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What is Regulation E, and how does it protect you?
The term “Regulation E” may not be a popular topic of converation, but if you use a debit card or another type of electronic funds transfer, it’s important to be aware of.
Regulation E is a federal regulation that protects you from unauthorized and accidental electronic funds transfers (EFTs). It also outlines the procedures you and your bank must follow to prevent and dispute unauthorized electronic transactions.
For example, if someone steals your debit card and makes a purchase, Regulation E limits the amount of money you’re liable to pay and lays out the steps you and your bank must take to correct the unauthorized charge.
If you use electronic funds transfers, Regulation E is there to protect you. Read on to understand how it works.
What is Regulation E in banking?
The primary purpose of Regulation E is to protect consumers who use electronic funds transfers. This regulation, issued by the Consumer Financial Protection Bureau (CFPB), implements the Electronic Funds Transfer Act (EFTA). This act creates a “framework for rights, liabilities, and responsibilities” for those involved in EFTs, such as consumers and financial institutions.
Regulation E protects consumers from unauthorized and accidental charges, limiting liability and providing a process for disputing these charges. This regulation also outlines rules that financial institutions must follow regarding dispute resolution, adequate documentation, and other responsibilities related to EFTs.
Read more: What is the Consumer Financial Protection Bureau?
Key protections under Regulation E
Regulation E covers certain types of transactions, including those initiated by an electronic terminal, phone, computer, or magnetic tape. These transactions include:
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ATM transactions
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Direct deposits
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Gift cards
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Debit card transactions
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Transfers initiated by phone
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Overdrafts
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Peer-to-peer (P2P) payments
What isn’t covered by Regulation E?
Not all electronic transactions are covered by Regulation E. For example, the following types of transactions aren’t covered:
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Transfers initiated by check
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Transfers made primarily to purchase securities or commodities
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Wire transfers
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Credit card transactions
Credit cards offer consumer protection, too. But these protections fall under the Truth in Lending Act (TILA), implemented by Regulation Z.
While Regulation E protects you from fraudulent or erroneous charges, it doesn’t protect you when you misunderstand a transaction or authorize a purchase you aren’t satisfied with. For example, if you buy an annual subscription and authorize automatic renewal, you can’t later dispute the recurring charge if you forget to cancel your subscription. However, if you do cancel the subscription and the merchant mistakenly charges you, that’s an issue you can pursue under Regulation E.
How is Regulation E enforced?
Along with protections for consumers, Regulation E outlines specific rules and procedures financial institutions must follow to comply with federal law. These include disclosing account information upfront, alerting consumers of account changes in advance, and providing regular account statements.
The CFPB enforces federal law related to consumer protections, including Regulation E, and relies on several different sources to identify cases where enforcement is necessary. These include:
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Consumer complaints
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CFPB whistleblower hotline
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Referrals from state and federal agencies
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CFPB supervisory work
Enforcement can come in a variety of forms, including compensating harmed consumers, charging fines, or even banning companies from the marketplace. Public enforcement actions initiated by the CFPB are also posted online on the CFPB enforcement database.
How to file a Regulation E dispute
If you notice a fraudulent or incorrect charge related to any transaction covered by Regulation E, report it to your financial institution as soon as possible. Be prepared with any information you have relating to the fraudulent charge, such as the transaction type and amount, as well as when you noticed the charge.
Reporting the charge as quickly as possible limits the amount you may be liable to pay. If you notify the bank within two days of noticing theft or unauthorized charges, your liability is capped at $50. If you wait longer than two days, you could be responsible for up to $500 or more.
Some institutions may require you to follow up in writing within 10 business days after making a verbal dispute. The financial institution then has 10 business days to investigate the dispute and follow up.
If they confirm an error, they should correct it within a day. However, if the financial institution can’t conclude the investigation within 10 business days, they can issue you a credit for the disputed amount while they continue investigating the case.
Read more: How to dispute a debit card charge
More ways to protect yourself
Even though Regulation E exists to protect consumers, it’s up to you to keep an eye on your accounts and report any unauthorized activity.
To stay on top of your accounts, review your statements carefully. Look for any charges you don’t recognize, and report them right away. You may also want to sign up for bank alerts, which can notify you immediately of any transactions involving your account.
