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Regulation E is a well-known, but often confusing regulation found within the Electronic Fund Transfer Act (EFTA).
Although most accounts receivable departments fall under its scope in some way or another while accepting payments, many ARM professionals don’t fully understand what is required of them to comply. Some might even think it is too much trouble, and willingly ignore what is required, unaware of the serious consequences it can have on them and their business.
We consulted with two experts on some of the basic components of Regulation E every business in accounts receivable should know:
Mike Etmund, Creditor’s Remedies Attorney at Moss & Barnett, P.A. in the Greater Minneapolis-St. Paul area. He regularly represents creditors, including corporations and other general business entities, in contract, compliance, licensing, and other commercial matters. Etmund is a member of the ACA International Member’s Attorney Program (MAP).
Scott E. Wortman, Partner at Blank Rome LLP in New York. He focuses on providing legal advice and regulatory advocacy in matters involving consumer financial protection statutes and regulations. Wortman has substantial experience assisting clients with complex issues including class action litigation, government enforcement and administrative action. He also regularly provides compliance advice related to privacy and data security laws and assists with due diligence for financial services transactions.
Why Should Your Business Be Concerned with Regulation E?
Wortman explains that compliance with Regulation E is not something to take lightly, as it is “a federal statutory framework establishing the rights, liabilities, and responsibilities of participants in Electronic Funds Transfers (EFTs).”
This means those who utilize EFTs are legally required to follow the regulation. So, what happens if your business violates Regulation E?
- Fines – “Failure to comply with Regulation E may result in liability for the actual damages sustained by the consumer, statutory damages of $100 – $1000, class action damages in the lesser of $500,000 or 1% of net worth, as well as reasonable attorney’s fees and costs as determined by the court. See 15 U.S.C. 1693m(a).”
- Criminal liability – “There is also a criminal liability component of Regulation E for knowingly providing false or inaccurate information or otherwise failing to comply with Regulation E.”
Wortman cautions, just as your business should comply with Regulation E to save yourself from hefty fines, “correspondingly, there’s also an economic incentive for consumer attorneys to bring actions alleging Regulation E violations.” Many recent findings for alleged violations have happened in just the last year.
Wortman recalls one in particular against a company called CashCall, which resulted in a “$1.5 million settlement fund, including a whopping $601,336.74 designated for plaintiffs’ attorneys’ fees.”
This should be enough to convince any accounts receivable department that a small hassle getting compliance in place up front is well worth the long-term peace of mind.
Who Does Regulation E Apply To?
Regulation E is broad, and pertains mostly to financial institutions, such as banks, loan associations and credit unions.
“However, there is also a somewhat “catch-all” provision for applicability of Regulation E to service providers other than financial institutions,” says Etmund. “If electronic funds transfer services are made available to consumers by a person other than a financial institution holding a consumer’s account, the disclosures, protections, responsibilities and remedies shall be applicable.”
In other words, any business that offers EFTs during the payment process must follow portions of Regulation E. It might sound daunting to learn what applies to your agency, but according to Wortman, “Regulation E specifically lists the parts of the EFTA that apply to ‘any person.”
Does That Also Provide Compliance for the EFTA and NACHA?
“The EFTA is actually implemented through Regulation E, which includes official interpretations, which is really where the nuances come into play,” says Wortman. “By way of example, in 2009, the Federal Reserve Board amended Regulation E to prohibit institutions from charging overdraft fees for ATM and one-time debit card transactions, unless the consumer opts in or affirmatively consents to the institution’s overdraft services. The Federal Reserve Board also amended Regulation E to restrict fees and expiration dates on gift cards and to require that gift card terms be clearly stated. What’s more, the Dodd-Frank Act amended the EFTA, creating new systems of consumer protections for remittance transfers, while also transferring rulemaking authority under the EFTA to the CFPB. It’s also important to note the many corollaries with Regulation Z (Truth in Lending Act).”
Wortman also states that NACHA, a not-for-profit-association that develops the operating rules and business practices for any institution or business participating in the ACH system “does not take the place of the EFTA or legal advice regarding compliance with Regulation E.”
What Language Should Payment Documents Include to Comply with Regulation E?
Regulation E specifies certain disclosures that are required at the time of an EFT, as well as what constitutes as a disclosure. “Disclosures required under Regulation E shall be clear and readily understandable, in writing, and in a form the consumer may retain,” explains Etmund.
Some examples of required disclosures are:
- A notification of the consumer’s liability
- A telephone number and address – so consumers can reach out in case of an unauthorized transfer
- Notice of the fees associated with a transfer
- Instructions on how to stop payments
- Liability of the institution and a summary of the error resolution process.
Why the Newfound Concern for Regulation E?
With the creation of the Consumer Financial Protection Bureau and the recent trend in greater consumer protection, Regulation E has seen a resurgence in importance. The changing technologies for making and taking payments has also had an effect on Regulation E’s relevance.
“In recent years, there is a strong trend for service providers to process payments electronically, which creates greater risk of regulatory scrutiny and private lawsuits,” says Etmund. “Companies should consider partnering with vendors that have strong controls to ensure compliance with Regulation E.”
PDCflow offers unique software technology designed specifically for Regulation E compliance. The flexibility of our FLOW technology allows you to stay compliant with Regulation E, protects your business and the consumer with a documented audit trail, and gets the payment on your books faster.
Download our guide for more information on Electronic Funds Transfer Act.