Promptly Investigating Under Regulation E
In this Compliance Clip (video), Adam breaks down the requirement to investigate “errors” promptly under Regulation E. This video gives an overview of the rule and provides a great case study of “what not to do” regarding delaying investigations - and how doing so can have major consequences, such as UDAAP violations. If you are delaying investigations of Reg E claims for any reason, Adam will show you how this might be a major problem for you.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about promptly investigating under Regulation E. This is an area we have continued to see some issues relating to, so we thought we would talk about this here in a Compliance Clip.
1005.11(c)(1) of Regulation E requires financial institutions to investigate all errors promptly. As you recall, what we're talking about here in Regulation E is a dispute. When a customer has a transaction that's considered to be an error, which could be an unauthorized EFT or a number of things, when there is an error and they dispute that, you as a financial institution have to go through an investigation process. So you have to dispute that. For example, if I am here presenting to you today and a transaction occurs in Southern California, which I am not located in, believe it or not, I could call your financial institution and dispute that and say, “Hey, I did not do that transaction and that was not me.” So that's covered under Regulation E. We all understand that.
Now, what the rule says is you must investigate errors promptly. When you receive a notification, investigating promptly applies to both notifications that come through written requests as well as oral requests or oral disputes. So when a customer contacts you, you must promptly investigate whether or not the dispute is in writing. The bottom line here, what we see as a problem is a lot of times financial institutions have somehow missed a requirement that a verbal notification is absolutely a trigger for you to start your investigation. That's what the rule says.
Now, a lack of prompt investigation can actually result in both a violation of Regulation E, as well as a violation of the Federal Trade Commission's rule under unfair, deceptive, or abusive acts and practices, otherwise known as UDAAP. So it's very important that you start your investigations promptly. In fact, we've seen a couple of cases over the last couple of years, and really the last decade, relating to Regulation E and UDAAP due to financial institutions not investigating promptly.
Most recently, what we saw in early 2019 was a consent order with the CFPB in regards to USAA Bank. What happened was USAA Bank was not investigating promptly when a customer would dispute a transaction that was covered under Regulation E. Essentially, what USAA was doing was requiring customers to complete a written form. So if a customer would notify me by phone, I would say, “Sure, we can start that investigation as soon as you complete this written document that I provide to you.” USAA was sending out this written document to customers, customers had to complete that and return it within 10 business days, otherwise, USAA was refusing to investigate the dispute which is not permitted under Regulation E. Again, you must dispute promptly upon both a written and verbal notification.
Also, we've seen another example of this over the years relating to financial institutions that were requiring police reports prior to conducting an investigation. What was happening here was some financial institutions were saying, look, “Mr. Customer, we would be happy to investigate this for you, but in order for us to investigate, we need you to complete a form, and to do that, you need to actually fill out a police report.” So the idea was that sometimes there was fraud going on, or at least the bank thought that there's fishy activity going on where it was somebody’s girlfriend, or ex-girlfriend, or sister, and they said basically, “Look, if you file a police report, we will believe you that this is a legitimate claim.”
Well, what they were essentially doing was they were not promptly investigating, and they were requiring customers to jump through more hoops than is permitted under Regulation E, and that was considered to be both a violation of Regulation E and a violation of UDAAP. The bottom line is, as a financial institution, you must ensure that you're investigating all errors promptly upon both a written and verbal notification.
That's all I have for you today in this Compliance Clip.