CUNA Regulatory Comment Call

September 29, 2004

Regulation E Revisions



Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Associate General Counsel Mary Dunn at and to Assistant General Counsel Jeff Bloch at; or mail them to Mary and Jeff in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. If commenting directly to the Fed, you must refer to Docket No. R-1210. Due to current mail disruption at the Federal Reserve Board, please consider submitting comments by e-mail to You may also contact us at 800-356-9655, ext. 6732, if you would like a copy of the proposed rule, or you may access it on the Internet at the following address:


The EFTA establishes rights, liabilities, and responsibilities for parties involved in electronic fund transfer (EFT) systems, which include transfers through ATMs, point-of-sale (POS) terminals, automated clearinghouses, telephone bill-payment plans, and remote banking programs. Regulation E implements the EFTA.


Electronic Fund Transfer - Electronic Check Conversion

In an ECK transaction, a consumer provides a check to a payee and information from the check is used to initiate a one-time EFT from the consumer’s account. The official staff commentary currently states that ECK transactions are covered by the EFTA and Regulation E if the consumer authorizes the transaction as an EFT.

The proposal includes the following regarding the rights, liabilities, and responsibilities of parties engaged in EFT transactions:

Under the proposal, authorization from a consumer holding an account on which a check will be converted will be sufficient to convert multiple checks submitted as payment for a particular invoice or during an individual billing cycle. This applies regardless of whether the checks are mailed within the same envelope or mailed separately during the billing cycle. Also, if an accountholder receives notice of a check conversion and someone other than the accountholder, or in addition to the accountholder, provides a check to make a payment during the billing cycle, then notice of the conversion to the accountholder is sufficient as notice to these other persons.

The initiator of the ECK transaction will also need to provide notice to the consumer that when the transaction is processed as an EFT, the funds may be debited from the consumer’s account quickly. If applicable, the initiator will also be required to notify the consumer that the check will not be returned by the consumer’s financial institution.

If the payee intends to collect a fee electronically for insufficient funds, then that information needs to be included in the notice. The official staff commentary will also be revised to clarify that an electronic debit from a consumer’s account to collect a fee for insufficient funds when an EFT or check is returned unpaid is covered by Regulation E and must be authorized by the consumer.

Proposed model clauses have been included that merchants and other payees may use to comply with these Regulation E requirements, as long as these clauses accurately reflect the services that will be provided. Model clauses for initial disclosures would be revised to reflect that one-time EFTs may be made from a consumer’s account using information from the consumer’s check and to instruct consumers to notify their account-holding institutions when an unauthorized EFT has occurred using information from their check. The official staff commentary will be revised to allow an institution to provide initial disclosures for ECK transactions earlier than what is required under Regulation E, such as when an account is opened, in a manner similar to what is allowed for other types of Regulation E transactions.

Payroll Cards

With a "payroll card," an employer, or a third party acting on behalf of the employer, will establish an account at a financial institution in which the employees’ salaries are periodically deposited and held on their behalf. The employees are then issued cards that they can use to access their funds electronically to obtain cash at an ATM or make purchases at a POS location.

The proposal will include a "payroll card account" as an "account" that is covered under Regulation E for EFTs of wages, salary, and other compensation that are made on a recurring basis, that is either directly or indirectly established by an employer. Regulation E will apply whether the funds are held in individual employee accounts or in a pooled account, with "sub accounts" maintained by the financial institution, or third party, that enable a determination of the amount owed to particular employees. Regulation E will not apply to a card for a one-time EFT of a salary-related payment, such as a bonus, or for a card solely used to disburse non-salary related payments, such as petty cash or travel reimbursement.

One or more parties involved in offering payroll card accounts may meet the definition of "financial institution" under Regulation E, which may include the institution, employer, or other third party involved in the transfer of funds or the issuance of the card. These parties may contract among themselves for purposes of ensuring compliance with these Regulation E requirements.

Issuance of Access Devices

The official staff commentary will be revised to clarify that financial institutions may issue a supplemental access device in conjunction with the issuance of a renewal or substitute access device, such as an ATM or debit card. Such devices will not be validated until the consumer elects to do so under procedures outlined by the institution. This revision is similar to a recent Fed revision for Regulation Z, the Truth in Lending Act, that permits the issuance of additional credit cards when renewal or substitute cards are issued.

Error Resolution

Regulation E currently permits a financial institution to satisfy its obligations to investigate an alleged error by reviewing its own records if the alleged error concerns a transfer to or from a third party, and there is no agreement between the institution and the third party for the type of EFT involved. The official staff commentary will be revised to indicate that the institution’s "own records" may include any relevant information available within the institution that could be used to determine if an error occurred. An example would be that, under these circumstances, the financial institution would not satisfy its error resolution obligations by, for example, reviewing the payment instructions if there is additional information within the institution’s own records that would assist in resolving the error.

Regulation E outlines procedures for resolving errors, including the time limits within which an investigation must be concluded, a requirement to provisionally credit a consumer’s account if the investigation cannot be completed within ten business days after the consumer’s notice of error, and a reporting requirement to notify the consumer of the results of the investigation. The official staff commentary will be revised to provide specifically that the financial institution does not need to comply with these requirements if the institution does not receive the error notice within 60 days from the date on which the first periodic statement reflecting the error is sent to the consumer. However, if the error involves an unauthorized EFT, then the institution must satisfy current requirements regarding consumer liability for such transactions before imposing this liability on the consumer.

Preauthorized Transfers

Currently, the official staff commentary indicates that a tape recording of a telephone conversation with a consumer who agrees to preauthorized debits does not constitute written authorization. This provision will be withdrawn as this may conflict with the Electronic Signatures in Global and National Commerce Act (E-Sign Act). The E-Sign Act allows electronic methods to be used that will be considered a writing, which could be interpreted to include tape recordings.

If the consumer indicates use of a credit card account for recurring charges when in fact a debit card is being used, the payee does not violate the requirement to obtain written authorization for the debit charges if the failure to obtain authorization was not intentional, resulted from a bona fide error, and if the payee maintains reasonable procedures to avoid such errors. The proposal will revise the official staff commentary to clarify that asking the consumer to specify whether a debit or credit card is being used will be considered a reasonable procedure.

Regulation E currently requires a financial institution to honor a consumer’s oral stop-payment order for a preauthorized transfer from his or her account if the request is made at least three business days before a scheduled debit. The official staff commentary will be revised to clarify that the institution may use a third party to block the transfer if it does not have the capability of blocking the preauthorized debit.

Regulation E currently requires the financial institution to send written notice of a preauthorized EFT at least ten days before the transfer when the EFT varies from the previous transfer or from the preauthorized amount. The official staff commentary will be revised to allow institutions to provide consumers with a range of varying amounts that could be anticipated by the consumer, in lieu of providing notice with each verifying transfer, if the funds are transferred to an account held by the consumer at another financial institution.

Disclosures at ATMs

An ATM operator that imposes a fee on a consumer for initiating an EFT or balance inquiry must currently post notices at the ATM indicating that a fee will be imposed. The proposal will revise the official staff commentary to clarify that if there are circumstances in which an ATM fee will not be charged for a particular transaction, then the operator may disclose on the sign that a fee may be imposed or may specify the types of EFTs or consumers for which a fee may be imposed.


(The Fed has specifically requested comment on the issues raised in these questions.)

Eric Richard • General Counsel • (202) 508-6742 •
Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 •
Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 •
Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 •