Customer Negligence and Reg E
by John Burnett, BOL Guru Guru Bios
Question: How exactly is NEGLIGENCE defined with regard to Reg E and unauthorized withdrawals from an ATM machine? At what point can a Financial Institution deny credit? For example, customer uses a foreign ATM, then leaves the device in the ATM resulting in an unauthorized person withdrawing funds. The police will not investigate because they consider the customer negligent. Do we have to reimburse the customer?
Answer: Negligence is simply not a factor in determining customer liability for unauthorized EFTs under Regulation E. The Electronic Fund Transfer Act, implemented by Regulation E, is a consumer protection statute, not a law establishing equitable obligations.
Visa and MasterCard have "zero liability" policies for their signature debit products (when used on their networks), and these include exceptions for cases of customer negligence (such as taking too long to report an unauthorized transfer). However, neither of the card association's rules would apply to an ATM transaction in any event.
You have to look at the definition of unauthorized electronic funds transfer in section 205.2 of the regulation. You'll see that nowhere does the definition mention customer negligence as a factor.
The police obviously have to prioritize their cases. I suspect that something like the scenario you've depicted drops down near the bottom of their list. After all, what criminal act took place? Probably petty theft, if your state's statute even includes such an act in that category.
I suspect that the most the card issuing bank could hope for in such a case is the cooperation of the ATM owner in attempting to identify the individual that took advantage of the cardholder's lapse. That's a long shot at best.
In the meantime, get out the checkbook and reimburse your customer. You don't have any wiggle room here.
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!
