Personal Finance 

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.

{ 38 comments, please add your thoughts now! }

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38 Responses to “Regulation E: Understanding Debit Card Fraud Rules”

  1. 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.

    • RonW says:

      With regards to the “just in case”, What the bar is actually doing is doing a preauthorization against your card to make sure the card is good. If you sit down at the bar and ask to open a tab, the bartender doesn’t know how much you plan on spending. He will send a set dollar amount through to the the card company to see if the money is there. This is known as a pre-athorization and is not actually a charge to the account. When you close the tab out, the bar sends the posting item through for the correct amount and the pre-auth. amount is dropped from the account.

  2. Linda Gordon says:

    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??

  3. Diana F says:

    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.

    • consuelo says:

      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

  4. Rebecca says:

    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.

  5. OLDFLD says:

    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!

    • Lauren says:

      No, it’s fine as it is. Most claims are totally legitimate and banks are just looking for ways to bank my money. Even when they know someone stole my funds illegally they deny my claim and keep the funds in their bank.

  6. Betty says:

    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.

  7. Lori says:

    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?

  8. Lirpa says:

    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!

    • Dale says:

      What date does your bank consider to be the “error”? The date the item hard posts to the account?

    • Anonymous says:

      re-evaluate! not re-open…. =)

    • Anonymous says:

      I understand your frustration, I’m also a Reg E investigator and we get screamed at all the time. People have the nerve to tell us your the bank give me back my money. We have 10 business days to investigate if customer made the transaction although they state its unauthorized. I can go on and on about this but bottom line its very important to read terms & conditions before ordering stuff over the phone, mail, or internet. Also read & learn about are rules and regulations don’t just think we pay everyone without doing our investigation.

      • Lauren says:

        You have the bank attitude. I was legitimately defrauded and yet my dispute was denied. No notification, no nothing. I didn’t appreciate that they treated me as if I’m the thief! I simply want MY MONEY back. You may not understand that basic concept of ownership of currency but it’s infuriating to hear a bank act as if it’s their money. It isn’t the banks money, in my case it’s my money. It’s too simple for the bank to grasp. They’ve denied me access to my own money that was illegally removed from my account. If you can’t understand why a customer would sick of the bank accusing the victim of theft of the perpetrator then you’re in the wrong business!

    • Lauren says:

      I beg to differ with you. My bank took the word of a thief over my word, their customer. They denied my claim w/o notifying me and demanded I prove what is impossible to prove. I can’t accept that banks don’t look for ways to get out of their obligation to provide me with their fullest resources and work for ME. I am an Honest law abiding citizen and I have no faith in as much as one single bank. Banks always try to screw their customers and always have. You know this is true. I’m sick of the irresponsible way that banks crap on the people that make their business possible. Every America should withdraw all their funds and we’d see how quickly the ethics-free banks went under.

  9. lirpa says:

    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.

  10. lirpa says:

    Oh, and we look at both, but interest accrues when the item hard posts, so I suppose that would be the right answer.

  11. megan says:

    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.

  12. missmarple says:

    Are you notified when the Provisional credit becomes Actual after the investigation?

  13. terry says:

    On 4/02/2009, we made a bank electronic transfer to a company for a morgage modification. After being jerked around for the past 9 months, we found that this was more than likely a scam. Can we recoup our money using regulation E or some other method through our bank or the bank where the transfer was sent?

  14. summer says:

    My credit union debit card was stolen in Ecuador. A fraudulent charge for $1,000.00 was made with it. I had already cancelled the card but somehow they still made the transaction, possibly swiping the card before I called the bank. I filed a fraud claim and the so-called “company” that made the fraudulent charge disputed the claim. Because of that, they are getting my money. I don’t understand why. How can I fight this?

    • Kris says:

      Summer, I have the exact same situation: 1300$ disappeared when someone abused my card to make online purchases in Uruguay and Chile. The Bank claims it cannot do anything, and so do the Merchants. Basically, Debit Card Safety Guarantees are all but safe (in my case ING Direct claims it is safe through its ORANGE GUARANTEE SAFETY, which in fact is a total Scam). I will fight until the very end, since ING Direct doesn’t do anything to help me get my money back. When Debit Fraud is committed, the customer is screwed, as simple as that. Debit Cards are totally UNSAFE, but Banks keep silent on the facts, as the have vested interests: to SELL Debit cards as much as possible. The banks don’t give a shit about your safety, and are very happy to make you liable for the problems THEY cause to you.

  15. Dorothy Gerber says:

    Does Reg E pertain or cover businesses and does a bank need to give provisional credit if the dispute is an error and not fraud?

    • Justin says:

      Well debit cards are a consumer product so if a business has a loss due to fraud or error the bank isnt required by reg e to do anything. If the institution issues business debit cards im sure they state this in the documents you signed to get the card.

