Regulation E: Understanding Debit Card Fraud Rules
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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There are 6 comments, add your thoughts now!
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??
[...] Source: Blueprint for Financial Prosperity Blog Post [...]
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.
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!
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