We've always considered it a requirement to have a written, signed statement to conduct a billing error/unauthorized claim investigation under Reg Z. Challenging that, when I read the liability section under 226.12, it appears for unauthorized, we cannot require the notice be written. Can someone point me to or help me understand what's required on a Reg Z item, whether unauthorized or just a billing error? I always thought Reg Z was much different than Reg E, however now I'm not so sure.
Thanks.

It is possible that fraudulent use can also be unauthorized but not always. There are three considerations for each: timeframes, documentation, and liability. (This assumes your center has given the required notices as outlined in 226.12 and 226.13). To differentiate the two provisions, I refer to the Billing Error unauthorized provision of 226.13 as "unauthorized" and the Unauthorized Use provision of 226.12 as "fraudulent use".

Timeframes
Unauthorized as defined under 226.13 must be declared by the cardholder in writing within 60 days of the statement upon which the error occurred.

Fraudulent use as defined under 226.12 only requires a reasonableness factor in notifying the card issuer. There is no set timeframe.

Documentation
A Billing Error must be declared in writing as defined under 226.13. Note that there is no requirement that the document be an affidavit or that any document be signed. If you can identify the cardholder from the information provided then you have received adequate notice.

Fraudulent use notice as defined under 226.12 can be in any form - verbal or written. You can ask for an affidavit but you cannot require it. You can ask but cannot require that notice be given to you in writing; nor can you delay actions waiting for any such written notice.

Liability
Billing Error - the cardholder cannot be held liable for any amount or finance charge/fee related to the dispute.

Fraudulent Use - the cardholder can be held liable up to $50.00 for each instance of fraud (NOT for each transaction) but no amount of finance charge/fee related to the dispute.

When a consumer advises you in writing within 60 days of a statement of a fraudulent transaction, the consumer protections under 226.13 exceed the protections under 226.12.

The problem you will encounter is when the consumer advises you verbally of fraud. If done within 60 days, you can "encourage" the consumer to submit the claim in writing to preserve their Billing Error protections in 226.13. Failing that, you fall back onto the Fraudulent Use provisions of 226.12 - don't forget that you cannot delay actions just because you don't have something in writing. The addendum to this is that you can hold the consumer liable for $50.00 (assuming you made adequate disclosure).

You can also amend your card agreement to state that if you request written confirmation of a dispute and you receive no response at all, then you MAY be left with no alternative but to conclude that the dispute is no longer being asserted. Be careful with this. If the cardholder calls you back instead of writing and says the unauthorized dispute is still in effect, you must proceed with the provisions of 226.12 regardless of any lack of documentation. There is no regulatory timeframe on this re-contact.

In comparing Reg E to Reg Z, there is great difference between the two when it comes to how much the consumer can be held liable under the fraudulent use provision. The trigger is the timeframe referenced in each regulation. Both are open to interpretation however and I caution against taking too tough a stance in that interpretation.

Thanks David. I appreciate your help!

You are welcome.

You did not ask about the Visa or MasterCard Zero Liability policy but I'm going to comment on it anyway. Under the ZL policies, you cannot hold the consumer liable for any amount in most reasonable circumstances. I encourage you to review these policies. Most card issuers I have worked with (and I've worked with hundreds), use qualitative terms like "may" or "possibly" in their credit card agreements when it comes to the $50 fraud allowance, if they include it at all. Same holds true for debit card agreements.

Good luck.

I agree that the creditor has to act on oral notices of unauthorized activity but only needs to act notices of billing errors if sumbitted in writing. But how do you determine when to treat something as unauthorized rather than just a regular billing error?

The first item listed in the Reg Z definition of billing error (printed below) isnt' clear to me. It seems to me that this would include unauthorized transactions that show up on the periodic statement. Can someone clarify how this differs from an unauthorized transaction?

Let's take an example of a single transaction that the consumer states in writing is unauthorized (and I'm only talking about the assertion of a claim, not its resolution).

The fact the consumer has stated this to you automatically qualifies for the Fraudulent Use subsection. That's well and good for the consumer, but you (the bank) have the right to hold him liable for some portion of the disputed amount under this section (Reg E and Z differ as to the amount and conditions for this).

Whether it qualifies as a Billing Error requires that the consumer send the written notice within the proper time frame. If it does qualify, the consumer has no liability at the time of assertion because the protections under Billing Error are stronger than the ones under Fraudulent Use.

Verbal claims always qualify under the Fraudulent Use section but don't qualify under Regulation Z or E unless you advise the consumer the he does not have to write in (but I can't imagine that you would allow this). If you should ever receive the written notice, you would then go back to the appropriate Billing Error section to determine if the asserted dispute now qualifies.

Two notes:
1) The consumer's cut off date is the date the notice is sent to you, not the date you receive it.
2) Only Reg E explicitly states that the consumer retains the right to upfront credit under Billing Error protections unless you request confirmation in writing. Reg Z does not actually address the matter at all. However, many chargeback rights don't require documentation and you could conceivably have a policy that allows you take the details verbally from the consumer and then submit them as part of a chargeback. I

f you take a dispute verbally with the 60-day time limit, say for undelivered merchandise, you have in essence absolved the consumer from the documentary requirement even if you don't do anything with the information. You could not come back later and then deny the Billing Error because the consumer didn't write in.