The Federal Reserve used a recent issue of Consumer Compliance Outlook® to highlight the continued importance of compliance with error resolution requirements of the Electronic Fund Transfer Act (EFTA) and Regulation E1.
According to data from the Fed, violations of the EFTA were among the most cited consumer compliance violations in examinations of state member banks in 2022.
Regulation E assigns responsibilities to financial institutions and awards protections to consumers in connection with accounts with electronic fund transfer (EFT) capabilities. EFTs include ACH transfers, POS transfers, and ATM transfers, among many others.
One specific financial institution responsibility is to establish and execute error resolution procedures. Generally, when a consumer asserts an error, the institution has a responsibility to investigate, resolve, and report the outcome of the investigation to the consumer.
According to the Fed, examiners cited violations in connection with the following error resolution requirements:
- Not promptly investigating – Regulation E requires institutions to investigate error claims within a specified time frame after receiving notice. Notice from the consumer needs only allow the institution to identify the consumer's name and account number. Examiners observed some institutions failed to promptly begin an investigation upon notice.
- Not providing provisional credit – The “standard” time frame for error resolution completion is within 10 business days of receiving an error notice. When an institution cannot complete its responsibilities within 10 business days, it may provide provisional credit to extend the time frame to 45 or 90 days. This extension is only effective if the customer has full access to the provisional credit during the investigation. Examiners observed some institutions did not provide full access to the funds during the investigation.
- Not conducting an adequate investigation – An investigation must include a review of relevant information of the institution’s own records. Regulators noted some institutions denied consumer claims without performing an adequate investigation.
- Written notice – An institution is required to provide written notice to the consumer when it determines no error has occurred. This written notice must include specific language. Examiners noted that some institutions failed to explain the outcome of the investigation to the consumer and did not inform them of their right to request the documentation relied upon in making its determination.
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- 1“Top Federal Reserve Compliance Violations in 2022 Under the Fair Credit Reporting Act and the Equal Credit Opportunity Act.” consumercomplianceoutlook.com, Fourth Issue 2023.