Reg E Disputes on Older Transactions
In this Compliance Clip (video), Adam discusses how Reg E liability and the dispute process works for older transactions. You know, when a customer comes to you two years after-the-fact and says they now want to dispute a purchase they don’t remember doing. This video explains the responsibilities under Regulation E as far as what needs done for this type of dispute.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about Reg E disputes for older transactions. In other words, when we have a transaction a customer is disputing from a couple of years ago. For example, I recently received this question. It says, “Are we required to give a customer provisional credit for a dispute on a transaction that is two years old?” So the customer has waited and waited, waited, and now they want to suddenly dispute a transaction and say, “Hey, this TV that was purchased by somebody a couple years ago, it wasn't me. So I want to dispute that and I want my money back.” Well, let's say the TV may not even work anymore if it's two years old, since TVs only last a couple of months nowadays. At least that's what the best buy salesmen are telling us. This is the scenario we might get.
The answer to this, of course, is going to come from Regulation E and it's technically going to come from Section 1005.11(b). Let's take a look at the commentary, specifically Comment 7 to 1005.11(b)(1). Comment 7 here talks about the effect of late notice. It says, “An institution is not required to comply with the requirements of this section for any notice of error from the consumer that is received by the institution later than 60 days from the date on which the periodic statement first reflecting the error is sent.” It does say, “Where the Consumer’s assertion of error involves an unauthorized EFT, however,” and of course the “however”is the key here, “the institution must comply with 1005.6 before it may impose any liability on the consumer.” What the heck is this talking about?
First of all, it's important to understand that 1005.11(b)(1), which is the citation here, is the section that talks about procedures for resolving errors. What it's saying here is when you have a dispute on an error that took place more than 60 days from when the date on which the periodic statement that first reflected the error was sent - so that statement was sent over 60 days ago - then what we're talking about here is we don't have to comply with 1005.11(b)(1), which again is the procedures for resolving errors. So what this means is if the statement was over 60 days, we don't have to comply with those procedures for resolving errors. What does that really mean? Well, that means we don't have to get provisional credit. We don't have to send a notice within a couple of days. We don't have to resolve it within 45 or 90 days, depending on the type of error. We don't have to send a final notice. We don't have to comply with that section at all. That's what this is saying if it's an older dispute
It's important to understand this key here, “however”, this is noted here. Because it says, however, if the customer's error involves an unauthorized EFT - so what we're talking about here is a fraudulent transaction. Something they did not authorize, it meets the definition of unauthorized EFT under the definition section of Regulation E, then we do still have to comply with 1005.6 of Regulation E. What is 1005.6? That is the section that talks about consumer liability.
What this is saying is we cannot hold the consumer liable for a transaction that was disputed past that 60 day timeframe if it was an unauthorized EFT. So if you have an unauthorized EFT, what this saying is you still have to research a transaction and potentially refund the customer depending on your investigation, of course, but you still have to do that even if they give you a dispute that's two years old.
Let me try to rephrase this and put this in a simple language as I can on the fly, which is really hard to do. If we have a transaction, that's super old dude, that’s simple layman's terms here, we have a transaction that's super old, dude, we still have to potentially give the customer their money back because we still have to conduct an investigation even if the dispute is super old. What we don't have to do is we don't have to give them provisional credit, we don't have to send the notices, we don't have to do it within 45 or 90 days. But what we have to do is conduct the investigation within a reasonable timeframe that and if we find that it truly was fraud or, technically, an unauthorized EFT, which is under the definition of Regulation E, then we would have to give the customer their money back because there's really no time limit on giving the customer their money back and conducting that investigation, except that we don't have to comply with those time restrictions under 1005.11. What we do have to do is still comply with 1005.6, which is the consumer liability section. It's very complicated. I hope this is broken down into layman's terms. I hope you understand it just a little bit better, but that is what it is.
That's all I have for you in this Compliance Clip.