Increased Liability Triggers Reg E Disclosures

In 2014, the card networks made changes to their zero liability policies as applied to branded debit and ATM cards. Recently, Visa announced another change that replaces the standard in the Visa Core Rules for its zero liability policy from "grossly negligent" to "negligent". This change essentially raises the standard of care required by cardholders to meet the zero liability protections afforded by Visa. Many credit unions have asked the NAFCU compliance team a couple of questions associated with this change so we thought it would be helpful to round them up:

  1. Should we send a change in terms notice under Regulation E to incorporate the change in language?

Regulation E requires a change in terms notice under four circumstances, one of which is the increase of liability for members going through the error resolution process.  See, 12 C.FR. § 1005.8(a)(ii). Before Visa announced this change, a member would have zero liability for unauthorized transactions unless he or she was grossly negligent or fraudulent in the handling of the account or card. Under the revised rule, the member will be afforded zero liability unless he or she is negligent or fraudulent in handling the account or card. So what is negligence anyways? While this can vary under state law and your attorney is in the best position to give a good summary of negligence, here are some basics. Negligence is a legal concept that compares the behavior of a hypothetical reasonable and prudent person to the behavior exhibited by your member. If the member's behavior negatively deviates from the expected behavior of a reasonably prudent person acting under similar circumstances, the member is said to be negligent, or in plain English, careless. Gross negligence on the other hand, is a step above negligence amounting to conscious and voluntary disregard of the need to act reasonably.

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From The NAFCU Compliance Blog, written by Stephanie Lyon, Regulatory Compliance Counsel, NAFCU