Regulation E: Analyzing the Rules that Explain the EFTA

Historically, banks and financial institutions had legal protection in consumer financial transactions. The United States Congress did not address consumers’ legal rights until 1978. The Electronic Fund Transfer Act (EFTA) was finally created in response to improved technology and the increased use of electronic fund transfers. Regulation E was also drafted to implement the new law. These rules and regulations establish consumers’ rights and financial institutions’ obligations in modern banking and electronic payment situations.

Initially, the Federal Reserve Board created Regulation E. Then, once the Consumer Financial Protection Bureau (CFPB) was formed in 2010, it assumed responsibility for enforcing the rules. Reg. E establishes the rights and obligations of the businesses and people who use electronic fund transfers (EFTs). It is a framework that explains how the EFTA’s provisions apply to everyday life.

Why Regulation E is Important for Consumers

Protecting consumers is the primary purpose of Reg. E. When you find an unauthorized electronic transfer in your bank account, you now have the legal right to dispute it under the EFTA. Reg. E explains the process you must follow and the important deadlines that affect your potential losses. The EFTA also limits your liability for a lost or stolen debit card and other EFT situations. 

Companies that provide electronic fund transfer services must comply with the EFTA and follow the Regulation E rules to protect their customers. The companies that offer EFT services must abide by specific disclosure requirements to ensure consumers understand their rights and responsibilities when doing business with these companies. 

Reg. E also created additional rules to ensure EFT service providers comply with the EFTA. For example, financial institutions must:

• Keep track of all consumer agreements, 
• Generate and provide periodic account statements, 
• Establish error resolution procedures, 
• Reimburse account fees incorrectly charged to a consumer, 
• Provide access to account information, and
• Provide a telephone number for consumers to contact the financial institution.

The full text of these rules is available at the Consumer Financial Protection Bureau site. 

Which Electronic Funds Transfers (EFTs) are covered by Regulation E?

An EFT is a financial transaction initiated by electronic means. A consumer may use a terminal like an ATM, a smartphone, or a computer to instruct a bank to credit or debit their account. The EFTA only applies to an individual’s consumer account, not a commercial or business account. Also, to be covered by the EFTA, the transfer must be an unauthorized EFT and the consumer cannot benefit from the transaction.

EFTs that involve credit cards, paper checks, wire transfers between banks or companies, and non-electronic transfers are not covered by the EFTA or Reg. E.

Common electronic fund transfers (EFTs) that Reg. E controls include:

• Transactions at automated teller machines (ATMs), including debit card transactions,  
• Purchases made with debit cards, 
• Peer-to-peer (P2P) app money transfers, 
• Direct deposit of government benefits like Social Security payments, 
• Point of sale transactions,
• Remittance transfer options (international money transfers), 
• Payroll direct deposits using ACH systems, and 
• Other electronic purchases of products and services.

If you have used any of these banking or payment methods, it’s critical to closely monitor your financial accounts for errors, unfamiliar transactions, and unauthorized transfers. The EFTA will protect you, but only if you take specific steps as soon as possible.

What to Do if You Find Unauthorized Transactions in Your Account

Regulation E requires consumers to help protect their financial accounts. As a consumer, you must discover account problems and report them as quickly as possible. The sooner you notify your bank about an issue, the more protection you will receive.  Reg. E explains three timeframes that dictate the amount of money you may lose. 

Your liability depends on when you notify your financial institution about an unauthorized transfer. You can call your bank or visit a local office to report a problem immediately. The bank may also require written notice after you call or walk in. 

We highly recommend that you prepare and submit a written notification even if you have previously called to report a problem. Include all documentation related to the unauthorized transfer and send your notice by certified mail. Request a return receipt to prove when the bank received your information. Be sure to dispute all unauthorized transfers and keep copies of everything you send to protect yourself.

How to Limit Your Losses Under the Electronic Fund Transfer Act and Reg. E

The law in this area is very complicated. To help consumers navigate the EFTA and Reg. E requirements, we created a detailed Consumer’s Guide to the Electronic Funds Transfer Act. This thorough explanation includes real-life examples and a handy chart to help explain the complex rules that can affect your rights.

Generally, you should tell your financial institution about account problems as soon as possible. The EFTA and Regulation E establish three notification timeframes that limit how much money you can lose when you report an unauthorized transaction.

The Two-Business Day Rule

If you report a problem within two business days of discovering the issue, your losses are capped at $50. For example, someone may steal your debit card and try to empty your bank account. If you notify your bank within two days of realizing your card was stolen, your losses should not exceed $50, even if the thief stole $5,000 from the account.

The 60-Day Window

If you discover an unauthorized transaction but don’t report it within the first two business days, you can lose more than $50.  Your potential loss increases to $500 if you act within 60 days. For example, if your monthly bank statement reveals an unauthorized transaction and you notify the bank after two business days but before 60 days from the date on that statement, your maximum loss could be $500. 

Beyond the 60-Day Window

If you don’t report an unauthorized EFT to your bank within 60 days from the statement that first disclosed the problem, you may lose more than $500. Your liability may be unlimited after 60 days until you finally notify your bank. Unfortunately, you may face extensive losses if you wait too long to notify your bank.

These provisions are complicated and interrelated. Your potential liability may be different. Consult with an experienced Regulation E lawyer at Schlanger Law Group to help you analyze your unique circumstances and calculate your potential liability.