Research · 6 min read
What a Bank Has to Do When an Electronic Payment Is Disputed
The rule for money leaving a deposit account runs on business days rather than billing cycles. Ten of them decide the investigation, and forty-five decide whether the money sits in the account while the investigation continues.
Key takeaways
- Regulation E accepts an oral or written notice of error received within sixty days of the statement first showing the item, and a request for clarification about a transfer counts as a notice of error.
- The default deadlines are ten business days to determine, three business days to report, and one business day to correct.
- Taking the forty-five-day extension requires a provisional credit within ten business days, notice of it within two business days, and full use of the funds during the investigation.
- A point-of-sale debit card transaction, a transfer not initiated within a state, or a new account extends the outer investigation window to ninety days.
- Where the transfer went to an unaffiliated third party and the institution has no agreement for that transfer type, reviewing its own records satisfies the investigation requirement.
- A no-error finding carries a written explanation, a stated right to the documents relied on, and a five-business-day cushion on items presented after a provisional credit is debited.
Answer first: notice can be oral, and the clock is ten business days
Regulation E requires a financial institution to comply with its error resolution procedures in response to any oral or written notice of error from the consumer that meets three conditions. It must be received no later than sixty days after the institution sends the periodic statement on which the alleged error is first reflected. It must enable the institution to identify the consumer's name and account number. And it must indicate why the consumer believes an error exists, including to the extent possible the type, date and amount of the error.
The institution may require written confirmation of an oral notice within ten business days, but only if it informs the consumer of that requirement and provides the address for the confirmation at the time the oral notice is given.
From there the rule sets the pace. The institution must investigate promptly and determine whether an error occurred within ten business days of receiving the notice, report the results to the consumer within three business days after completing the investigation, and correct the error within one business day after determining that one occurred.
This is a different track from the credit card billing error rules, which run on billing cycles and require a written notice. Money that left a deposit account by electronic transfer is on this track. The distinction matters because a program billed by automatic debit and a program billed to a card are governed by different deadlines even when the charge looks identical on a screen.
What the rule counts as an error, and what it does not
The regulation's list is specific. An error means an unauthorized electronic fund transfer; an incorrect electronic fund transfer to or from the account; the omission of a transfer from a periodic statement; a computational or bookkeeping error made by the institution relating to a transfer; the consumer's receipt of an incorrect amount of money from an electronic terminal; and a transfer not identified in accordance with the receipt and preauthorized-transfer documentation rules.
The seventh item is broader than the rest. An error includes the consumer's request for documentation required by those documentation rules, or for additional information or clarification concerning an electronic fund transfer, including a request made to determine whether one of the other six errors exists. Asking a question about a transfer, in other words, can itself start the procedure.
The regulation then names three things that are not errors: a routine inquiry about an account balance, a request for information for tax or other recordkeeping purposes, and a request for duplicate copies of documentation.
There is a timing rule attached to the clarification category. Where a notice of error is based on documentation or clarification the consumer requested, the notice is timely if received no later than sixty days after the institution sends the information requested — a second sixty-day window that opens on the institution's response rather than on the original statement.
The forty-five-day extension and what it costs the institution
If the institution cannot finish within ten business days, it may take up to forty-five days from receipt of the notice, but only if it does four specific things.
It must provisionally credit the account in the amount of the alleged error, including interest where applicable, within ten business days of receiving the notice. Where the institution has a reasonable basis for believing an unauthorized transfer occurred and it satisfied the initial disclosure conditions, it may withhold a maximum of fifty dollars from the amount credited.
It must inform the consumer within two business days after the provisional crediting of the amount and date of that credit, and give the consumer full use of the funds during the investigation. It must correct any error within one business day of determining that one occurred. And it must report the results within three business days of completing the investigation, including, where applicable, notice that a provisional credit has been made final.
Two situations release the institution from provisional crediting. It need not credit provisionally where it required, but did not receive, written confirmation within ten business days of an oral notice of error, or where the alleged error involves an account subject to the securities credit regulation.
The statute reinforces the provisional credit with a penalty. If a court finds that the institution did not provisionally recredit within the ten-day period and either did not make a good faith investigation or lacked a reasonable basis for believing the account was not in error — or that it knowingly and willfully concluded there was no error when that conclusion could not reasonably have been drawn from the evidence — the consumer is entitled to treble damages.
The extended clocks, and the limits of the investigation
Three circumstances stretch the deadlines. The ten-business-day figure becomes twenty business days where the notice involves a transfer to or from an account within thirty days after the first deposit to that account was made.
The forty-five-day investigation period becomes ninety days where the transfer was not initiated within a state, resulted from a point-of-sale debit card transaction, or occurred within thirty days after the first deposit to the account. A point-of-sale debit card transaction is a common shape for a retail health purchase, and it is one of the three things that triples the outer investigation window.
