Investigating Unauthorized EFTs & Providing Provisional Credit Under Reg E

Investigating Unauthorized EFTs & Providing Provisional Credit Under Reg E

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It's hard enough to have an accountholder alleging an EFT error. But do you know what to do next?

Investigating Unauthorized EFTs & Providing Provisional Credit Under Reg E

Regulation E requires your bank to investigate fraudulent electronic fund transfers (EFTs) and give provisional credit to accountholders for the alleged transactions. What is an unauthorized or fraudulent EFT? Check out our blog post, Legally Handling ATM & Debit Card Claims Under Regulation Efor a quick refresh on unauthorized transfers, with and without access devices.
In a 2021 webinar for Community Bankers Webinar Network, Elizabeth Fast covered the steps your bank must take to investigate an error or fraudulent transaction, including the information required from the customer, deadlines, when to provide provisional credit, and how to take it back. What is provisional credit? It is a temporary credit issued to a customer's account when a disputed transaction is being investigated.

Notice of error is given by the account holder, orally or in writing. They’re required to provide your bank with three pieces of information:
  1. Their name and account number.
  2. The statement that they believe an error has occurred.
  3. Reasons why they believe it is an error.
(Note: the customer is not required to file a police report.)

“Notice must be received by the bank no later than 60 calendar days after your bank has sent the first periodic statement showing the error,” Fast added. If notice is given outside of the first 60 days, your bank is still obligated to reimburse the customer for the unauthorized EFT under Reg E rules, however, you are not held to the investigation deadlines.

Your bank has 10 days to complete a reasonable investigation upon notice of error (20 business days if the account was opened less than 30 days ago). “A common complaint is that the institution cannot get the information it needs from the core processor about the transaction within the 10 days. Unfortunately, it doesn’t matter to Reg E what the excuse is.” Fast stated. You will have to give provisional credit for the full amount of the alleged error, plus any interest if the investigation is not completed before the deadline. After provisional credit is given, your new deadline to correct the error and complete the investigation is expanded to 45 days (90 for new accounts).

“The burden of proof is on the financial institution. You’re going to have to show why you believe this transaction was authorized. Conducting a good faith, reasonable investigation will satisfy the burden.” Elizabeth said. A reasonable investigation under Reg E might include one or more of the following items:
  • Request (but cannot require) documentation.
  • Historical information on the customer’s pattern of use.
  • Location of the transaction in relation to the customer’s residence, place of business, or normal shopping locations.
  • Customer’s location at the time of the alleged unauthorized EFT.
  • Problems reported by others regarding the access device or ATM.
  • Signature information on point-of-sale transactions.
  • Police reports, if available (but cannot require).
  • Film from security cameras, if available.

If your bank concludes that the EFT was not an error or unauthorized, you may take the provisional credit back and notify the customer when you reverse provisional credit. Also, “you must honor overdrafts, without charging overdraft fees for five business days after the notification to the customer that you’re taking back the provisional credit, provided that the items honored would have been paid if the institution had not debited the provisionally credited funds.” Fast concluded.

To gain more insights from Elizabeth Fast, visit her page to access upcoming and on-demand webinars.