Billing Error Procedures

Regulation E has detailed rules that govern what you and the consumer must do in the event the consumer believes an “error” exists in his or her account with respect to an EFT. We will first define the term “error,” so you’ll know when the procedures must be followed. Then, we will look at what the consumer must do to inform you that an error exists in the account. And finally, we will go over what you must do when a consumer properly notifies you of an error.

Keep in mind that the notices you send under these rules may be sent by electronic communication if certain conditions are met. See the earlier section in this chapter under the heading “Special rules for electronic disclosures.”

What is an “error”?

An “error,” for purposes of Regulation E, includes most things that you would normally think of as an error that could occur in connection with an EFT, as well as certain events you would not normally call “errors.” Specifically, the term “error” means any of the following:
  1. An unauthorized EFT;
  2. An incorrect EFT to or from a consumer’s account;
  3. The omission from a periodic statement of an EFT to or from a consumer’s account that should have been included in the statement;
  4. A computational or bookkeeping error made by you relating to an EFT;
  5. The consumer’s receipt of an incorrect amount of money from an electronic terminal;
  6. An EFT that you do not properly identify on required documentation, such as on an electronic terminal receipt, a periodic statement, or on a notice of the occurrence or nonoccurrence of a direct deposit; or
  7. A consumer’s request for documentation or additional information or clarification concerning an EFT.

[12 CFR 1005.11(a)(1)]

If the consumer properly notifies you of one of these circumstances, then you must follow the procedures we’ll discuss later on. However, if the consumer contacts you about some other event, one not listed above, the billing-error procedures are not triggered. For example, if the customer calls you and disputes his or her account balance, claiming he or she made an in person, teller window deposit that is not reflected in his or her account statement, the billing-error procedures of Regulation E do not apply since what the consumer is alleging is not considered an “error” as defined earlier.

Item “1.” above, an unauthorized EFT, is a term with special meaning under Regulation E. As we pointed out at the beginning of this chapter, this term means an EFT from a consumer’s account from which the consumer receives no benefit and by someone other than the consumer who does not have actual authority to make the transfer. However, if the consumer furnished the person with the access device, and did not notify the institution that transfers by this person are no longer authorized, the transfer will not be considered unauthorized. Also, if the transfer is initiated with fraudulent intent by the consumer or by someone acting in concert with the consumer, or if the financial institution or its employee initiates the transfer, the transfer will not be considered unauthorized. [12 CFR 1005.2(m)]

Another point to keep in mind about unauthorized EFTs: A consumer’s claim that an unauthorized EFT has occurred triggers the procedures spelled out below. But it also triggers the liability rules we describe in the next section entitled “Consumer’s Liability for Unauthorized Transfers.”

The other types of “errors” are self-explanatory except for Item “7.”, the consumer’s request for documentation or additional information or clarification concerning an EFT. A consumer might make such a request when he or she believes, but is not sure, that another type of error exists. The consumer might want to check the documentation before actually alleging an error. Regulation E, however, requires that you treat such a request in the same way in which you treat a consumer’s allegation of an actual error, and so the Regulation simply includes such a request within the definition of error. [12 CFR 1005.11(a)(1)(vii)] Also, the sort of documentation which, if the consumer requests it, makes the request become an error is the documentation we looked at earlier—receipts at electronic terminals, periodic statements, and notices that a direct deposit either has or has not been made. [12 CFR 1005.11(a)(1)(vii)] A consumer’s routine inquiry about account balances or requests for documentation or other information that the consumer makes for tax or other record-keeping purposes do not have to be treated as errors. [12 CFR 1005.11(a)(2)] The same is true for consumer inquiries about whether a particular EFT was made, as long as the consumer does not allege any error. [Commentary, 12 CFR 1005.11(a)-2]

What the consumer must do

If the consumer wants to allege that an error exists with respect to an EFT, the consumer must give you notice of the error. The notice can be oral or in writing. It must be received by you no later than 60 days after you transmit a periodic statement to the consumer (or update the consumer’s passbook for accounts that do not require periodic statements—see above) that first reflects the error, or within 60 days of when you transmit documentation, additional information or clarification properly requested (within 60 days of statement) by the consumer. The notice must be specific enough so that you can identify the consumer’s name and account number. Finally, the notice must indicate that the consumer believes an error exists in his or her account and why, and indicate, to the extent possible, the type, date, and amount of the error. [12 CFR 1005.11(b)(1)]

If the consumer’s notice is oral, you can require that it be confirmed by the consumer in a written format within ten business days of when the oral notice is given—if you inform the consumer of the requirement and of the address to which the confirmation should be sent. [12 CFR 1005.11(b)(2)] If the consumer does not send you a confirmation within the specified time period, then you will not be obligated to provisionally recredit the consumer’s account while investigating the error. [Commentary, 12 CFR 1005.11(b)(2)-1] (We’ll go over the provisional recrediting requirement in more detail in the next subsection.) But, you are still subject to all the other billing-error procedures.

