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Compliance Guide to Small Entities
Regulation E: Electronic Fund Transfers
12 CFR 205
This description should not be interpreted as a comprehensive statement of the regulation. Rather, it is intended to give a broad overview of the regulation's requirements. The full regulation is available on the Government Printing Office web site.
Regulation E provides a basic framework that establishes the rights, liabilities, and responsibilities of participants in electronic fund transfer systems such as automated teller machine transfers, telephone bill-payment services, point-of-sale (POS) terminal transfers in stores, and preauthorized transfers from or to a consumer's account (such as direct deposit and social security payments). The term "electronic fund transfer" (EFT) generally refers to a transaction initiated through an electronic terminal, telephone, computer, or magnetic tape that instructs a financial institution either to credit or to debit a consumer's asset account.
A general description of the regulation, by section, follows.
Section 205.1 Authority and purpose
States that the primary objective of the regulation is to protect individual consumers who engage in electronic fund transfers.
Section 205.2 Definitions
Defines key terms used in the regulation.
Section 205.3 Coverage
Lists the types of transactions covered by the regulation--those initiated through an electronic terminal, telephone, computer, or magnetic tape to either order, instruct, or authorize a financial institution to debit or credit an account. These transfers include, but are not limited to, POS and ATM transfers, direct deposits or withdrawals, telephone transfers, and transfers initiated through a debit card transaction.
Section 205.4 General disclosure requirements; jointly offered services
States that a financial institution may combine the disclosure information required by the regulation with that required by other laws such as the Truth in Lending Act or the Truth in Savings Act as long as it is clear and understandable and is in a written form that consumers can keep.
Section 205.5 Issuance of access devices
Stipulates that a depository institution may issue an access device (such as a debit card) only if a consumer has requested it either orally or in writing.
Section 205.6 Liability of consumer for unauthorized transfers
Limits a consumer's liability for unauthorized electronic fund transfers, such as those arising from loss or theft of an access device, to $50; if the consumer fails to notify the depository institution in a timely fashion, the amount may be $500 or unlimited.
Section 205.7 Initial disclosures
Requires financial institutions to provide to consumers initial disclosures of the terms and conditions of EFT services. Institutions must disclose the consumer's liability for unauthorized EFTs, the types of EFTs the consumer may make, and any limit on the frequency or dollar amount; fees charged by the institution; and error-resolution procedures. Institutions must also provide a summary of various consumer rights under the regulation.
Section 205.8 Change-in-terms notice; error-resolution notice
States that if there are adverse changes in fees, the consumer's liability, types of transfers available, or limits on transfers, the institution must provide a change-in-terms notice at least twenty-one days before the changes take effect. The institution must periodically send a reminder of the error-resolution procedures. It may send a detailed notice annually or provide an abbreviated notice with each account statement.
Section 205.9 Receipts at electronic terminals; periodic statements
States that consumers must be provided documentation in two forms: terminal receipts and periodic statements. Consumers must receive a receipt when they initiate an electronic transfer and monthly in the form of periodic statements. Both documents must include the type of electronic transfer; the amount and date of the transaction; the location of the terminal; and other information.
Section 205.10 Preauthorized transfers
Requires financial institutions to provide the consumer with some form of notice that electronic transfers that recur at substantially regular intervals, such as the direct deposit of salaries or benefits and the preauthorized payment of bills, occurred as scheduled.
Section 205.11 Procedures for resolving errors
States that if a consumer notifies an institution that an error involving an EFT has occurred, the institution must investigate and resolve the claim within specified deadlines. Errors covered by this requirement include unauthorized EFTs, incorrect EFTs, and the omission from an account statement of an EFT that should have been included.
Section 205.12 Relation to other laws
States that with regard to the issuance of access devices, consumer liability, and the unsolicited issuance of credit cards, the financial institution must take into account the provisions set forth in Regulation Z, Truth in Lending. In addition, the Federal Reserve Board shall determine whether the request of a state, financial institution, or other interested party is preempted by state laws relating to electronic fund transfers. Only state laws that are inconsistent with the act and this regulation are preempted, and then only to the extent of the inconsistency.
Section 205.13 Administrative enforcement; record retention
Indicates which federal agency enforces the regulation for particular classes of institutions. Records are to be retained for a period of not less than two years from the date disclosures are required to be made or an action is required to be taken.
Section 205.14 Electronic fund transfer service provider not holding consumer's account
States that a person who provides an electronic fund transfer service to a consumer but does not hold the consumer's account is subject to many of the same requirements set forth in the regulation.
Section 205.15 Electronic fund transfer of government benefits
States that a government agency is subject to the requirements of the regulation if directly or indirectly it issues an access device to a consumer for use in initiating an electronic fund transfer of government benefits from an account, other than needs-tested benefits in a program established under state or local law or administered by a state or local agency.
Appendix A Model disclosure clauses and forms
Appendix B Federal enforcement agencies
Appendix C Issuance of staff interpretations
Supplement I Official staff interpretations (Commentary)
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Last Update: February 10, 2017
As an expert in financial regulations, particularly in the realm of electronic fund transfers, my depth of knowledge and experience in this field allows me to provide comprehensive insights into the concepts covered in the article regarding Regulation E: Electronic Fund Transfers (12 CFR 205). I'll break down the key concepts discussed in the various sections:
1. Section 205.1 Authority and Purpose:
- Establishes the primary objective of Regulation E, which is to protect individual consumers engaged in electronic fund transfers. This section emphasizes the regulatory framework's aim to ensure consumer rights and safety.
2. Section 205.2 Definitions:
- Defines crucial terms used throughout the regulation. These definitions are vital for interpreting and understanding the specific terminology employed in the context of electronic fund transfers.
3. Section 205.3 Coverage:
- Lists the types of transactions covered by the regulation, encompassing those initiated through electronic terminals, telephones, computers, or magnetic tapes. It includes various electronic fund transfer methods such as POS and ATM transfers, direct deposits, withdrawals, and more.
4. Section 205.4 General Disclosure Requirements:
- Allows financial institutions to combine disclosure information required by Regulation E with other laws like the Truth in Lending Act or the Truth in Savings Act. The key is to ensure clarity and understandability in written form for consumers.
5. Section 205.5 Issuance of Access Devices:
- Specifies conditions under which a depository institution may issue an access device (e.g., debit card) to a consumer, requiring a consumer's request either orally or in writing.
6. Section 205.6 Liability of Consumer for Unauthorized Transfers:
- Limits a consumer's liability for unauthorized electronic fund transfers, setting specific amounts for liability based on timely notification to the depository institution.
7. Section 205.7 Initial Disclosures:
- Mandates financial institutions to provide consumers with initial disclosures regarding the terms and conditions of EFT services, including liability for unauthorized transfers, types of EFTs, fees, and error-resolution procedures.
8. Section 205.8 Change-in-Terms Notice; Error-Resolution Notice:
- Requires institutions to notify consumers of adverse changes in fees, liability, transfer types, or limits at least twenty-one days before such changes take effect. Also, mandates periodic reminders of error-resolution procedures.
9. Section 205.9 Receipts at Electronic Terminals; Periodic Statements:
- Ensures consumers receive documentation, both in the form of terminal receipts and monthly periodic statements, detailing electronic transfers' type, amount, date, location, and other relevant information.
10. Section 205.10 Preauthorized Transfers:
- Requires financial institutions to notify consumers of recurring electronic transfers, such as direct deposits or preauthorized bill payments, occurring at substantially regular intervals.
These sections collectively form the foundation of Regulation E, providing a comprehensive framework for governing electronic fund transfers and safeguarding consumer interests in the evolving landscape of electronic financial transactions.