What is Regulation E in Banking?

In the intricate realm of banking and finance, consumer protection is paramount. One of the key regulations designed to safeguard the interests of consumers is Regulation E. This federal regulation, established under the Electronic Fund Transfer Act (EFTA) by the Federal Reserve Board in 1978, aims to protect consumers engaging in electronic funds transfers (EFTs). Whether bank account holders utilize direct deposit, visit ATMs, or make payments over the phone, Regulation E is designed to help protect their funds in the event of mistaken or unauthorized charges.

What is Regulation E?

Regulation E serves as a comprehensive set of guidelines and rules that govern electronic funds transfers, ensuring fairness, transparency, and security for consumers. It is an integral component of the Electronic Fund Transfer Act, which was enacted to establish the rights and liabilities of consumers and financial institutions involved in electronic transactions.

The primary objectives of Regulation E include providing consumers and financial institutions with clear and accurate information about electronic transactions, establishing procedures for resolving errors, and protecting consumers against unauthorized transactions. It applies to various electronic payment methods, shaping the landscape of electronic banking and financial transactions. 

6 Types of Transactions Covered Under Regulation E

Here are six common types of transactions that fall under the protective umbrella of Regulation E:

Point-of-sale (POS) Transfers

Point-of-sale transfers occur when consumers use their debit cards to make purchases from a business such as a retail location, restaurant, or even an online marketplace.

ATM Transfers

Automated Teller Machines (ATMs) are everywhere in modern banking. Regulation E extends its coverage to ATM transactions, safeguarding consumers against errors or unauthorized withdrawals made through ATMs.

Direct Deposit Transactions

Direct deposit is a convenient method for receiving recurring payments, such as salaries or government benefits, directly into a bank account.

Automated Clearing House Transfers

The Automated Clearing House (ACH) system facilitates electronic fund transfers between banks. ACH payments and deposits include business-to-business (B2B), consumer, and government transactions. 

Debit Card Transactions

Debit cards are integral to modern banking, allowing consumers to make purchases and withdrawals easily.

Telephone Transfers

Even with the advancement of online banking, telephone transfers are still a common method for paying bills.

What is Not Covered Under Reg E?

While Regulation E provides comprehensive coverage for various electronic funds transfers, certain transactions and scenarios fall outside its purview. Understanding what is not covered is equally important for financial institutions. 

Credit Cards

Regulation E does not cover credit card transactions. The regulation is specific to electronic funds transfers, and since credit cards involve a different mechanism of payment, they are not subject to Regulation E protections.

Wire Transfers

Regulation E does not cover wire transfers involving the direct transfer of funds between banks. These transactions typically fall under a different set of regulations and protocols.

Transactions Involving Paper Checks

Regulation E encompasses various electronic transactions. It does not extend to transactions involving paper checks.

Special Circumstances to Consider

While many consumers may think Regulation E will protect them with all EFTs, that may not be the case. Here are two unique circumstances worth observing: 

Person-to-person Payment Services

In the era of digital payments, person-to-person (P2P) payment services have gained popularity. P2P platforms like Zelle allow users to send money immediately and efficiently to family, friends, and colleagues. However, P2P transfers enter a gray area in terms of Regulation E coverage. For instance, consumers can only receive a credit via P2P instead of a debit in a situation where a product or service wasn’t properly received. Filing a Regulation E claim can be tricky because the account holder authorized the initial transaction. While the seller may have defrauded the buyer, the P2P platform did not. 

Special Offers

When consumers sign up for a “trial offer,” they may be agreeing to more than they bargained for. Many don’t realize that trial periods often automatically roll over into a monthly subscription once they end. It’s up to the consumer to stay on top of canceling the free offer before it expires in order to avoid paying for the subscription. Regulation E will not support a claim should consumers decide to file one. Consumers should take the dispute to the merchant or vendor issuing the free trial. 

How Does the Reg E Dispute Process Work?

When consumers encounter errors or unauthorized transactions covered by Regulation E, they have the right to dispute the charges. The dispute process is designed to provide a fair and efficient resolution for consumers. Here’s a step-by-step overview of how the Regulation E dispute process typically works:

Your Financial Institution is Notified

If a consumer feels there is an unauthorized transaction or an error with the electronic funds transfer, it’s important they contact your financial institution immediately. Displaying your bank’s phone number on the back of the debit card or your website makes communicating with your bank convenient for consumers. 

Filing a Claim

Even if a dispute is reported to a bank representative over the phone, a financial institution may require consumers to submit the dispute in writing. Each bank is different. Some of the information needed to process the claim may include: 

• The exact dollar amount in question
• The type of product or service
• The date of the transaction
• The date the transaction actually posted to the account
• The name of the vendor or merchant 
• If the debit card was lost or stolen

If consumers are unsure whether or not the transaction is covered under Regulation E, it can still be helpful for them to file the dispute. Banks can create loyal customers when they display a willingness to intervene on behalf of the defrauded consumer. 

The Investigation

Upon receiving a dispute claim, the financial institution investigates the alleged error or unauthorized transaction. Regulation E dictates that banks must respond to a dispute within ten business days.

A Provisional Credit

While the investigation is ongoing, Regulation E allows financial institutions to provide provisional credit to the consumer’s account. It ensures that the consumer has access to the disputed funds during the investigation period. The bank may also take precautionary steps to safeguard the account, like changing the account number or issuing a new debit card.

Resolution

Under the framework of Regulation E, banks are required to resolve the dispute within 45 days. If the complexity of the case involves a foreign account, banks are allowed 90 days to resolve the case. Claims that are determined to be valid should result in a refund.

Along with resolving a consumer’s dispute, a filed claim can help banks identify vendors or payment apps frequently cited for customer disputes over EFTs.

Discover Reg E Training from BankersHub

Navigating the intricacies of Regulation E can be challenging for financial institutions. BankersHub is a leading provider of financial certifications and training solutions. We craft all of our courses around the needs of banking professionals. Join us for our webinar, Reg E vs. ACH: Friends or Foes. We’ll explore how ACH Entries differ from other electronic transactions under Regulation E. From on-demand webinars to certifications, BankersHub can help you expand your knowledge of the ever-changing landscape of today’s financial environment.