What businesses need to know about Regulation E
- October 28, 2022
Many business owners are not aware of Regulation E and what it means for them and their customers. Regulation E is a federal regulation that provides consumer protections in electronic transactions. This includes transactions conducted through the use of credit cards, debit cards, and prepaid cards.
Regulation E protects consumers by spelling out their rights and responsibilities in electronic transactions. For example, consumers have the right to dispute unauthorized charges made to their account. They also have the responsibility to notify their financial institution within 60 days if they believe there has been an unauthorized transaction made on their account. Businesses need to be aware of these rights and responsibilities so that they can best serve their customers.
What is a Consumer Electronic Fund Transfer?
A consumer electronic fund transfer is any transfer of funds that is initiated through an electronic terminal, telephone, computer, or magnetic tape for the purpose of benefiting the consumer. This includes ATM withdrawals, point-of-sale (POS) transactions, direct deposits, and transfers made using a web-based banking site.
What are Consumer Rights under Regulation E?
Consumers have the right to receive documentation of their electronic fund transfers. This documentation must provide certain information, such as the date of the transfer, the amount of the transfer, and the recipient’s name and account number. Consumers also have the right to stop payment of certain types of electronic fund transfers. For example, they can stop payment on a one-time preauthorized transfer at least three business days before the scheduled date of transfer.
Stop payment orders must be in writing and provide certain information, such as the date of the transfer, amount of money involved in transaction, payee’s name, etc. After receiving a stop payment order from a consumer, businesses are not allowed to make the transfer or charge the consumer’s account for that particular transfer.
Consumers also have the right to receive notice from their financial institution about its policy regarding errors in electronic fund transfers. Financial institutions are required to investigate errors that are brought to their attention by consumers within 10 business days after receiving notification and correct any errors within one business day after completing their investigation. If the error impacts a consumer’s ability to meet his/her financial obligations, then the financial institution must take steps to ensure that the consumer has access to his/her funds during this investigation period.
Lastly, consumers have a right to obtain disclosure about their legal rights and liabilities under Regulation E before they agree to accept electronic disclosures electronically instead of on paper. Businesses need to be aware of these rights so that they can better serve their customers and avoid violating any regulations.
What are Consumer Responsibilities under Regulation E?
Consumers must notify their financial institution within 60 days if they believe there has been an unauthorized transaction made on their account. If consumers fail to do so, then they could be held liable for all unauthorized transactions that occur after 60 days. In addition, if consumers give someone verbal or written permission (known as “authorization”) — known as “agent” —to make electronic fund transfers from their account, then consumers are responsible for all unauthorized transfers made by that person, even if the authorization was obtained fraudulently. It is important for businesses to collect proper authorizations from consumers prior to making such transactions.
Finally, consumers have responsibilities related to stop payment of electronic fund transfers. If consumers want to stop payment of a preauthorized electronic fund transfer, they must give written notification seventy- two hours before the scheduled date of the first or next transfer. Consumers must give notice in person, by telephone, or by writing. Faxed notices may also be accepted provided that oral confirmation takes place within two business hours after faxing notice. After receiving notice from a consumer, businesses are not allowed to make a return Payment or file a chargeback for transaction covered by the stop payment order until that time has elapsed or the business receives a court order permitting payment to be made prior to time lapsing.
As a business owner, it is important that you are aware of your rights and responsibilities under Federal Reserve Board’s Regulation E in order to better protect both you and your customers when conducting electronic transactions. Familiarizing yourself with this regulation set forth by the FRB will serve to avoid any penalties for non-compliance as well as serve to protect you and your customer base from fraudulent transactions. In short, knowledge is power when it comes to navigating the often confusing and complicated world of business regulations!
At Global Legal Law Firm, our lawyers are familiar with the rapidly changing nature of electronic payments processing, and the ever changing regulations involved, with decades of expertise in ISOs, processors, commercial collections, credit card brands, and other forms of electronic payment processing litigation. Let us guide you through this new and volatile environment, rather than attempting to navigate it on your own.
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