If the consumer does not send any notice at all within the 60-day period, you are not required to comply with the billing error procedures described below. But if the consumer is alleging an unauthorized transfer, you must comply with the procedures for unauthorized EFTs before you impose any liability on the consumer. [Commentary,

12 CFR 1005.11(b)(1)-7]

If the account is a payroll card account for which you don’t send a periodic statement, the 60-day period above begins on the earlier of:
  • The date the consumer electronically accesses the consumer’s account, provided that information about the transfer that gives rise to the alleged error was made available to the consumer at that time; or
  • The date the financial institution sends a written history of the consumer’s account transactions requested by the consumer in which the error is first reflected.

These time periods require that you either keep track of when the consumer electronically accesses the account or when you send written history to the consumer. If you would rather not keep track of those, you can choose to comply by treating a notice from the consumer as timely if you receive it within 120 days of the date of the recording of the transfer.

[12 CFR 1005.18(c)(4)]

What you must do

When you receive a notice of an error that meets the requirements we just listed, you have two options. First, you can choose to promptly investigate the alleged error and decide, within ten business days after receiving the consumer’s error notice, whether the error occurred. If the error occurred, you must correct it within one business day of determining that. Whether or not an error occurred, you must report your determination to the consumer within three business days of completing your investigation. [12 CFR 1005.11(c)(1)]

Alternatively, you can choose to promptly investigate and make your decision, but you have 45 calendar days in which to do it. [12 CFR 1005.11(c)(2)] However, you must meet all of the following conditions:
  1. You must provisionally recredit the consumer’s account, in the amount of the alleged error (plus interest if it’s an interest-bearing account) within ten business days of your receipt of the notice of error. The period is five days for a VISA transaction. You can withhold up to $50 if you have a reasonable basis for believing that an unauthorized transfer has occurred and you have satisfied the requirements (which are discussed later in the unauthorized EFT sections). You need not provisionally recredit at all if you require written confirmation of an oral error notice and you don’t receive the confirmation within ten business days of the oral notice. You also need not provisionally recredit if the error involves an account subject to Regulation T [12 CFR 220, Securities Credit by Brokers and Dealers].
  2. Within two business days of provisionally recrediting the account, you either orally report to the consumer, mail, or deliver a written notice to the consumer that you have provisionally recredited the account and that the consumer will have full use of the recredited funds until you decide whether an error occurred. You must also actually allow the consumer full use of the recredited funds during that time period.
  3. You correct the error, if any, within one business day after determining that an error occurred.
  4. You report the results to the consumer within three business days after completing your investigation (and that you have made the provisional credit final, if that’s the case). [12 CFR 1005.11(c)(2)(i)-(iv)]

[12 CFR 1005.11(c)(2)(i)-(iv)]

If you decide that no error occurred, you must include in your report to the consumer an explanation of your findings and note that the consumer has a right to request the documents you relied on. [12 CFR 1005.11(d)(1)] When you debit the account (reverse the provisional recrediting), you must notify the consumer of the date and amount of the debiting. You must also notify the consumer that you will honor checks, drafts, and similar paper instruments payable to third parties and preauthorized transfers from the consumer’s account for five business days after debiting the account (with no overdraft charge). You must actually honor these items to the extent that you would have honored them had you not debited the account. [Commentary, 12 CFR 1005.11(d)(2)]

Again, you have two choices: (1) take care of the investigation and make your decision within ten business days, then promptly correct the error if necessary and give notice to the consumer; or (2) give yourself 45 calendar days, but meet the four conditions we just described. Under the second option, you must still act “promptly”; the 45-day period is a maximum time period. [12 CFR 1005.11(c)(2)]

If: (1) the error involves an EFT that was initiated outside of a “state” as that term is defined in Regulation E (any state, territory, or possession of the U.S., the District of Columbia, or Puerto Rico); (2) the error involves a point-of-sale EFT; or (3) the error occurred within 30 days after the first deposit to the account was made, then every 45-day time period above becomes a 90-day time period. [12 CFR 1005.11(c)(3)(ii)] EFTs initiated outside a state are sometimes called “foreign initiated” transfers. If the error involves an EFT to or from the account within 30 days after the first deposit to the account was made, then every ten-day time period becomes a 20-day time period. [12 CFR 1005.11(c)(3)(i)]

Once you’ve decided which of the two options you want to follow, you have to begin your investigation. How extensive does your investigation have to be? First of all, if the “error” is a request for documentation, clarification, or for additional information, your investigation can simply be a matter of sending the requested documents, information, or clarification to the consumer within the ten-day or 45-day time period (or 5-day VISA or 20-day—new accounts only—or 90-day time period for new account, foreign initiated, or point-of-sale transactions).

