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Details of Regulation E
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles
(We recommend this as work of authority.)
The Board of Governors
of the Federal Reserve System on January 31, 1980, announced adoption
of additional final rules to complete Regulation E of the FEDERAL RESERVE
BOARD REGULATIONS and to implement the Electronic Fund Transfer Act.
Sections of Regulation E that were adopted were as follows:
On March 7, 1979, effective February 8, 1979:
establishing the limitations on
customer liability for unauthorized use of
an EFT card, and to specify the
conditions under which EFT cards may be issued.
On June 6, 1979, effective August 1, 1979:
absolving consumers of liability for
unauthorized transfers if a credit institution
has not made the following
disclosures, in writing: (1) the extent of a consumer's financial liability for
unauthorized use; (2) the institution's telephone
number and address for
reporting a lost or stolen card; and (3) the
institution's normal business days for
reporting a lost or stolen card.
On August 1, 1979, effective September 10, 1979:
limiting the amount for
which consumers will be liable if their EFT
access card is lost, stolen or
otherwise used in a manner unauthorized by
the cardholder. As stipulated
act, a consumer's liability for unauthorized
transfers varies according to the time
that elapses before the consumer notifies the
financial institution of the
Liability rises from $50 to $500 if notification is delayed
more than 2 business days from the time the
customer learns of the loss of theft
of the card.
It is unlimited for transfers occurring more than 60 days after
transmittal of the statement showing the unauthorized
use, if the consumer fails
to notify the institution, within the 60-day
period. Written notice
of the loss, theft,
or unauthorized use is made effective at the
time it is mailed by the consumer
rather than upon receipt by the institution.
On October 3, 1979, effective November 15, 1979:
pertaining to exemptions
for certain types of securities or commodities
transfers and for intrainstitutional
transfers; consumer liability for unauthorized
transfers; definitions; and issuance
of access devices.
The new sections govern special requirements, initial
disclosures, changes in terms and error resolution
transfers, relation to state law, and administrative
enforcement. These sections
implement the portions of the Electronic Fund
Transfer Act that became
effective May 10, 1980.
(The board decided on January 31, 1980, to take no
action at that time on a proposal made in October,
1979, concerning charges
made by financial institutions in connection
with error resolution. The
said it will monitor industry practice regarding
such charges and will take action
if consumers appear to need protection in this
rules were adopted by the Board of Governors of the Federal Reserve System
on January 31,1980, to complete its Regulation E and to implement the
Electronic Fund Transfer Act's other provisions which became effective
May 10, 1980. The new rules
adopted January 31, 1980, as part of Regulation E included the following
Documentation of transfers. The act requires that financial institutions
document electronic transfers by making receipts
available at automated teller
machines or point-of-sale terminals, and by
sending consumers of EFT services
Regulation E includes the following requirements:
(1) financial institutions must show
on periodic statements the date a transfer
was debited or credited to the consumer's account;
(2) a financial institution
may show the location of an automated teller
terminal in any of three ways:
street address; name of an organization,
such as the name of a store; or name
of a readily identifiable location where the
terminal is situated.
(See, below, further amendments to Regulation
E adopted on April 10, 1980.)
Preauthorized credits. The act requires that financial institutions give either
positive notice of receipt of preauthorized
deposits to a consumer's account
(such as sending the consumer notice of receipt
of a deposit, for instance, of a
direct electronic deposit of Social Security
benefits) or negative notice (sending
a notice that a scheduled deposit had not been
received), unless the payor has
given the consumer notice that the transfer
has been started (such as notice that
an employer has initiated a payroll deposit).
an alternative, the board provided, as it had suggested in a proposal
in April, 1979, that institutions may provide
customers with a telephone number
to be used to verify whether a transfer has
or has not been made. Institutions
that adopt this alternative are required to
provide readily available telephone
service and to inform the consumer of the telephone
number as an initial
disclosure of terms of the institution's EFT
service, and also on periodic
statements to the consumer.
Availability of funds. Financial institutions must make electronically deposited
funds available to consumers promptly.
Procedures for processing errors.
