Regulation E Error Resolution and Interest-Bearing Accounts
The Electronic Fund Transfer Act was passed in 1978. It was intended to protect individual consumers engaging in electronic fund transfers (EFTs) and remittance transfers. These services include:
- transfers through automated teller machines (ATMs);
- point-of-sale (POS) terminals;
- automated clearinghouse (ACH) systems;
- telephone bill-payment plans in which periodic or recurring transfers are contemplated;
- remote banking programs; and
- remittance transfers.
A good understanding of these services and the financial institution’s responsibilities is essential for electronic transfer functionality and processing.
The “means” by which a consumer conducts electronic transfers has changed substantially since the inception of the Act. During the past few years an increasing number of unauthorized transfers through debit card transactions has been noted with substantial losses suffered by financial institutions. The increase of these types of transactions has also increased the risk of processing “failures” by financial institutions and examination violations.
After the financial institution receives a notice of error, strong processing procedures must be in practice. Maintaining a process which includes making a determination whether the account affected is an interest-bearing account is essential.
Once an error has been asserted by the consumer on an interest-bearing account, the intent of the Act is to make the consumer’s account balance whole; as if the error never occurred. The amount disputed would have earned interest and the financial institution is required to credit the amount of the interest earned back to the account from the date of the withdrawal through the date of the provisional credit.
Another consideration the financial institution should be mindful of is whether the error affected interest earned on a tier-based annual percentage yield (APY). Did the error cause the balance to fall below a higher earning tier-base resulting in a lesser amount of accrued interest? If so, the resolution process would provide the customer the interest that would have been accrued and the account balance is now earning interest as it would have.
In addition, the financial institution shall ascertain whether the disputed item created a service charge to be assessed under the account’s minimum balance requirements or other charges assessed such as per-item and overdraft fees.
Maintaining adequate and effective policies and procedures help to ensure compliance with all applicable rules and regulations. Bank personnel should also receive error resolution training, preferably annually, to stay abreast of rules changes and other compliance issues.