  16. Mike says:

    My friend just got scammed big time from some real estate infomercial seminar/workshop thing. Problem is that she used her debit card. Charge was on June 11th, Issuing bank is Wells Fargo.. Is there anything she can do to get her money back? I feel so bad and wish she had asked me first, but no such luck, just trying to help her out.. Thanks for any advice!

  17. Sarah Jones says:

    I put in a claim for 56.97 to Bank of America in February. it is not July 18th. On the 16th of July they reversed the temporary credit and all of its overdraft fees equal to 210.00 (according to reg E can they do that? I thought they only had 90 days to complete an investigation and notify me of the results.

  18. cody says:

    a couple of days ago i heard an ad on the radio about a free list of forclosed homes so i called and agreed to a charge of 1.99 but i just looked at my account on the computer and there a charges to three companies that i did not authorise totaling 54 dollars. how do i go about resoulving this situation. i have checks in the mail for bills that will not clear now.

  19. Bev says:

    My son used a debit card at a bowling facility for his daughters bday party. One week later he saw a pending $400.00 charge on his account that he didn’t authorize. He called the bank they froze account and now he is worried that charge will go through. Does anyone no if it will are is it froze?

  20. joe burns says:

    on the 7th of Feb. I discovered that someone had withdrawn $5,546 dollars from my direct express account which is a prepaid debit through SSI Admin. Their were twelve withdrawals ,(9)$503, (2) $403 (1)$ 203 leaving me $13 in my account.I wasn’t given a call nor was their any attempt to freeze the account.Now ,I have a police report,FTC report, 90 day alert with the credit bureau.I sent in a written dispute letter to direct express and have received and returned their fraud documentation all within ten days. I have requested a provisional credit but am told it must come from the dispute team (unreachable). How long does this institution have after the ten days is over before returning my money too me or providing a credit on my account?

  21. J J Wisconsin says:

    I was hired at a Burger King and told the only way I would get hired is if I would accept monies for labor on a Global Cash Card. The Global Cash Card LTD. will not turn over monies that belong to me that was loaded by the employer…..every time I call Global Cash Card I get calls from scams (phone #’s 420 – 421 – 1421 – 000-000-0000). Global Cash Card puts me on hold and never returns to correct the problem. then in every instance I get a call from one of the #’s above wanting to take control of my computor claiming it is spreading viruses and they want remote access. this has happened every time I called. I have requested Regulation Form E and they hang up.I was charged $2.oo for a check that no-one will cash & a fee for the check being declined several times.HOW DO I GET MY MONIES OUT OF THEM AND SUE THE PANTS OFF THEM AND THE EMPLOYER FOR FORCING ME TO BE INVOLVED IN THIS SCAM (I THINK THE EMPLOYER HAS AN OBLIGATION NOT TO DEPRIVE THE EMPLOYEE OF MONIES OWED EVEN IF THEY INVOLVED ME IN THIS…THEY HAVE A DUTY TO SEE I GET PAID!!!!)

    • smrtypantz says:

      Quit! Go work for someone who will electronically credit your BANK Account. Contact your attny gen to see if they can force you to use that pay system. You may need to look in your employee records for who to contact…

  22. lonestar9461 says:

    Someone bought something from an appliance store in downtown LA on my Debit MasterCard Business Card to the tune of $2,382.50. I noticed the charge and filed a claim less than 24 hours from posting on my account. I file a claim and got a claim number. Two days later I get a letter stating that since I am a business account, they cannot cover my loss and have closed the claim due to Federal Regulation E.

    Need some advice and help.

    • Anonymous says:

      Look to MasterCard’s zero liability policy. They cover business debit cards even though they are not subject to Reg E.

      Zero Liability does not apply to MasterCard cards
      (i) issued for commercial, business or agricultural purposes, except for MasterCard commercial cards used for small businesses as listed on; or
      (ii) if a PIN for a debit transaction is used for the unauthorized purchase.

      When you go to that website there is an advertisement that says business debit cards are covered. Push the issue.

  23. Lauren says:

    I was recently the victim of identity theft. A store used my debit card information to charge my card $209.79. When I disputed the charge with my bank they called the thieving merchant who told them I owed them that amount for an “ongoing contract”. I had no such contract. My bank to the word of a thief. They totally ignored the letter I wrote them detailing the entire ordeal. I am out the $209.79. I have since contacted the F.T.C., the States Attorney General’s office, and legal representation. What I can’t understand is why, why on Earth would my bank close my dispute based on the word of the merchant I have accused of stealing, defrauding me? Anyone with an ounce of sense can see the motive for the merchant lying to the bank. I will get my money back. By hook or by crook, that merchant is going to pay.

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