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Regulation E: Understanding Debit Card Fraud Rules
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There’s been a lot of talk about debit cards versus credit cards from a fraud perspective and I think there are a few misconceptions out there that bear further investigation. I don’t use a debit card much so until today I never researched the real differences between debit cards and credit cards from a fraud perspective. Federal Reserve Board Regulation E is the federal regulation that governs Electronic Fund Transfers and includes provisions that makes debit-card transactions instantaneous. Instantaneous means that the money is technically spent from the account the moment the card is used, which is important because your debit card draws from a bank account as opposed to a line of credit.
Why does this distinction matter? It matters because when a transaction is under investigation with a credit card, the charge is generally reversed until it is investigated further. With debit cards, the charge stays on while the transaction is investigated. So, if you have a fraudulent charge, you’re out the money until it’s fully investigated. This often causes a cascading effect where the missing money causes your account to go negative and start incurring fees. It’s not the bank’s fault at this point because it doesn’t know the offending charge was fraudulent and you really have little in the way of a defense to get the fees reversed since your account was negative.
Another difference is that you need to report the fraud within two days of “discovering” the loss (timely fashion), but “discovery” isn’t well defined, and you’ll be liable for up to $50. Any longer and you could be liable for up to $500. Now, some banks offer zero liability but those rules still apply because they’re outlined in Regulation E (§205.6 Liability of consumer for unauthorized transfers).
Regulation E has a lot of good stuff in it if you have a few minutes to kill. For example, § 205.8 Change in terms notice; error resolution notice, outlines how the bank must send you written notification of a change at least 21 days before its effective date. The only exception is a change is required to maintain or restore the security of the account or system, in which case they have 30 days to notify you.
It’s not particularly long and it’s written in easy to understand language so give it a look if you have some time. You can find all the other Federal Reserve Board Regulations here.
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Good information… I didn’t know some of that. I usually always use my rewards card and then pay the balance in full all the time. It protects you from a lot of stuff and I also get free gift cards
One thing I hate is if you’ve ever used your debit card at a restaurant/bar/hotel…. They charge a huge amount for “just in case” and it can screw you over if you don’t have a lot of money in there. Then they give it all back and charge what they’re supposed to.
It has come to my attention that if you have unauthorized claims such as a store or company runing your card debit card effects your claim when your debit card is stolen and used at the some place you lost it. You are denied a fraud caim because of regulation e says you filed to many claims? Who does this protect the card holder when you lose every thing??
I handle all the debit card disputes/chargebacks for our credit union and I always give provisional credit within 24 hours of being contacted by the cardholder. Reg E requires the financial institution to provisionally credit the cardholder’s account within 10 days while you are investigating the claim.
Diana,
good for you,you give provisional credit right away,my debit card was fraudulently used recently starting May 5th,my bank noticed it and stopped card transactions on the 11th,that was when i learned about it when i was denied cash at the atm,i checked with the bank and there were numerous charges to London,Denmark,Ontario,PHone calls to Auckland NZ…it all totalled close to$2000.00 not mentioning the foreign transaction fees of $3.00 per charge…we destroyed and cancelld the card when I went to the bank on the 12th,filed claims on each of the transactions,i have been in touch with the bank every day,today the 15th another transaction went thru and was paid again by the bank ,now i lost another @182.oo plus the foreign currency fees….im wiped out of my hard earned money,i begged to have a provisionary credit on all these money i lost,my mortgage payment bounced back,i have some bills to pay,i have to feed my family..but to my frustration my request was denied…by the bank.I was told investigation has started and will be reimbursed only if the merchant will return the money….i dont understand how this works,i hope the bank does not truly believe that i did all these foreign transactions,i have been banking with them for almost 10 years now,but cant give any consideration ,all i get is word of apology…which is not enough to make me feel better and cover all the emotional breakthrough that i am going through .I thought banks protects the customers?i cant get over the fact that they are leaving me in the dark
The entire article is incorrect. Per Regulation E the bank must grant credit with in ten business days from the date the claim is filed. If any financial institution that decides not to grant temporary or provisional credit until the claim is resolved is incorrect and could be fined by the OCC (Office of the Comptroller). The difference between fraud on debit cards and credit cards are that the bank has more chargeback/recovery rights on a credit card then a debit card because it’s that’s company’s money at stake. However since a debit card is a total consumer account meaning no lines of credit and only the consumer’s money there is a difference. And, the difference is because a credit card and debit card has two sets of rules or government regulations that govern them. The claim process meaning debit card or credit card of fraud or non fraud are completely ran and regulated by the government. Not one part of the process can the bank alter if so they would be fined and held out of federal compliance. By law a bank on a debit card fraud claim has up to 90 days to resolve claim. They do inform you that they are sending you out and affidavit or Affidavit of Fraud and Purgury Claim Statement. The temporary credit remains in the account until claim is resolved. If the Cardholder Claim Statement is not returned in a timely matter by law the bank has the right to reverse the provisional or temporary credit because they have resolved the claim. And, by resolving the claim they mean that per Reg E the customer must submit enough information to the bank in order to dispute the transactions. As the customer if you do not return the form you then did not follow federal law and claim is denied and bank no longer is held responsible for your fraud and no longer has a timeframe to resolve your dispute.
