Finally, financial institutions are required to provide notice of additional fees that it charges to use an ATM.

Electronic Signatures in Global and National Commerce Act 

Consumer authorization must be acquired for electronic transfers.  This can be done by signature or authenticated by the consumer using an electronic signature. The Electronic Signatures in Global and National Commerce Act is a federal law that was enacted in 2000. It recognizes that electronic signatures and electronic records that are used in interstate commerce are valid. This law was written to make certain that contracts that are entered into online are recognized as legally binding.

Each state also has its own laws regarding electronic signatures and records. However, federal law is the only one that specifically covers e-commerce.  This authorization can be in paper form or an electronic signature.  In order to comply with Regulation E, the format must be recognizable as the consumer and provide confirmation of the consumer’s consent to authorize.

Consumer Protection and Reg E

The Consumer Financial Protection Bureau is mandated with protecting consumers by enforcing consumer protection laws. In its capacity, the Consumer Financial Protection Bureau enforces Regulation E.  Under Reg E, there are several things that you must do when there are unauthorized transactions on your account due to identity theft or to a lost or stolen debit card.

• Unauthorized transactions – You have 60 days to report the unauthorized transaction to your bank or financial institution. The time period begins on the date that the first statement containing the transaction was issued. This makes it important for you to review your statements each month carefully when you receive them.
• Lost or stolen ATM or debit cards – You also must tell your bank immediately if your ATM or debit card has been stolen or lost. The EFTA limits your liability to $50 if you make the report within two days. If you wait and make your report within 60 days, you could be liable for up to $500 in losses.

Once you have reported your card as lost or stolen and have reported an unauthorized transaction, your financial institution must open an investigation of your claim. It must be started in 10 business days of your notification and may take up to 45 days to be completed. At the conclusion of the investigation, if the bank finds that the transaction was unauthorized, it will have to give you back the disputed money.  Your bank must tell you what it found within three days of the conclusion of the investigation. If it rules in your favor, it will have one business day to fix the error.

Consumer Remedies Under Reg E

The Consumer Financial Protection Bureau allows you to file a lawsuit against your bank or financial institution if it does not credit money back to you or correct an error for an unauthorized EFT. By filing a lawsuit, you may be able to recover damages in court.  If the institution fails to prevent an electronic funds transfer after you reported your card as lost or stolen and asked to have your account frozen, you may also be entitled to damages. The damages that may be available to you include the money that you lost in the unauthorized electronic funds’ transfer. You may also be able to recover punitive damages ranging from $100 to $1,000 along with court fees and attorney’s fees.

Reg E – Bottom Line

Consumers should make sure they are complying with federal regulations when reporting errors.  This is to ensure notice is given in a timely manner.  Also, to make sure their financial institutions are complying and to avoid liability. Financial institutions should circulate these regulations internally. This is to make sure all their employees are aware of the responsibilities and liability for non-compliance.

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