What Does Reg E Cover Regarding Electronic Fund Transfers?

Regulation E, often referred to as Reg E, is a federal regulation designed to protect consumers who engage in electronic fund transfers (EFTs). Enacted as part of the Electronic Fund Transfer Act (EFTA), Regulation E establishes rights, liabilities, and responsibilities for consumers and financial institutions involved in electronic fund transfers. The Consumer Financial Protection Bureau (CFPB) is the government agency tasked with interpreting and implementing the provisions of this regulation.

Types of Electronic Fund Transfers Covered

Regulation E applies to electronic fund transfers, defined as any transfer of funds initiated through an electronic terminal, telephone, computer, or magnetic tape to instruct a financial institution to debit or credit a consumer’s account. Withdrawals, deposits, and transfers made at automated teller machines (ATMs) fall under Reg E.

Debit card transactions are covered, encompassing purchases at point-of-sale (POS) terminals, online payments, and other transactions using a debit card. Direct deposits, such as paychecks, government benefits, or tax refunds, and preauthorized electronic bill payments, which are recurring deductions, are also included. Transfers conducted through online banking platforms, including moving money between accounts or sending funds to third parties, are subject to these rules. Person-to-person (P2P) payments through electronic services, like mobile payment apps, are also covered. If a paper check is converted into an electronic payment, it becomes an electronic check conversion subject to Reg E.

Consumer Protections and Required Disclosures

Regulation E outlines consumer protections, especially regarding liability for unauthorized transfers and the right to dispute errors. If a consumer’s debit card or account information is lost or stolen and used for unauthorized transactions, their liability is limited based on how quickly they report the incident. If the consumer notifies their financial institution within two business days of learning about the loss or theft of an access device, their maximum liability is the lesser of $50 or the actual amount of unauthorized transfers that occurred before the notification.

Should the consumer fail to report the loss or theft within two business days, their liability can increase to a maximum of $500. This higher limit applies to unauthorized transfers occurring after the initial two-day period but before the consumer provides notice. If unauthorized transfers appear on a periodic statement and the consumer does not report them within 60 calendar days after the statement was sent, they could face unlimited liability for all unauthorized transfers that occur after the 60-day period. However, the financial institution must demonstrate that these later transfers would not have occurred had timely notice been provided.

Consumers have the right to have errors investigated and resolved by their financial institution. An “error” under Reg E encompasses unauthorized electronic fund transfers, incorrect transfers to or from an account, and the omission of an EFT from a periodic statement. It also includes computational or bookkeeping errors made by the financial institution regarding an EFT, receiving an incorrect amount of money from an ATM, or a request for clarification regarding an EFT.

Financial institutions must provide consumers with disclosures to ensure transparency. Initial disclosures inform consumers about the terms and conditions of their electronic fund transfer services. Periodic statements, provided monthly, detail account activity, allowing consumers to monitor transactions. For preauthorized transfers, consumers have rights to notices regarding stopping payments. Financial institutions must also provide notices when there are changes in terms related to EFT services.

Resolving Errors and Unauthorized Transfers

When a consumer identifies an error or unauthorized transfer, promptly report it to their financial institution. Consumers can report errors orally or in writing. While oral notification is permitted, written notification is advisable as it creates a clear record. The report should include the consumer’s account number, the date and amount of the suspected error, and a clear explanation of why they believe an error occurred.

Once an error is reported, the financial institution has responsibilities and timelines for investigation. The financial institution must complete its investigation and report results to the consumer within 10 business days of receiving notice. In certain circumstances, such as for new accounts, point-of-sale transactions, or transactions initiated outside the U.S., this period can extend to 45 or up to 90 days.

If the investigation cannot be completed within 10 business days, the financial institution must provisionally credit the consumer’s account for the disputed amount, allowing access to funds during the extended investigation. Consumers should be notified of this provisional credit within two business days. If the financial institution determines that no error occurred, it must provide a written explanation of its findings within three business days of concluding the investigation and can reverse any provisional credit. Consumers may be asked to cooperate with the investigation by providing additional documentation if requested.

Transactions Not Covered

While Regulation E provides protections for electronic fund transfers, certain transactions are excluded from its coverage.

Traditional paper check transactions, though electronic conversion of a paper check can be covered.
Wire transfers, domestic or international.
Credit card transactions, governed by separate regulations like the Truth in Lending Act and Regulation Z.
Transfers involving securities or commodities.
Electronic transfers between businesses (B2B transfers).
Transfers between accounts at the same financial institution, unless initiated through an electronic terminal, telephone, computer, or with a debit card.