Handling Major Headaches: Regulation E Revisions

Andy Zavoina, a member of ABA's Compliance Executive Committee. He is senior vice-president and compliance officer at First National Bank, Killeen, and Fort Hood National Bank, Fort Hood, Texas. The author offers, without warranty, a free audit tool on his personal Web site at http://www.vvm.com/-zavoina/cmpl.html. Recent changes to Reg E now require that you provide provisional credit earlier on some electronic fund transfer claims. Other changes may help your institution combat fraud losses. On Sept. 29, 1998, the Federal Reserve published the revisions to Reg E. These were optional until April 1, 1999. Basic changes made Under the old regulation, P05 claims automatically had 20 days to be investigated and there was no need to provide provisional credit before that. Claims could then take as long as 90 calendar days to be completed. Under the new rules, all claims investigations will be completed within 10 business days or a provisional credit will be required. There is one exception, the New Account Rule. This provides that if an electronic fund transfer which is claimed to be in error, occurs within the first 30 days of the initial deposit, the institution has 20 days to investigate the claim or to pay provisional credit. If credit is made, the institution may take up to 90 days to investigate. Institutions also have up to 90 days to investigate POS claims and foreign-initiated debit card claims. The meaning here is not exclusive to true debit cards. Debit cards or ATM cards, combined or separated, fall into this definition. "Foreign- initiated" means a transaction not initiated within a state, as defined in the reg. What's behind the changes To implement these changes you need to understand the definitions and the intent of the regulation. Reg E says that a new account claim is one in which the transfer occurs within the first 30 days of the initial deposit. The final rule says that to provide consistency, it will use the definition of "new account" according to Regulation CC. Reg CC's definition, however, includes an additional test. "An account is not considered a new account if each customer on the account has had, within 30 calendar days before the account is established, another account at the depositary bank for at least 30 calendar days." Because the New Account Rule was added to assist institutions in combating fraud, one could assume that this test should apply to your definition of new account. If you have had experience with a customer, the likelihood of suffering a loss due to fraud is diminished. But, the changes to the regulation itself do not explicitly refer to Reg CC or any experience with a customer. You may need to consult with counsel before defining "new account." You may take advantage of these changes only if your disclosures allow for them. Should you revise them? The new account exemption provides a longer timeline to complete investigation. If you choose not to use this exemption, the customer will have new account claims completed sooner, to their benefit, but your staff must resolve issues faster. The requirement to provide 10-day provisional credit on an outstanding P0S claim is not optional. Reg E is a consumer-oriented rule and this provision is to the consumer's benefit. Therefore, this one must be implemented and some changes to your existing disclosures will be required. Watch out for your periodic statement disclosure as well. If you use the abbreviated method to substitute for the otherwise required annual error-resolution notice under 205.8(b) changes may be needed. Five circumstances for claims The new rules will provide for five different claims scenarios for unauthorized transactions. …