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Bank Obligation/Liability to Charges Under Reg E

Answered by: 
Brian Crow

Question: 
I have a customer that willingly gave her card information (not the physical card) to her daughter for legal expenses. The customer told her daughter she could pay her legal fees and nothing else. But the daughter also used the card to pay for her boyfriend's release from jail. A total of 3 charges (2 of which were the daughter's legal exp) occur over a span of about 2 weeks. The 1st charge is the daughter's, the 2nd is bail, and the 3rd is daughter's - chronologically speaking. Where does the bank stand on liability? Are we obligated to reimburse the customer for the bail payment?
Answer: 

This is one of those few occassions where Reg E will side with the card issuer. When expanding upon the definition of an unauthorized funds transfer in 1005.2(m), the official intepretations state:

2. Authority. If a consumer furnishes an access device and grants authority to make transfers to a person (such as a family member or co-worker) who exceeds the authority given, the consumer is fully liable for the transfers unless the consumer has notified the financial institution that transfers by that person are no longer authorized.

Mom is liable for this charge unless she can recover the funds from daughter or boyfriend. The bank has no liability.

First published on BankersOnline.com 8/13/12

First published on 08/13/2012

Filed under: 
Compliance
Filed under compliance as: 
Fees
Transfers

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