I am looking for some examples on Reg E on unauthorized transactions as it relates to 205.2(m) - Authority. If a consumer furnishes an access device and grants authority to make transfers to a person (such as a family member of co-worker) who exceeds the authority given, the consumer is fully liable for the transaction unless the consumer has notified the financial institution that transfer by that person are no longer authorized.

I wanted to do some training on this and looking for some scenarios.

Thanks.
beegee

If I give my son my debit card and PIN and ask him to withdraw $20 from the ATM for me and he withdraws $200 - that's authorized.

Is that what you're looking for?

To me the concept to convey is that the account owner - - - Gives the access device and gives authority to use it period.
They don't have the ability to limit the authority to a set amount - except by the trust between the 2 individuals.

So I give my son the card for $20 and he gets $200 - that’s on me.

What if over the next two days he snags my card and hits the ATM again. Is that still on me or would that be considered unauthorized since he took the card without my permission?

OR - do I specifically have to contact the bank and advise them my son is no longer authorized to use my card and if he AFTER my contacting the bank then the liability goes to the bank?

Thanks!

The later - the customer has to notify the bank that authorization has been revoked. I would suggest that the card be cancelled and reissued or cancel the card altogether, as this type of activity by a customer is a disaster waiting to happen.

Andy and I are both of the opinion that the "snagging" of the card by your delinquent son would be a theft of an access device, if he returned the card to your control after his first misadventure. So we would say those subsequent pilferings of your bank account would be unauthorized transfers.

There is absolutely nothing in the regulation or commentary to support our view. We just think it makes sense given the bent of the regulation toward consumer protection.

Well as you know as for myself (when I was a banker) would and still take the opposing view. While these are consumer protection regulations, when there is not clear regulatory guidance, my conscience is not too bothered by erring on the side of the bank in these situations. Plus, how many lawsuits have been filed or restitution orders issued for Regulation E violations. I really have not seen any? My shareholders were always greatful.

Plus, I am not really sure how you and Andy came to that conclusion based on the wording in the commentary:

205.2(m) Unauthorized Electronic Fund Transfer

2. Authority. If a consumer furnishes an access device and grants authority to make transfers to a person (such as a family member or co-worker) who exceeds the authority given, the consumer is fully liable for the transfers unless the consumer has notified the financial institution that transfers by that person are no longer authorized.

If the son snags the card at a future date they are only exceeding the authority given. The regulation does not address limitations on how that authority may be exceeded, such as "snagging". I think the basis for this section is once you give your card and PIN to someone, all bets are off unless you notify the bank.

If you go directly to the EFTA (15 USC 1693(a)), the definition is even clearer:

(11) the term “unauthorized electronic fund transfer” means an electronic fund transfer from a consumer’s account initiated by a person other than the consumer without actual authority to initiate such transfer and from which the consumer receives no benefit, but the term does not include any electronic fund transfer

(A) initiated by a person other than the consumer who was furnished with the card, code, or other means of access to such consumer’s account by such consumer, unless the consumer has notified the financial institution involved that transfers by such other person are no longer authorized,

You're going to say that in the case of "snagging" the son was not furnished with the card, but I will stand that "was furnished" means once authorized is always authorized unless there is further regulatory guidance.

I see your point Randy. However, if I give my son permission to use my card and get it back, I firmly believe it is stealing (& unauthorized) if he takes it out of my billfold without my permission at a later date. I don't believe I gave him "ever-green" permission by giving permission once.

If you take your stance literally: If I give my son permission to use my card once and get it back, am I supposed to call the bank and say "I gave my son permission to use my card today, but now I have my card back and I no longer authorize him to use my card again"? Am I to do this every time I give my son my card?

I believe a literal reading of the act says just that. The son "was furnished" with the card, code, or other means of access to such consumer’s account by such consumer. A consumer that gives their card and PIN away at that point assumes liability for the use of that access device in the future. It would be no different than giving the son their password to the internet banking account to initiate a transfer and then claiming that they did not give the son permission to access the computer again for a future transaction.

Randy: I was referring to beegee's second post:


As John stated:

I would like to add another spin to this conversation...

We have a customer who reported her card missing over the weekend. When the customer came in Monday morning to file a dispute with the bank it was recorded that the spouse, who does not have an access device (but had been given the card and PIN previously), had taken her card and used it to withdraw funds (from their joint account) over the weekend. We have been able to identify the spouse thru the ATM cameras.

This customer is filing a dispute with the bank and claiming these withdrawals as unauthorized and wanting the money put back in the account.

Would Reg E apply in this case? The way I see it, there was no theft if the funds accessed were joint funds. However, (and I hate Reg E) there is the unauthorized use of a card (even though we may be able to use the fact that the spouse had been given the card and PIN before and the cardholder did not actually call the bank and rescind their authorization to use the card).

It would appear that our overall account agreement would cover the withdrawal from a joint account by one of the owners, but Reg E is such a non bank friendly regulation, I want to be sure.

Just helping me work through this in my head would be appreciated!

If the customer admitted that she had, in the past, given the card and PIN to her husband, I think the bank is protected under Reg E. It's not an unauthorized transfer.

"Unauthorized electronic fund transfer means an electronic fund transfer from a consumer's account initiated by a person other than the consumer without actual authority to initiate the transfer and from which the consumer receives no benefit. The term does not include an electronic fund transfer initiated:

(1) By a person who was furnished the access device to the consumer's account by the consumer, unless the consumer has notified the financial institution that transfers by that person are no longer authorized;
(2) With fraudulent intent by the consumer or any person acting in concert with the consumer; or
(3) By the financial institution or its employee."