Rebecca is right on. This Reg puts the reposnsibility back on the bank even in case of gross negilgence on the part of the customer. It’s the most unfairly written piece of consumer legislation on the books. Yes, it certainly aids the consumer with a true and accurate claim, but it has allowed for millions of dollars in fraud which the bank is obligated to cover. This one needs a severe re-vamping!
I found this information to be helpful. What do you think of the implied conscent regulation regarding bank cards? It sure doesn’t assist persons with disabilities. We need help when using our card. If your pin number is given out in the store, this gives the person helping you the right to take your card from your pocketbook and go to the ATM machine. This just happened to me. Because I am blind, I need assistance when using my bank card. I don’t need the person assisting to take my card from my pocket book and take $300.00 from me. My bank gave me my money and took it back again. I need my $300.00.
In the event of a prearbitration in resolving a dispute, does anyone know of any additional time that we are allowed and still comply with Reg E. Most pre-arb’s take you beyond the 90 day limit to resolve, in the event the customer was wrong you can not withdraw from their account if you have already sent them a letter telling them that there dispute is final, correct?
If you’re disputing a denial on a claim you filed with the bank, the bank has no official resolution date, because, according to Reg E, they’ve already complied with the law and resolved your previous claim within 90 calendar days. So, basically, you just have to sit tight.
You can certainly withdraw any money you’d like while the re-opn/pre-arbitration in resolving a dispute is taking place. The only thing the bank can do against you now is NOT give you provisional credit while they investigate the case, because they already fulfilled their Reg E requirements.
In response to another commenter’s question: You don’t get denied just because you’ve filed “too many” Reg E claims, but do understand how suspicious it looks if you’ve got 3 or more seperate claims of unauthorized activity in the past year. It kinda makes you look like you either a) just want some extra money, or b) have a serious problem with your debit card. What my bank does (not sure if this is my bank only, or Reg E) is permanently deny you the privelege of having a debit card after the 3rd “unauthorized” claim in a 12-month period (there is a difference between “unauthorized” and “error” claims).
I work in the Reg E department at a fairly large national bank. We don’t try to inconvenience anyone; my supervisor frequently reminds us that we are not looking for reasons to deny our customers’ claims– “We’re not an insurance company,” he says– but we do not make the rules, either. Calling your bank’s Reg E department and screaming at the investigator who answered your call isn’t going to any good. Can and bitch to Ben Bernake. He’s the one we *really* work for.
And, for Christ’s sake, stop getting so mad at me when I don’t have your fax!
What date does your bank consider to be the “error”? The date the item hard posts to the account?
re-evaluate! not re-open…. =)
An error doesn’t have anything to do with date of posting, but the type of transaction and it’s circumstances. If some a-hole steals your check card and buys 8 of his friends gas with it, that’s “unauthorized.” If you go to Red Lobster and tip $10 on a $50 bill, but they key in $100 for the tip instead and you dispute it with your bank, that’s an “error” claim.
If you have a Netflix membership, cancel, and they keep charging you, that’s an “error.”
If you don’t use your card all day, some some a-hole just spent $500 of your money at a Target 2,000 miles away, that’s counterfeit and”unauthorized.”
That’s the difference: People initiate business on an error claim, and are completely clueless or vicitmized with an “unauthorized” claim. Only “unauthorized” claims are actually fraud. The rest are… errors.
Oh, and we look at both, but interest accrues when the item hard posts, so I suppose that would be the right answer.
The time frames for reporting the fraud are within 60 days under reg e and if the purchase was not pin based Visa allows 120 days. When using a debit card always press credit this way you are covered under Visa’s rules as well as reg e.