For other types of errors, your investigation can be limited to your own records, unless the EFT involves a transfer to or from a third party and you have an agreement with the third party regarding the type of EFT alleged to be in error. [12 CFR 1005.11(c)(4)] If you do have such an agreement, you must also investigate the third-party’s records. You don’t have an agreement with a third party merely because of your participation in the federal recurring payments program, or because a transfer cleared through an automated or other clearing house in which you participate. However, if a third party agrees to honor an access device that you issue, you do have an agreement with that party with respect to transfers initiated with the access device. [Commentary, 12 CFR 1005.11(c)(4)-4]

Once you’ve completed your investigation and made your decision whether an error exists, you must go one of two directions, and which way you go depends on whether or not you have decided that an error exists.

First, let’s look at what to do if you decide that an error exists. Within one business day of making your decision, you have to correct the error. [12 CFR 1005.11(c)(1)] Correcting the error means refiguring the account balance to correct the error, crediting interest if the account is interest bearing, and refunding any fees or charges that you imposed that you would not have imposed had it not been for the error. Then, within three business days after completing your investigation, you must report the correction to the consumer including a notice that a provisional credit has been made final, if applicable. [12 CFR 1005.11(c)(1)]

If you decide that no error exists, or that an error exists but in a different amount or manner from what the consumer alleges, here’s what you must do. You have to give the consumer written notice of your findings, and you must mail or deliver the notice within three business days of your decision. The notice must explain your findings and explain the consumer’s right to request the documents on which your findings are based. [12 CFR 1005.11(d)(1)] If you had provisionally recredited the consumer’s account and you are now reversing that (debiting the account), you must notify the consumer (either orally or in writing) of the date and amount of the debit and of the fact that you will continue to honor checks, drafts, and similar paper instruments payable to third parties and preauthorized transfers from the account for five business days after the notice to the extent you would have honored these items had you not debited the account. Then, you must, in fact, honor these items in that way. [12 CFR 1005.11(d)(2)] Finally, if the consumer requests any of the documents on which you based your decision, you must promptly supply them. [12 CFR 1005.11(d)(1)]

A few final, general notes about the billing-error procedures. First, if the consumer decides at any time that no error in fact occurred and withdraws the notice of error, your job is done. You have no further responsibilities. [Commentary, 12 CFR 1005.11(e)-1]

Second, an access device may also function as a credit card. Consumer credit card transactions are generally subject to Regulation Z, Truth in Lending. [12 CFR 226.1 et seq.] Regulation Z has its own billing-error and unauthorized transaction procedures. [12 CFR 226.12 and 226.13.] Which rules apply when an error or unauthorized transaction occurs involving such an access device? The correct approach is to look at the specific transaction alleged to be erroneous or unauthorized. If the transaction is a debit to an account and there is no credit involved, then Regulation E rules apply. On the other hand, if the transaction is credit (other than credit under an overdraft or balance maintenance line of credit), with no debit to an account, then Regulation Z rules apply. But if the transaction involves both a debit to an account and credit under an overdraft or balance maintenance line of credit, then both Regulation Z and Regulation E apply. [12 CFR 1005.12] See the Commentary to Section 12 for details and examples of how these rules work. [Commentary, 12 CFR 1005.12(a)-1]

Third, if you have followed all of the procedures to completion, and the consumer reasserts the same error, you do not have to follow the procedures again. However, if the original “error” alleged by the consumer is a request for documents, clarification, or additional information, then the consumer can allege an actual error of another type, related to the requested information, and you must still follow the billing-error procedures. [12 CFR 1005.11(e)]

Fourth, the Office of the Comptroller of the Currency (OCC) issued a letter in September 2001 on the topic of how extensive an investigation must be if the error is an unauthorized transfer. The OCC points out first that it is concerned that some financial institutions may be rejecting claims of unauthorized transactions solely because the customer’s automated teller machine (ATM) card or debit card and personal identification number (PIN) were used in the transaction, and the customer supplied no information indicating that the card or PIN was misappropriated. This is not an adequate investigation according to the OCC. Instead, institutions should consider taking one or more of the following actions:
  • Documentation or written, signed statements provided by the customer.
  • Historical information on the customer’s pattern of use (e.g., time, frequency, location, and types and amounts of transactions).
  • 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 unauthorized transaction.
  • Problems reported by other customers regarding the access device or ATM.
  • Signature information on point-of-sale transactions.
  • Police reports, if available.
  • Film from security cameras, if available.

[OCC—AL 2001-9, September 7, 2001]

Periodic Statements and the Periodic Statement Alternative for Prepaid Accounts

Generally, the Prepaid Rule requires financial institutions to provide periodic statements for prepaid accounts, unless it makes certain information available to a consumer. A periodic statement does not have to be provided if the institution provides the consumer with account balance information readily available by telephone; an electronic account transaction history that covers at least the preceding 12 months; and makes a written account transaction history that covers at least the preceding 24 months available upon request.