I was asked this week, how and when does Regulation E apply to business customers if they report a claim? My answer: it doesn’t, but it could.
Regulation E is otherwise known as 12 CFR 1005, Electronic Funds Transfers. The Electronic Funds Transfer Act was passed in 1978 by President Jimmy Carter, to establish the rights and liabilities of consumers as well as the responsibilities of all participants with respect to electronic funds transfer activities. This consumer regulation is designed to protect the integrity of the systems used for transferring funds electronically and to provide a mechanism for reporting errors, unauthorized transactions, and fraud. Specifically, section 1005.11 pertains to procedures for resolving errors. An error, as defined by Regulation E, is generally an unauthorized electronic funds transfer.
Consumers are obligated to report unauthorized activity as quickly as possible to their bank for investigation. The longer consumers wait, the more liability they will have for unauthorized activities such as withdrawals from their bank accounts.
Regulation E is a consumer regulation. It does not specifically apply to business customers. However, the bank is still under contractual agreement with the business customers. So, based on the language that is included in the business account disclosures, the various terms and conditions, as defined in Regulation E, might also apply. Thus, the specific contractual agreement as opposed to a regulatory requirement may also subject the Bank to similar terms. One would need to review any account agreements and Truth in Savings (“TIS”) disclosures given out to business customers.
If the bank provides the same disclosures to its business customers as it does to its consumer customers, the bank will be contractually bound to treat business customer claims in the same manner as consumer claims under the Regulation E requirements. If this is not the bank’s intent, then the bank should create separate disclosures for its business customers as opposed to its consumer customers. It’s all in the disclosures!
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