REGULATION E CIVIL MONETARY PENALTIES

Case 1 – In late July an Indiana bank was assessed a $70,000 penalty for engaging in unfair and deceptive acts or practices by the imposition of requirements on consumers in the resolution of electronic transfer errors which were more onerous than those set forth in Regulation E, thereby effectively delaying, denying or discouraging error resolution claims.

Case 2 – In mid-July a bank located in Kentucky was assessed a $100,000 penalty for engaging in unfair and deceptive acts or practices in that the Bank’s practice of collecting putative debts from non-deposit holding consumers, who attempted to cash checks with the Bank, through the confiscation of check proceeds without the consumer’s consent and without proper legal process was both unfair and deceptive. In addition, the Bank’s practice of distributing electronic fund transfer disclosures to consumers, which contained liability protections and specific procedures for resolving electronic transfers disputes and were consistent with the requirements of Regulation E, but then failing to abide by the disclosure terms including the regulatory standards, was found to be deceptive under Section 5.

Banks throughout the Chicago region of the FDIC have been reporting that examiners have been spending an inordinate amount of time on Regulation E, specifically on Regulation E error resolution procedures. We have previously reported the Chicago Regional Office’s push to consider every violation as a UDAAP violation. So, nothing about this result is a surprise.

All banks, especially those that are state non-member banks located in the Chicago region, should take a close look at their error resolution procedures. Many banks have been frustrated by fraudulent error claims by consumers and the resulting losses suffered by their banks. The deck is stacked against the bank on this issue, but banks must play the game by the rules.

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