Reg E: Is a sole proprietorship a natural person?
Answer by John Burnett, BOL Guru BIO AND CONTACT INFO
Question: Generally, the definition of consumer is someone using an account for "personal, family or household purposes." However, Reg E simply defines a consumer as a "natural person" [205.2(e)]. When dealing with a sole proprietorship account (e.g., "Jane Doe d/b/a Jane's Flowers," or "Jane's Flowers, a Sole Proprietorship," does Reg E cover the account -- the account is for a business purpose, but considered to be owned by a natural person?
Answer: Regulation E coverage depends on an EFT affecting an "account," as defined in the regulation. "Account" is defined as a "consumer asset account" held directly or indirectly by a financial institution and established primarily for personal, family, or household purposes.
The result is that not only must the account be held by a natural person, but it must be a personal account as we commonly understand them.
To the extent that a sole proprietor keeps his personal, family or household transactions out of his business account, the business account and its transactions are not subject to Regulation E. It could be helpful to recite somewhere in the contract for such an account that it is being established primarily for business purposes, and not for personal, family or household purposes.
You can have a problem with commercial transactions such as ACH debits posting to a consumer account that happens to be used by a sole proprietor for some business purposes. These transactions could arguably be subject to Regulation E, but also subject to stricter NACHA rules on unauthorized business EFTs. For instances, the unauthorized consumer ACH debit allows for return up to 60 days from settlement date. Business ACH debits have a one-day return window.
Of course, the "flip side" is equally possible. If a sole proprietor runs a business account but occasionally does a personal EFT, that EFT would not be subject to Regulation E. Suppose he or she has a business debit card and once in a while uses it to buy pizza (it must be snack time!) for the family. If there's a problem with one of those transactions, you would not have to treat it as a Regulation E problem. (But you could, if you decided to.)
BankersOnline is a free service made possible by the generous support of our advertisers and sponsors. Advertisers and sponsors are not responsible for site content. Please help us keep BankersOnline FREE to all banking professionals. Support our advertisers and sponsors by clicking through to learn more about their products and services.
Print Friendly!
Email This Article!
Discuss NOW!
