VIDEO: Consumer Negligence for Reg E Disputes
In this Compliance Clip (video), Adam discusses how consumer negligence can (or cannot) be considered when conducting an investigation of an “error” under Regulation E. Specifically, he answers two questions regarding a customer being negligent in handling their PIN as well as whether a financial institution can add language to their account disclosures that limit a consumers liability.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about consumer negligence as it relates to Regulation E. The question we have is this: is a consumer liable if they lost their debit card but had their PIN code written on the back of the card? Also, can we write something into our account agreement that says that our customers will be liable if they do something like this?
The answer to this is going to come, of course, from Regulation E, but we're really going to look at Comment 2 to 1005.6(b) of Regulation E as well as the CFPB’s frequently asked questions as it relates to error resolutions in Regulation E. So, let's take a look at this in two parts.
The first part, let's look at Comment 2 to 1005.6(b) of Regulation E. Comment 2 says, “Negligence by the consumer cannot be used as the basis for imposing greater liability than is permissible under Regulation E. Thus, consumer behavior that may constitute negligence under state law, such as writing the PIN on a debit card or on a piece of paper kept with the card, does not affect the consumer's liability for unauthorized transfers under Regulation E.”
So the answer is no. If a consumer includes their PIN code right on their debit card and leaves their debit card right on an ATM in the busiest street of New York City, you cannot hold that against them because it would potentially constitute negligence under state law. It's really important to understand that Regulation E is extremely consumer friendly.
Now the second part of this question was “can we just write something into the contract that says consumers can't do this and they will be held liable if they do?” Well, if we take a look at the CFPB's frequently asked questions, specifically the set of questions titled Error Resolution: Unauthorized EFTs and question number eight from that set, we will see this question: if a financial institution’s agreement with the consumer includes a provision that modifies or waives certain protections granted by Regulation E, such as waiving Regulation E liability protections, if a consumer has shared account information with a third party, can the institution rely on its agreement when determining whether the EFT was unauthorized and whether related liability protections apply? The answer to this frequently asked question tells us no.
The Electronic Funds Transfer Act includes an anti-waiver provision stating that no writing or other agreement between a consumer and any other person may contain a provision which constitutes a waiver of any right conferred or cause of action created by the Electronic Funds Transfer Act. Your contract cannot supersede or go above and beyond the protections that Regulation E offers a consumer. So it has to err on the side of the consumer.
Hopefully that answers this question for those of you that have this. If you're interested in taking a deep dive into Regulation E, we have two training programs in our store, compliancecohort.com/store, our Regulation E Bootcamp, and a program that's focused just on error resolutions titled Error Resolutions under Regulation E. So if you want to take a deep dive into the error resolution process under Regulation E, take a look at those programs in our store.
That’s all I have for you today.