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Compliance with Reg E, and a Possible Lawsuit

At the end of March, one of our customers filed a dispute on two transactions where the merchant processed them as PIN-less debits. The customer maintains that he did not authorize the transaction, and that the merchant refuses to provide a refund. The customer was well within the sixty day guideline for filing a claim, but now is threatening to sue us because we have not processed the claim within the forty-five day timeline required by Reg E. We did not provide the client with provisional credit after day ten, nor have we provided the client with any written communication regarding the claim. Are we liable to the client for failure to follow Reg E, and what can we do to get out of a lawsuit?

Answer by Dan Persfull:You need legal advice. Contact your attorney.


Answer by John Burnett:You have

  • failed to provide provisional credit for a bona fide customer claim under Section 205.11(c)(2).
  • Failed to promptly complete an investigation of the customer's claim within the 90 (not 45 unless you never updated your disclosures when the time limit was increased years ago) days required by Section 205.11(c)(3)(ii)(B).
  • Failed to provide the consumer with the written explanation required under Section 205.11(d) if the bank determined that no error occurred.

For whatever it's worth, your troubles with the merchant aren't your customer's concern. You have to comply with Regulation E regardless of what the merchant will or will not do. Whether you are liable to your customer for damages over and above the amount of the claim is something that would get determined under the Electronic Fund Transfer Act. I think your attorney would suggest that you can limit the odds of having to face a suit if you give your customer reimbursement for the transactions, add in any interest he or she is due, including interest for the delay, and provide a letter apologizing for the delay, then start reviewing the procedures in the department handling these claims and get things back on track with some remedial training.

First published on 8/09/10

First published on 08/09/2010

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