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Debit Cards & Regs

Question: We are offering a debit card to our checking account customers. The card can be used at the ATM and at point of sale. What regulations should we be concerned about?

Answer: Regulation E should be your first concern. That regulation applies to all of the electronic transfer issues. Here you should look at restrictions on issuance of the cards, the content of initial disclosures and periodic statements, and error correction.

Next, can the card be used to access an overdraft line of credit? If the answer is "yes" for any purpose, you must also look at the credit regulations because the card isn't just a debit card - it also has credit features. This makes it a "credit" card subject to credit regulations as well as Reg E. First, be sure that your marketing and card issuance procedures do not raise questions of discrimination under Regulation B and that you have appropriate procedures in place for reviewing applications and sending notices of adverse action.

Next comes Regulation Z, beginning with restrictions on issuance of credit cards all the way through billing error correction, the provisions of Regulation Z apply to the program.

Finally, given the recent amendments to the Fair Credit Reporting Act, review your procedures for accessing and using consumer reports and sending notifications in the event of adverse action. Remember, for deposit applications, you need to give the FCRA notice but do not need to provide reasons. However, when credit is involved, Regulation B requires that you also provide reasons for adverse action or a statement that the customer has a right to the reasons.

Copyright © 2000 Compliance Action. Originally appeared in Compliance Action, Vol. 5, No. 8, 7/00

First published on 07/01/2000

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