The regulation also states how thorough the investigation must be, and the answer is narrower than many people assume. With an exception for certain transfers, a financial institution's review of its own records satisfies the requirement where the alleged error concerns a transfer to or from a third party and there is no agreement between the institution and that third party for the type of transfer involved.
That sentence is the practical limit of the mechanism. Where the money went to an unaffiliated third party by a transfer type the institution has no agreement about, the institution can discharge its duty by reading its own records. It is not obligated by this section to obtain the seller's records or to adjudicate what the seller promised.
When the institution finds no error, and what has to happen next
If the institution determines that no error occurred, or that an error occurred in a manner or amount different from what the consumer described, additional duties attach.
Its report of results must include a written explanation of its findings and must note the consumer's right to request the documents it relied on in making the determination. On request, it must promptly provide copies of those documents. The statute states the same duty and adds that the institution must include notice of the right to request reproductions with the explanation of findings.
Where the institution debits a provisionally credited amount, it must notify the consumer of the date and amount of the debiting. It must also notify the consumer that it will honor checks, drafts or similar instruments payable to third parties, and preauthorized transfers from the account, without an overdraft charge to the consumer, for five business days after the notification. It must honor items as specified in that notice, but need honor only items it would have paid had the provisionally credited funds not been debited.
Finally, the loop closes. An institution that has fully complied has no further responsibilities under the section if the consumer later reasserts the same error — except where the error is asserted after the consumer receives information provided in response to a request for documentation or clarification.
None of this decides who is right. The section is a procedure with deadlines, a provisional-credit mechanism, and a documentation duty. It does not promise that a disputed transfer will be reversed, and the burden allocation for unauthorized transfers is set elsewhere in the statute.
Sources
- 12 CFR 1005.11, “Procedures for resolving errors” (Regulation E)The seven categories of error and the three excluded inquiries; the oral-or-written notice standard, its sixty-day window and the separate sixty-day window running from information provided in response to a clarification request; the written confirmation option within ten business days; the ten-business-day determination, three-business-day report and one-business-day correction; the forty-five-day extension and its four conditions including the provisional credit, the two-business-day notice and the fifty-dollar withholding allowance; the two situations releasing the institution from provisional crediting; the twenty-business-day and ninety-day extensions and their triggers; the own-records standard for third-party transfers; the written explanation, right to documents, provisional-credit debiting notice and five-business-day honoring duty; and the reassertion rule.
- 15 U.S.C. 1693f, “Error resolution”The statutory sixty-day notice window and its contents; the ten-business-day investigation and report; the one-business-day correction; the provisional recredit option with a forty-five-day investigation and full use of funds; the three-business-day explanation of findings with reproductions of documents on request and notice of the right to request them; and the treble damages provision for failures of provisional recredit, good faith investigation, reasonable basis, or a knowing and willful no-error conclusion.
Frequently asked questions
Does a notice of error have to be in writing?
Regulation E requires the institution to comply in response to any oral or written notice of error meeting the section's conditions. The institution may require written confirmation of an oral notice within ten business days, but only if it tells the consumer of that requirement and gives the address at the time of the oral notification. If it requires confirmation and does not receive it in that window, it need not provisionally credit the account.
How long does the bank have?
Ten business days to investigate and determine whether an error occurred, three business days after completing the investigation to report results, and one business day after finding an error to correct it. If it cannot finish in ten business days it may take up to forty-five days, but only if it provisionally credits the account within ten business days and meets the notice conditions attached to that credit.
What is a provisional credit?
It is a credit of the alleged error amount, including interest where applicable, placed in the account within ten business days so the investigation can continue for up to forty-five days. The institution must tell the consumer the amount and date within two business days and give full use of the funds during the investigation. Where it has a reasonable basis for believing a transfer was unauthorized and met its disclosure conditions, it may withhold a maximum of fifty dollars from that credit.
Is a debit card purchase treated differently?
Yes, on one deadline. The regulation extends the forty-five-day investigation period to ninety days where the notice of error involves a transfer that was not initiated within a state, resulted from a point-of-sale debit card transaction, or occurred within thirty days after the first deposit to the account.
How deep does the investigation have to go?
The regulation states that, with an exception for certain transfers, a review of the institution's own records satisfies the requirement where the alleged error concerns a transfer to or from a third party and there is no agreement between the institution and that third party for the type of transfer involved.
What is owed if the institution decides there was no error?
A written explanation of the findings, a note of the consumer's right to request the documents relied on, and prompt copies of those documents on request. If a provisional credit is being debited, the institution must give the date and amount and must honor third-party items and preauthorized transfers without an overdraft charge for five business days after that notification.