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#2107550 - 11/16/16 04:26 PM Untimely Notification by Customer - Reg. E
TeamComply Offline
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Customer notifies bank of unauthorized EFT starting in August 2016 - November 2016 (debited weekly, each debit for $40). She discovered error and notified bank on 11-15-16. What is customer's liability here? We contract with MC for our debit cards.

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#2107551 - 11/16/16 04:30 PM Re: Untimely Notification by Customer - Reg. E TeamComply
rlcarey Offline
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There is no such thing as untimely notification. When did the first statement that had the unauthorized transactions print?
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#2107562 - 11/16/16 05:05 PM Re: Untimely Notification by Customer - Reg. E TeamComply
David Dickinson Offline
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I'll make some assumptions:
If first error was on the Aug '16 statement and (assumption) that statement cut on 8/31/16, then ALL unauthorized transactions for the next 60 calendar days (until 10/30/16) are absolutely covered by §1005.11(b). Anything outside of the "60 day window" is still covered by §1005.6.

To answer questions about the customer vs. the bank's liability, we would need to know a lot more details:
1) Was it a lost or stolen card?
2) When did she learn of this, if so?
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#2107575 - 11/16/16 06:25 PM Re: Untimely Notification by Customer - Reg. E rlcarey
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8/26/16

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#2107578 - 11/16/16 06:27 PM Re: Untimely Notification by Customer - Reg. E David Dickinson
TeamComply Offline
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Customer first became aware and notified bank of stolen card # on 11-15-16. The Dec. 2015 date initially posted was from another dispute, my apologies for that.
Last edited by TeamComply; 11/16/16 09:23 PM.
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#2107592 - 11/16/16 07:26 PM Re: Untimely Notification by Customer - Reg. E TeamComply
David Dickinson Offline
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Now that we know that, let me change what I stated earlier. Every unauthorized transaction that occurred on the August statement + 60 more calendar days (about 10/25 - I didn't count the days exactly) is covered by Reg E. Transactions after 10/25 (again, I didn't count the exact days) are customer liability. Study these sections of Reg E carefully.

A consumer must report an unauthorized electronic fund transfer that appears on a periodic statement within 60 days of the financial institution's transmittal of the statement to avoid liability for subsequent transfers. If the consumer fails to do so, the consumer's liability shall not exceed the amount of the unauthorized transfers that occur after the close of the 60 days and before notice to the institution, and that the institution establishes would not have occurred had the consumer notified the institution within the 60-day period. When an access device is involved in the unauthorized transfer, the consumer may be liable for other amounts set forth in paragraphs (b)(1) or (b)(2) of this section, as applicable. [§1005.6(b)(3)]

The standard of unlimited liability applies if unauthorized transfers appear on a periodic statement, and may apply in conjunction with the first two tiers of liability. If a periodic statement shows an unauthorized transfer made with a lost or stolen debit card, the consumer must notify the financial institution within 60 calendar days after the periodic statement was sent; otherwise, the consumer faces unlimited liability for all unauthorized transfers made after the 60-day period. The consumer's liability for unauthorized transfers before the statement is sent, and up to 60 days following, is determined based on the first two tiers of liability: up to $50 if the consumer notifies the financial institution within two business days of learning of the loss or theft of the card and up to $500 if the consumer notifies the institution after two business days of learning of the loss or theft. [Staff Interpretations to §1005.6(b)(3)#1]

Since they didn't report it within 60 days of the first statement showing the first error, you are not subject to §1005.11(b). However, you must still investigate promptly - as required by §1005.6
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#2107616 - 11/16/16 08:41 PM Re: Untimely Notification by Customer - Reg. E TeamComply
John Burnett Offline
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You might want to review your procedures, TeamComply, to find out how those transactions managed to get through your defenses starting in August 2016 after the consumer notified you of the lost card in December 2015? My guess is that the $40 amounts managed to bypass the Visa/Mastercard authorization routines. Find out what you could have done to prevent that (and at what cost).
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#2107632 - 11/16/16 09:18 PM Re: Untimely Notification by Customer - Reg. E David Dickinson
TeamComply Offline
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Thank you David. One last question...does MasterCard zero liability come into play here for the transactions on August statement plus 60 calendar days?

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#2107680 - 11/17/16 05:23 AM Re: Untimely Notification by Customer - Reg. E TeamComply
BrianC Offline
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MasterCard Zero Liability applies if the cardholder a) promptly notifies you of the loss or theft of an access device and b) exercises reasonable care in safeguarding the card.

