New Reg E Disclosure?

Answer by: Mary Beth Guard
Amendments to Reg E's Official Staff Commentary, which took effect March 15th but had a mandatory compliance deadline of January 1, 2002, brought three things within the scope of coverage of Regulation E: electronic check conversions, certain computerinitiated bill payments, and fees associated with RCK (returned check) entries where the merchant or his representative sends through an electronic debit for the amount of the returned check plus a fee.

In my opinion, there's no easy answer to your question because the Federal Reserve did not explicitly state that new disclosures are required, yet it can be argued that they may be, depending upon how your original disclosure was written. Reg E's initial disclosure provision in Section 205.7 says that an initial disclosure must be given "at the time a consumer contracts for an electronic fund transfer service or before the first electronic fund transfer is made involving the consumer's account." That initial disclosure is required to contain certain information, including "The type of electronic fund transfers that the consumer may make and any limitations on the frequency and dollar amount of transfers."

Look at the language in your initial disclosures. Is the description of the type of EFTs the consumer may make sufficiently broad to encompass the three new types? If not, your language should be updated and, obviously, the revised disclosure should be given to new customers.

As for existing customers, however, it's a little murkier. The revised commentary now states in Section 7(a) that "Where a consumer authorizes a third party todebit or credit the consumer’s account, anaccountholding institution that has not received advance notice of the transfer ortransfers must provide the requireddisclosures as soon as reasonably possibleafter the first debit or credit is made, unlessthe institution has previously given thedisclosures."

Let's say you had a customer who opened a checking account and received the Reg E initial disclosure at the time they got an ATM card. Now you have discovered they are patronizing merchants who are using electronic check conversion to convert your customer's checks into electronic debitts. Do you have to give a new disclosure? The conservative view (erring on the side of possible overcompliance) is that you do, unless your previous disclosure was broad enough to encompass electronic check conversions as a type of electronic fund transfer. The same is true if our example related to the type of computerinitiated bill payment that is covered, or an RCK entry that includes a fee for the returned check.

First published on BankersOnline.com 1/7/02