Regulation E Changes for 1999

by Andy Zavoina

Some important changes to Regulation E took final effect on April 1, 1999. Key changes to the regulation include a reduced period to provide provisional credit on Point-of-Sale (POS) claims and a 20 day rule for claims involving a new account.

POS Claims
Under the old rule, banks had 20 days to investigate POS claims or post provisional credit. Claims could then take as long as 90 calendar days to be completed. Under the new rule, all claims investigations will be completed within 10 business days or a provisional credit will be required. The only exception to this is the New Account Rule.

The New Account Rule provides that if a customer files an electronic fund transfer error claim within the first 30 days of the initial deposit, the institution has 20 days to investigate the claim or to pay a provisional credit. If the bank posts the credit within 20 days, it may take up to 90 days to complete its investigation.

Institutions also have up to 90 days to investigate POS claims and foreign-initiated debit card claims. Do not be confused by the term "debit card". The meaning here did not change and is not exclusive to true debit cards. Whether your institution issues debit cards or ATM cards, either combined or separated by function, they fall into this definition. The term debit card was in the text before these changes were made and true debit cards, as we know them today, became so popular.

"Foreign-initiated" also has a defined meaning. Do not confuse this with a "foreign transaction", defined as one not on your banks system and possibly subject to a surcharge. For Regulation E, a foreign transaction is one that is not initiated within a state.

In making these changes, Regulation E contains a revised definition of "new account". It includes accounts for 30 days from the date of the initial deposit. The text in the Federal Register says that to provide consistency, Regulation E will use the definition of new account according to Regulation CC.

Regulation CC's definition, however, includes an additional test. "An account is not considered a new account if each customer on the account has had, within 30 calendar days before the account is established, another account at the depositary bank for at least 30 calendar days." Considering that the New Account Rule in Regulation E was added to assist institutions in combating fraud, one could assume that this test should apply to your definition of new account. If you have had experience with a customer, the likelihood of suffering a loss due to fraud is diminished. But, Regulation E itself does not explicitly refer to Regulation CC. You may need to consult with counsel before deciding on your definition of a "new account". Also watch for future Commentary updates to explain this.

You may take advantage of the longer investigation periods only if you explain it in your disclosures. However, the Regulation's model language for disclosures has not been changed. That means that there is no safe-harbor for you. It would be a good idea to have bank counsel review the changes you propose for your disclosures. Do not forget to adjust the language on your periodic statement if you use this abbreviated method to substitute for the otherwise required annual error-resolution notice under ?205.8(b).

Andy's Tools
Under the new rules, there are five different unauthorized transaction claim scenarios. The table below provides key time frames for applying one. Remember that the customer's notice to you may be either oral or written. Your trigger dates start from this notice date. If you require the customer to provide a written claim within 10 days of an oral notice and they fail to do so, you are not required to provide provisional credit. An important note here - the regulatory changes tell you to adjust the 10 day periods to 20 days for the New Accounts Rule. This change will also adjust the period you have to wait for a written claim after an oral notice.

You now have 21 possible dates to review in your audit procedures. Caveat: Some of these are based on calendar days and some are business days. You also still need to know the dates and dollar amounts of transactions believed to be in error and whether these occurred before or after two business days of learning of the loss. These facts influence whether the customer's liability will be up to $50 or $500.

An auditing tool is available to you free of charge but without warranty from the author or Compliance Action. It is a downloadable Excel workbook that will complete your date and liability calculations, which may then be printed for retention. The file is downloadable on the web at www.vvm.com/~zavoina/cmpl.html and click on the Reg. E EFT Claim Calculator link.

Directions for use are on the first tab of the three-tab workbook. The spreadsheet on tab two allows a user to input the dates and amounts of unauthorized withdrawals, fees to be refunded and interest due to a customer's account. The third tab requires the customer's name and account number, the date the customer learned of the loss and the date the bank was notified. A list of holidays from February 16, 1998 to November 25, 1999 is already input but may be adjusted as needed. All of the input cells have yellow backgrounds which makes navigation easy. Business day calculations are based on a Monday-Friday workweek with Saturday, Sunday and the specified holidays as non-business days.

After inputting only eight field areas you will have all 21 date calculations and the liability to the customer identified. This means, too, that you will have identified your institution's liability. You then decide which one of the five scenarios applies to the account being audited and verify that the trigger dates were met.

This tool may be used for more than auditing. Your claims investigator may use it at the beginning of a claim to establish the trigger dates in advance. You then only have to verify the input and compare the trigger dates against the actual dates met.

You can adjust the spreadsheet to best suit your use and needs. For example, the table above says that you must notify the customer of the final results within three business days of completing the investigation. The spreadsheet formula will tell you when the investigation has to be completed. Based on that date it will calculate three additional business days at which time you will have had to send out your notification. If your claim is completed before the trigger date, the date representing the three additional business days must also be recalculated as it too will actually be due earlier. This tool is designed for one who is competent in Regulation E claims.

Change always means more work, even if the change is an improvement. Understand these changes and the options available to you in the Regulation E arena and you will better serve both your customers and your institution.

Standard 10 day invest.. Standard 45 day invest. New Account Rule, 20 days New Account exception, 20 days POS, foreign-transaction exception, 90 days Complete the investigation by: 10 business days from the notice date 45 calendar days from the notice date 20 calendar days from the notice date 90 calendar days from the notice date 90 calendar days from the notice date Deposit provisional credit by: Within 10 business days of the notice date Within 20 business days of the notice date Within 10 business days of the notice date Notify of the provisional credit by: Within 2 business days of the deposit Within 2 business days of the deposit Within 2 business days of the deposit Correct if the account is in error by: Within 1 business day of completing the invest. Within 1 business day of completing the invest. Within 1 business day of completing the invest. Within 1 business day of completing the invest. Within 1 business day of completing the invest. Notify customer of final rules by: Within 3 business days of completing the invest. Within 3 business days of completing the invest. Within 3 business days of completing the invest. Within 3 business days of completing the invest. Within 3 business days of completing the invest. ACTION STEPS

Review your policy and procedures for consistency with the Regulation E changes.
Review and revise your initial disclosures and periodic statement notices. Note - and make - any needed changes.
Consider making use of the New Account Rule. It may save your institution from fraud losses.
Study Andy's tools. Use them - subject to his non-warranty. As with all compliance, the liability is yours but some of the best ideas are borrowed.
Train - or simply communicate - the changes. Make sure that all front line staff know about any changes to the account disclosures.