Customer informs us today that they cancelled last October with the merchant an EFT that is a monthly charge, but merchant has continued to bill them each month since. They have not notified us until now.
We will block future payments accordingly, but can we deny Reg. E claims for transactions occurring after they cancelled with the merchant but before they notified us?

You need to find out whether the cancellation with the merchant legally cancelled the EFT authorization. If so, the transactions after the cancellation would be unauthorized, and subject to the application of section 1005.6 for determining what amounts your customer is liable for.