The folks who drafted Regulation E took error resolution quite seriously because there is an entire section of the regulation devoted to it. Section 1005.11 provides guidance on what financial institutions must do to complete the error investigation process, and it should be used as the starting point for developing procedures for resolving Electronic Fund Transfer (EFT) notice of errors.
Most financial institutions investigate and resolve EFT errors to the consumer’s satisfaction. However, we occasionally find the following violations during our testing of the EFT error resolution process:
- Employees, in particular frontline staff, do not immediately send error notices to the appropriate department for investigation and resolution.
- §1005.11(c)(1) requires a financial institution, with respect to any oral or written notice of error from the consumer, to promptly investigate the error. Management should ensure all employees are trained to immediately alert the proper department of an EFT error notice so the investigation can begin promptly.
- Another common mistake is the practice of requiring a consumer to provide a written or signed confirmation of the error before initiating an investigation and denying a claim because written confirmation or a signed form was not received.
- Per the commentary in §1005.11(b)(2), a financial institution may request a written, signed statement from the consumer relating to a notice of error; however, it may not delay initiating or completing an investigation pending receipt of the statement, and the financial institution need not provide provisional credit to the consumer’s account if written confirmation is not provided. In other words, a financial institution must investigate and resolve an error even if the consumer does not provide the requested written confirmation or signed form.
- Similarly, requiring a police report or a signed fraud affidavit before initiating an investigation or denying a claim because they were not provided is prohibited per the regulation. (See regulatory citations listed above and below, as well as the omission of any reference in 12 CFR 1005.11 allowing the financial institution to require these documents.)
- Also, we’ve identified some financial institutions that have required the consumer to work with the merchant prior to investigating an EFT error. Regulation E does not provide this as an exception for investigating a claim and requires a financial institution to begin an investigation once the following are received:
- Per §1005.11(b)(1), a financial institution shall comply with the requirements with respect to any oral or written notice of error from the consumer that:
- Is received by the financial institution no later than 60 days after the institution sends the periodic statement or provides the passbook documentation on which the alleged error is first reflected;
- Enables the financial institution to identify the consumer's name and account number; and
- Indicates why the consumer believes an error exists and includes to the extent possible the type, date, and amount of the error.
- In addition, we find that financial institutions do not always notify consumers when an investigation has been completed and give them the results of the investigation.
§1005.11(c) and §1005.11(d) require communicating this information to the consumer.
- §1005.11(c)(1) and (c)(2)(iv) require a financial institution to report the results to the consumer within three business days after completing its investigation (including, if applicable, notice that a provisional credit has been made final).
- §1005.11(d) requires if no error or a different error is found:
- The financial institution must report the results of its investigation, including a written explanation of the institution's findings and the consumer's right to request the documents that the institution relied on in making its determination.
- Upon debiting a provisionally credited amount, the financial institution must notify the consumer of the date and amount of the debiting and that the institution will honor checks, drafts, or similar instruments payable to third parties and preauthorized transfers from the consumer's account (without charge to the consumer as a result of an overdraft) for five business days after the notification.
- Alternatively, the financial institution can notify the consumer that the consumer's account will be debited five business days from the transmittal of the notification, specifying the calendar date on which the debiting will occur.
As you will see when you review §1005.11, there are many steps to ensure an investigation is handled properly. To ensure all requirements of the regulation are met, we recommend developing or enhancing written procedures for handling EFT error notifications. We find that checklists for this process assist staff and help limit the number of findings. And, as always, management should fully train staff who are responsible for handling Regulation E errors.