Scenario: Our customer received credit to their checking account that was originated by another financial institution, customer contacts us stating that the credit is an error (that they shouldn't have received it).

Does this scenario fall under Reg E. If so, what is the process to handle this dispute?

It appears that the specifics of the scenario fall under 1005.2 re: Direct Deposits and that Reg E does not apply.

5.Reversal of direct deposits.

The reversal of a direct deposit made in error is not an unauthorized EFT when it involves:

i. A credit made to the wrong consumer's account;

ii. A duplicate credit made to a consumer's account; or

iii. A credit in the wrong amount (for example, when the amount credited to the consumer's account differs from the amount in the transmittal instructions).

Reg E covers both credits and debits. The section quoted above refers to a situation where a credit was posted in error and the bank or ODFI reverses the transaction, the reversal of a credit made in error is not covered, but a credit that the customer claims isn't there's is covered. Look at the 1005.3 - Coverage section in Reg E

Sec. 1005.3
Subpart A
(b) Electronic fund transfer. (1) Definition. The term “electronic fund transfer” means any transfer of funds that is initiated through an electronic terminal, telephone, computer, or magnetic tape for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit a consumer's account. The term includes, but is not limited to:

(i) Point-of-sale transfers;

(ii) Automated teller machine transfers;

(iii) Direct deposits or withdrawals of funds;

(iv) Transfers initiated by telephone; and

(v) Transfers resulting from debit card transactions, whether or not initiated through an electronic terminal.