What is Regulation E?

Banking has increasingly moved away from human tellers at brick-and-mortar local banks to digital financial services. That has given fraudsters new opportunities to misappropriate your hard-earned cash. 

Regulation E is meant to protect you from such scams and errors.

What is Regulation E?

Regulation E, or Reg E, provides a framework for the management of electronic funds transfers (EFTs). Its purpose is to protect consumers against unauthorized and fraudulent EFTs, and implements the Electronic Fund Transfer Act.

For consumers, Reg E details the steps you must take to report errors and the requirements for financial institutions to investigate and address the dispute.

Under Reg E, banks must investigate errors within 10 business days of receiving the dispute but can request an extension of up to 45 days. 

The financial institution must report its findings within three business days of concluding its investigation. Furthermore, they must correct the error within one business day of establishing the error occurred.

Understanding electronic fund transfers (EFTs)

The Consumer Financial Protection Bureau (CFPB) states that an EFT is “any transfer of funds initiated through an electronic terminal, telephone, computer or magnetic tape for the purpose of ordering, instructing or authorizing a financial institution to debit or credit a consumer’s account.” 

We use EFTs for everyday purchases, ATM withdrawals and receiving direct deposits into our bank accounts. 

A transaction must be made electronically, requires a debit or credit to an account and must involve a consumer bank account to fall under Reg E. 

According to the Federal Reserve, EFTs covered by Reg E include but are not limited to the following:

• Point of sale (POS) transactions.
• ATM transactions.
• Direct deposits.
• Withdrawals.
• Transfers made through peer-to-peer payment apps such as Zelle and Venmo.
• Transfers initiated by phone.
• Transfers resulting from debit card transactions.
• Remittances.

An unauthorized withdrawal from your bank account is an EFT error under Reg E and should be reported.

What’s not covered under Regulation E

Though Reg E offers broad protection for consumers, there are some notable exclusions. For example, Reg E does not shield errors involving credit card transactions, checks or wire transfers. 

“Bank wire transfers are covered under state law, Uniform Commercial Code section 4A, which provides some protection against unauthorized wire transfers, but the protection is far weaker, and banks can evade it through the fine print in their agreements,” said Lauren Saunders, associate director at the National Consumer Law Center. 

An EFT must be unauthorized to fall under Reg E. An EFT is not unauthorized if it was initiated through the financial institution or employee, someone has access to the consumer’s device or someone has intentions such as fraud. 

For instance, if you give your debit card to your cousin to buy a sandwich, and he buys a new iPhone, you’re out-of-luck. 

How to file a Regulation E dispute

The first thing to do if you notice an EFT error in your account is to report it to your bank. You will need to provide specific details about the transaction, such as the dollar amount, the type of product or service and whether your debit card was lost or stolen.

“If your debit card is lost or stolen, you should notify the bank immediately and freeze the card,” said Saunders. “In addition, report fraud to ReportFraud.FTC.gov. If you have lost a lot of money, contact the local police, report it to the FBI at IC3.gov, and seek legal advice.”

If you lose your debit card, you must inform your bank as soon as possible to limit your liability. If you notify your bank within two days, your liability is limited to $50. After two days, that number increases to $500 and can be more in some cases.

Electronic funds transfer safety tips

Consumers can take steps to help protect their bank accounts from unauthorized EFTs.

“Keep your account numbers, physical debit cards, and debit card numbers and PINs safe, and be careful when sending account numbers electronically,” said Akeiva Ellis, a certified financial planner. 

It’s also important to make a habit of monitoring your transactions so that you can quickly identify if any unauthorized charges occur. Regularly check your bank account, or set up alerts on budgeting apps such as Mint.

You should also familiarize yourself with common cons, such as romance scams, which is when a criminal takes on a fake online identity to lure you into a digital relationship with the ultimate goal of stealing your money. 

Despite Reg E’s protections, it’s better to not get conned at all.