The act, and Regulation E as adopted,
require generally that financial institutions
resolve asserted errors in electronic
fund transfers within 10 business days of notification
by the consumer, either
orally or in writing.
Alternatively, institutions may take up to 45 calendar days to
resolve a complaint, if the account is provisionally
recredited within 10 business
days for the amount in dispute.
Recrediting need not take place unless written
confirmation of an oral report of error is
received within 10 business days of the
oral report by an institution that has advised
the consumer that it requires a
written report and has provided an address.
When an institution
determines that no error has been committed, it must notify
the consumer that the account is being debited
again for the amount that was
It must honor, for the period of investigation and for 5 business
after mailing of a redebiting notice,k checks
that are payable to third parties up
to the amount in dispute.
may limit its investigation to the "four walls" of the institution,
a third party with which the institution has
no agreement is involved (including
the Social Security Administration).
If an EFT card is issued by a financial institution not holding
account, the institution offering the services
is responsible for compliance, with
limited exceptions for disclosures having to
do with the relationship of the
institution holding the consumer's account
to that consumer.
April 10, 1980, related to rules issued by the board on January 31, 1980,
and to proposals made then with respect to sections of the act that became
effective May 10, 1980:
The board delayed until August 10, 1980, the requirements that
institution disclose on periodic statements
the name of any third party to or from
whom electronic fund transfers were made and
the terminal location for
transfers initiated at electronic terminals.
All other requirements of the
regulation went into effect on May 10, 1980,
In taking this action the board made the
"The Board wishes to insure that consumers
enjoy the major protections of the Act and Regulation during the three-month
delay. Consequently, a
requirement previously stated in the Federal Register has been
incorporated into the Regulation.
When applicable, financial institutions must, upon the consumer's
request and without cost, provide the consumer with evidence of proof
of payment to another person.
The Board reiterates that financial institutions must treat any
request for additional information from the consumer as to an incompletely
identified transfer as an "error" and comply with the error resolution
The board also permanently "grandfathered" cash dispensers that
generate a receipt at the time a withdrawal
is made, on the condition that the
consumer be sent a receipt on the next business
day. This exception is
available only to terminals that do not perform
any electronic transfer function
other than dispensing cash.
It is also limited to machines that were purchased
or ordered by the financial institution before
February 6, 1980, the date on which
the board's final documentation rules were
published. The exception
intended to permit the continuation of a service
that is beneficial to consumers,
without loss of consumer protection.
It would also enable financial institutions to
replace these terminals in an orderly and cost-effective
The board also adopted an amendment applying to deposits of cash
at electronic terminals.
In January, 1980, the board had stated the opinion that
such deposits are covered by the EFT Act and
Regulation E. In response
comments asking that it reconsider the matter,
the board reiterated its position,
but exempted deposits made at electronic terminals
from the requirement that
the terminal location be shown on the periodic
The board also adopted an amendment relating to the charges that
disclosed on the periodic statement.
Under a rule adopted in January, 1980,
institutions were required to disclose separately
the total of charges related to
electronic transfers, even if the costs were
identical for electronic and paper
The amendment now gives institutions the option of disclosing
instead the total charges for account maintenance,
including any pretransaction
This change conforms to the statutory language and was made in
response to comments pointing to the operational
difficulty in segregating EFT
charges, particularly with respect to accounts
on which charges are based on
minimum balances and may involve rebates.
Customers will continue to receive
information about specific EFT charges on initial
disclosures required by the
As of 1989, the Fed's network was the only
functioning national electronic funds transfer system.
However, the linking of regional and statewide electronic funds
transfer systems of all major types of depository financial institutions
should accelerate, so that as early as 1990, a nationwide and even international
EFT network could be operational.
The board's Division
of Consumer and Community Affairs points out that Regulation E applies
not only to commercial banks but also to SAVINGS AND LOAN ASSOCIATIONS,
Credit Unions, and even nonfinancial entities that offer EFT services
PUBLISHING, INC. Corporate EFT Report.
GORHAM & LAMONT, INC. EFT
Press Alert. Monthly.
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