Understanding Regulation E: Your Guide to Electronic Fund Transfers

What Is Regulation E?

Regulation Eestablished by the Federal Reserve Boardoutlines crucial procedures and protections for electronic fund transfers. It safeguards consumers by defining rules for ATM transactionspoint of sale activitiesand unauthorized card usageensuring that banks and financial institutions comply with established guidelines to offer secure EFT services.

Key Features of Regulation E for EFTs

The Federal Reserve Board's regulations and procedures for electronic funds transfers (EFTs) provide guidelines for issuers of electronic debit cards. The regulation is meant to protect banking customers who use electronic methods to transfer money.

Regulation E provides guidelines for consumers and banks or other financial institutions in the context of EFTs. These include transfers with automated teller machines (ATMs)point of sale transactionsand Automated Clearing House (ACH) systems. Rules pertaining to consumer liability for unauthorized card usage fall under this regulation as well.

Regulation E was issued by the Federal Reserve (Fed) as an implementation of the Electronic Fund Transfer Acta law passed by the U.S. Congress in 1978 as a means of protecting consumers engaged in these sorts of financial transactions.

Much of Regulation E outlines the procedures that consumers must follow in reporting errors with EFTsand the steps that a bank must take to provide recourse. Errors subject to these regulations could include the consumer’s receipt of an incorrect amount of money from an ATMunauthorized credit or debit card activityor an unauthorized wire transfer to or from a consumer’s account. 

Generallybanks have a period of 10 business days during which to investigate a reported EFT error. This canhoweverbe extended to 45 business days provided that the bank provisionally credits the consumer’s account with the reportedly missing funds. Banks then must report the results of an investigation to the Fed and to the consumer.

Regulation E also outlines consumer responsibility for reporting unauthorized EFT activitytypically involving a stolen or missing card. For exampleconsumers must report lost or stolen credit cards no more than two days after the consumer becomes aware of the theft; otherwisethe bank has no obligation to refund losses.

Regulation E governs the issuance of debit but not credit cardswhich are governed by regulations outlined in the Truth in Lending Act and implemented by the Fed as Regulation Z. HoweverRegulation E does govern EFT features of credit card usage.

Important Considerations for Consumers and Financial Institutions

Consumers should make sure that they are complying with federal regulations when reporting errorsto make sure that their financial institutions are complying and to avoid liability. Financial institutions should circulate these regulations internally to make sure that they have no difficulty in complying. 

Example of Regulation E in Action

If you have a bank accountRegulation E has some important benefits. It delineates your rights for disputing ATM or debit card transactions if you believe an EFT has been made in error.

This includes counterfeit errors as well as accidental ones. For exampleif you decide to cancel a TV streaming subscription servicebut you see an additional charge for membership after the cancellationyou could ask the streaming service for a refundand if you are refusedyou could dispute the transaction with your bank according to Regulation E rules.

How Regulation E is Enforced

Very specific rules for compliance by the EFT service provider are established in Regulation E. These requirements include keeping track of consumer agreementsproviding periodic statementserror resolutionreimbursement of fees incorrectly charged to the consumerproviding access to account informationdisclosing a telephone number that the consumer can use to contact the financial institutionand so on.

Enforcement depends on various sources of information to identify possible issues that may lead to opening an investigationincluding:

• Consumer complaints
• The whistleblower hotline of the Consumer Financial Protection Bureau (CFPB)
• Referrals from federal regulators and other localstateand federal agencies
• Market intelligence
• The results of supervisory exams

Other factors that weigh in on whether an investigation is initiated include if:

• There is a set of facts thatif provenwould amount to a violation of one or more federal consumer financial laws
• There is reason to believe that one or more entities is involved in the conduct described in the facts
• There is evidence of a level of harm that justifies use of resources
• There are enough resources available to address the matter

A description of the CFPB’s enforcement work (November 2020) can be found here.

The Bottom Line

Regulation E was enacted under the CFPBthe regulatory agency that oversees financial products and services offered to consumers. The CFPB was created in 2010. Regulation E establishes the basic rightsliabilitiesand responsibilities of consumers who use EFTs and remittance transfer servicesand of the financial institutions or others that offer these services.