IMHO, the notification was not prompt and not reviewing statements for several months is not reasonable. No Zero Liability for this claim so you may defer back to 1005.6 and the Reg E liability schedule.
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#2107681 - 11/17/16 05:30 AM Re: Untimely Notification by Customer - Reg. E TeamComply
BrianC Offline
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John brings up a good point as well. If the card was marked stolen in 2015, did the merchant force the transactions through without obtaining a valid authorization? If so, the merchant is in violation of MasterCard operating rules. The Bank may file chargeback code 4808 "No authorization" to recover funds from the merchant. If the timeframe for filing a chargeback has passed, we also may attempt to file a Pre-Compliance Case against the merchant citing the appropriate MasterCard rule that states that all transactions require preauthorization prior to entering into settlement.
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#2109022 - 11/30/16 01:04 AM Re: Untimely Notification by Customer - Reg. E TeamComply
Mel in WA Offline
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Below are sections from the Commentary for 1005.6(b)(3). If I'm reading this correctly, we are currently doing this backwards. Based on the example in paragraph 2, we need to determine liability differently if it's not involving an access device.

6(b)(3) Periodic Statement; Timely Notice Not Given

1. Unlimited liability applies. The standard of unlimited liability applies if unauthorized transfers appear on a periodic statement, and may apply in conjunction with the first two tiers of liability. If a periodic statement shows an unauthorized transfer made with a lost or stolen debit card, the consumer must notify the financial institution within 60 calendar days after the periodic statement was sent; otherwise, the consumer faces unlimited liability for all unauthorized transfers made after the 60-day period. The consumer's liability for unauthorized transfers before the statement is sent, and up to 60 days following, is determined based on the first two tiers of liability: up to $50 if the consumer notifies the financial institution within two business days of learning of the loss or theft of the card and up to $500 if the consumer notifies the institution after two business days of learning of the loss or theft.

2. Transfers not involving access device. The first two tiers of liability do not apply to unauthorized transfers from a consumer's account made without an access device. If, however, the consumer fails to report such unauthorized transfers within 60 calendar days of the financial institution's transmittal of the periodic statement, the consumer may be liable for any transfers occurring after the close of the 60 days and before notice is given to the institution. For example, a consumer's account is electronically debited for $200 without the consumer's authorization and by means other than the consumer's access device. If the consumer notifies the institution within 60 days of the transmittal of the periodic statement that shows the unauthorized transfer, the consumer has no liability. However, if in addition to the $200, the consumer's account is debited for a $400 unauthorized transfer on the 61st day and the consumer fails to notify the institution of the first unauthorized transfer until the 62nd day, the consumer may be liable for the full $400.

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#2109023 - 11/30/16 02:33 AM Re: Untimely Notification by Customer - Reg. E TeamComply
BrianC Offline
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This section states that the $50 and $500 tiers do not apply if an "accepted" access device was not involved. In other words if the dispute involves an ACH transaction or a counterfeit ATM/Debit card, there is no access device for the customer to report as stolen so you cannot hold them liable for $50 or $500.
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#2117840 - 02/10/17 04:25 PM Re: Untimely Notification by Customer - Reg. E TeamComply
Swanstrom Offline
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I have read something like a dozen questions similar to this one, and the answer is always that the FI is still required to limit the consumer's liaiblity on the transactions that took place during the first 60 days. Here is my problem. I am trying to convince my company that this is true. They read the same regs that are always cited here but disagree on the meaning. They are saying that since you are not required to investigate, liability calculations are irrelevant. I don't agree and I see what you keep saying (over and over) but unless I can find a government source putting it as clearly as you are here, I don't think I am going to get any traction. Is there anything from the FDIC, OCC, or CFPB that I could point to?

I tried using the official interpretation of 6(b)(3) but the scenario at the end only specifically mentions the "full $400" and doesn't explicitly restate that the consumer is not liable for the first $200.

I would really appreciate any help you could provide.

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#2117842 - 02/10/17 04:32 PM Re: Untimely Notification by Customer - Reg. E TeamComply
BrianC Offline
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The commentary to 1005.11 would contradict your company's position.

Effect of late notice. An institution is not required to comply with the requirements of this section for any notice of error from the consumer that is received by the institution later than 60 days from the date on which the periodic statement first reflecting the error is sent. Where the consumer's assertion of error involves an unauthorized EFT, however, the institution must comply with § 1005.6 before it may impose any liability on the consumer.
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#2117887 - 02/10/17 08:28 PM Re: Untimely Notification by Customer - Reg. E TeamComply
David Dickinson Offline
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Brian's right. To help, did you read my post on 11/16 where I bolded a few sentences (above)? Both sections I quoted state the consumer is liable for "the unauthorized transfers that occur after the close of the 60 days." Your company is also trying to stand on 1005.11. They need to read 1005.6 (like Brian points out).

Reg E might be poorly organized, but once you read this, it should make sense.
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