What Is Regulation E?
Regulation E is a regulation put forth by the Federal Reserve Board that outlines rules and procedures for electronic funds transfers (EFTs) and provides guidelines for issuers of electronic debit cards. The regulation is meant to protect banking customers who use electronic methods to transfer money.
Understanding Regulation E
Regulation E provides guidelines for consumers and banks or other financial institutions in the context of EFTs. These include transfers with automated teller machines (ATMs), point of sale transactions, and Automated Clearing House (ACH) systems. Rules pertaining to consumer liability for unauthorized card usage fall under this regulation as well.
Consumers and financial institutions both have an interest in understanding Regulation E’s guidelines.
Regulation E was issued by the Federal Reserve (Fed) as an implementation of the Electronic Fund Transfer Act, a law passed by the U.S. Congress in 1978 as a means of protecting consumers engaged in these sorts of financial transactions.
Much of Regulation E outlines the procedures that consumers must follow in reporting errors with EFTs, and the steps that a bank must take to provide recourse. Errors subject to these regulations could include the consumer’s receipt of an incorrect amount of money from an ATM, unauthorized credit or debit card activity, or an unauthorized wire transfer to or from a consumer’s account.
- Regulation E outlines rules for electronic funds transfers and provides guidelines for issuers and sellers of debit cards.
- It was enacted to protect consumers.
- It’s essential for both consumers and financial institutions to have an interest in understanding Regulation E’s guidelines.
Generally, banks have a period of 10 business days during which to investigate a reported EFT error. This can, however, be extended to 45 business days provided that the bank provisionally credits the consumer’s account with the reportedly missing funds. Banks then must report the results of an investigation to the Fed and to the consumer.
Regulation E also outlines consumer responsibility for reporting unauthorized EFT activity, typically involving a stolen or missing card. For example, consumers must report lost or stolen credit cards no more than two days after the consumer becomes aware of the theft; otherwise, the bank has no obligation to refund losses.
Regulation E governs the issuance of debit but not credit cards, which are governed by regulations outlined in the Truth in Lending Act and implemented by the Fed as Regulation Z. However, Regulation E does govern EFT features of credit card usage.
Consumers should make sure that they are complying with federal regulations when reporting errors, to make sure that their financial institutions are complying and to avoid liability. Financial institutions should circulate these regulations internally to make sure that they have no difficulty in complying.
Example of Regulation E
If you have a bank account, Regulation E has some important benefits. It delineates your rights for disputing ATM or debit card transactions if you believe an EFT has been made in error.
This includes counterfeit errors as well as accidental ones. For example, if you decide to cancel a TV streaming subscription service, but you see an additional charge for membership after the cancellation, you could ask the streaming service for a refund, and if you are refused, you could dispute the transaction with your bank according to Regulation E rules.
Enforcement of Regulation E
Very specific rules for compliance by the EFT service provider are established in Regulation E. These requirements include keeping track of consumer agreements, providing periodic statements, error resolution, reimbursement of fees incorrectly charged to the consumer, providing access to account information, disclosing a telephone number that the consumer can use to contact the financial institution, and so on.
Enforcement depends on various sources of information to identify possible issues that may lead to opening an investigation, including:
- Consumer complaints
- The whistleblower hotline of the Consumer Financial Protection Bureau (CFPB)
- Referrals from federal regulators and other local, state, and federal agencies
- Market intelligence
- The results of supervisory exams
Other factors that weigh in on whether an investigation is initiated include if:
- There is a set of facts that, if proven, would amount to a violation of one or more federal consumer financial laws
- There is reason to believe that one or more entities is involved in the conduct described in the facts
- There is evidence of a level of harm that justifies use of resources
- There are enough resources available to address the matter
A description of the CFPB’s enforcement work (November 2020) can be found here.
How does Regulation E protect me?
Regulation E allows you to dispute these types of errors:
- Unauthorized electronic funds transfers (EFTs)
- Incorrect EFTs to or from your account
- Omission of an EFT from your bank statement
- Computational or bookkeeping errors made by your bank regarding an EFT
- Receipt of an incorrect amount of money from an automated teller machine (ATM) or other electronic terminal
- Errors involving pre-authorized transfers
- Requests for additional information or clarification concerning an EFT (citation)
How does Regulation E protect me if my debit card is stolen?
Regulation E limits your liability if your debit card is lost or stolen. The sooner that you report a lost or stolen debit card, the lower your maximum liability is if unauthorized charges are made with the card. The longer that you wait to report a lost or stolen debit card, the higher your personal liability will be if the card is used for unauthorized charges.
A guide to consumer liability for lost or stolen debit cards can be found here.
Does Regulation E cover credit cards?
No. Credit cards are covered by the Truth in Lending Act of 1968, modified in 2009 by the Credit Card Accountability, Responsibility, and Disclosure (Credit CARD) Act, but they are not covered by Regulation E, which only covers consumers when they use EFTs.
The Bottom Line
Regulation E was enacted under the CFPB, the regulatory agency that oversees financial products and services offered to consumers. The CFPB was created in 2010. Regulation E establishes the basic rights, liabilities, and responsibilities of consumers who use EFTs and remittance transfer services, and of the financial institutions or others that offer these services.