Know the Card Rules: Regulations E and Z Direct How You Manage Customers' Bank Cards
Rowe, Robert G., III, Independent Banker
Regulations E and Z direct how you manage customers' bank cards
Today, consumers have several payment options to conduct their everyday personal business. Debit cards let people tap directly into the money in their personal bank accounts. Credit cards give people the convenience of a limited line of credit coupled with a widely accepted payment method. Each payment option provides consumers with particular advantages. Your bank may offer customers both.
When it comes to consumer rights and disclosures, however, the rules your bank is obligated to follow can be confusing depending on the type of transaction and the type of bank card involved. Regulations don't always treat debit and credit cards the same. Even if your bank relies on a third-party service provider to process your bank card transactions, you need to be aware of the key rules affecting how those transactions are managed. Your bank is ultimately responsible for following those rules. Therefore, it's helpful to take a step back and review the basics of the regulations.
Two of the most important regulations were issued by the Federal Reserve. The first, Regulation E, implements the Electronic Funds Transfer Act, which applies to all bank cards. The second, Regulation Z, implements the Truth in Lending Act, which has important requirements for credit cards. If your bank issues ATM, debit or credit cards, you need to know about these two regulations to stay in compliance.
Fixing Account Statement Errors
Perhaps the most important regulation that any card issuer must follow is Regulation E. This regulation establishes the basic rights, liabilities and responsibilities of consumers who use electronic fund transfer services and of banks that offer these services. The regulation covers any electronic fund transferwhether for an ATM cash withdrawal, a direct deposit or a debit card purchase-that authorizes a financial institution to debit or credit a consumer's account. By debiting a cardholder's account directly. debit cards function just like ATM cards, except they are accepted widely at the point of sale just like credit cards. Once a transaction is subject to Regulation E, as with other banking industry regulations, a series of requirements kick in.
On the theory that the more customers know, the better they can manage their affairs, Regulation E requires disclosures. The disclosures generally require you to inform your customers periodically about their responsibilities and liabilities in using their bank cards.
One of the most important disclosures tells consumers what they need to do if they spot statement errors involving bank card transactions.
Once a year, your bank must mail or deliver an error resolution notice to cardholders who maintain accounts from which or to which electronic transfers can be made. This notice tells customers that they have to notify your bank within 60 days after discovering an error on a statement to correct it. The notice must also tell customers how to contact the bank and what information they need to give your bank to address the error. Your bank can also require customers to provide a written statement about an error within 10 days after they have given oral notification.
In other words, the error resolution notice defines the relationship between an issuing bank and a cardholder if there's an error on an account. This can be important when determining liability for errors. Fortunately, the Federal Reserve has created sample error resolution forms your bank can use.
If a customer notifies your bank about an error, your bank has 10 days to investigate the matter and respond to the customer. If your bank needs more information, it can take up to 45 days to respond. But if it uses those extra days, it must provisionally recredit the customer's account for the amount of error until the discrepancy is resolved.
These time intervals in Regulation E are important. …