If you have a bank account, use a debit card, use an ATM, make payments over the phone or make direct deposits, it’s a good idea to familiarize yourself with Regulation E.
This law, commonly referred to as Reg E, protects you if funds are fraudulently or mistakenly withdrawn from or deposited into your account by electronic means.
What is Regulation E and what protections does it provide?
Regulation E is a federal regulation that protects consumers from fraudulent Electronic Funds Transfers (EFTs) to or from their bank accounts. The regulation provides consumers with a process to dispute unauthorized or erroneous EFTs, such as unauthorized debit card withdrawals, and limits consumers’ liability for lost or stolen debit cards.
Reg E also outlines the responsibilities of financial institutions that participate in EFT. Reg E is an implementation of the Electronic Funds Transfer Act (EFTA), a federal consumer protection law.
What types of transactions are covered by Reg E?
Regulation E applies to any EFT, which the Consumer Financial Protection Bureau (CFPB) defines as “a transmission of funds initiated by electronic terminal, telephone, computer, or magnetic tape for the purpose of ordering, directing, or authorizing a financial institution to debit or credit a consumer’s account.”
The next type of transaction is an EFT, which falls under Reg E.
- Point of Sale Transfers
- ATM transfer
- Direct deposits and withdrawals (Automated Clearing House (ACH) transfers)
- Debit Card Transactions
- Transferring money over the phone (e.g. paying bills)
- Personal payments with Zelle
- Gift Cards
What is not covered by Regulation E?
Not all electronic account transactions are covered. The following transactions are not subject to Reg E:
- Transfer of funds by check or similar paper instrument
- wire transfer
- Credit Card Transactions
There are several scenarios where consumers think they’re protected by Reg E but aren’t. For example, if they sign up for an introductory or trial offer for a product but don’t understand that they’ll be signed up for a monthly subscription to that product once the offer ends, that doesn’t fall under Reg E, says Kelly Pickle, director of enterprise risk and senior vice president at Minnesota-based Heritage Bank.
“[People]don’t necessarily read the fine print,” Pickle said. “At the end of the day, you have to cancel within 30 days or you’re signed up for this subscription.”
In that case, Pickle says the dispute should be discussed with the vendor or merchant.
“There are two questions: Did you intend to make that purchase or did you not intend to make that purchase? If you did, it’s not a Reg E claim,” said Hank Israel, managing director at Curinos, a data intelligence business that provides financial institutions with services.
“Is it a vendor issue or a bank issue? That’s the question.”
Reg E parameters can also get a bit murky for mobile payment applications that enable peer-to-peer (P2P) transfers, such as Zelle. Zelle is a popular P2P application that requires users to log into their account before sending a payment.
“No one can debit your account through Zelle,” Israel points out, “you can deposit money, but you can’t withdraw money. If you initiate a payment from an account logged in with your credentials, push a payment to someone else, and then don’t receive the money you paid, that’s a gray area situation.”
“When you file a Reg E petition, you’re saying, ‘I’m not approving this.'”
Israel relates a personal experience to illustrate his point: He bought a $75 item online and paid with his PayPal account. “What arrived in the mail was not what I ordered,” he says. “Did I authorize the PayPal payment? Yes I did. Did I get scammed? Yes I was, but it wasn’t through PayPal.”
File a Reg E protest against the bank
According to Israel, most banks will have a phone number on the back of their debit cards that consumers can call to connect with the right person to file a Reg E dispute.
“Banks have time to assess the situation and can provide interim loans,” he said. “They might change account numbers or replace debit cards to ensure they are locked down.”
Some banks may require you to submit your dispute in writing, even if you have already reported it to a bank representative over the phone.
You’ll need to provide some information, such as:
- The amount of the transaction you are disputing
- Type of product or service
- Transaction Date
- The date the transaction was recorded in your account
- Have you lost your debit card?
Israel encourages consumers to file a dispute even if they’re unsure whether a transaction qualifies for Reg E. “Banks care about their customers, and many will try to intervene where they can.”
Another benefit of filing a dispute is that it allows your bank to see if a particular payment app or vendor is frequently cited in customer complaints, so it could help your bank detect fraudulent activity even if you don’t get your money back.
How long does the dispute process take?
According to the CFPB, Reg E requires banks to promptly investigate disputes and issue a decision within 10 business days of receiving the claim. Banks must correct errors within one business day after determining an error occurred.
If the bank cannot complete its investigation within 10 business days, it must investigate and make a decision within up to 45 days of receipt of the dispute. In such cases, the bank must generally grant a provisional credit within 10 days of receipt of the dispute.
Please monitor your account closely to limit your liability
Receiving text alerts for transactions, regularly checking your bank’s mobile app, and logging into your online bank account can help catch fraudulent transfers and prevent them from happening again. At the very least, you should review your monthly bank statements.
To avoid future transfer liability, you must report any unauthorized withdrawals that appear on your statement within 60 days of the statement date. Monitoring your accounts can also help you avoid potential liability.
- If you report a lost or stolen debit card within two business days, your liability is limited to the lesser of $50 or the amount of any unauthorized withdrawals that occurred before you notified the bank.
- If you don’t notify your bank within two days of realizing your debit card is missing, your failure to provide timely notice could increase your potential liability.
“We don’t know what’s legal and what’s not until our customers tell us,” Pickle said.
Conclusion
Whether you use a debit card, receive direct deposits, or use an ATM, familiarizing yourself with Regulation E can help protect you from fraudulent or erroneous transfers to your bank account. Filing a Reg E dispute with your bank provides relief when you learn that such activity has taken place and requires the bank to investigate promptly. Careful monitoring of your bank accounts can help you catch these types of transfers and prevent them from happening in the future.
Bankrate Karen Bennett and Libby Wells contributed to an updated version of this story.
