Compliance Blog

Consumer Compliance Outlook: Effect of Late Notices of Error and Billing Error Notices

The Federal Reserve System published the most recent edition of the Consumer Compliance Outlook at the end of July. The edition contained the usual content, which includes updates from regulators, a calendar of regulatory deadlines, and noteworthy court opinions. The articles in this issue focused on the following topics:

  • Error resolution and liability for unauthorized use for accounts and transactions covered by Regulation E and credit cards subject to Regulation Z;
  • The modified rules pertaining to error resolution and liability for unauthorized use related to prepaid accounts and remittance transfers under Regulation E;
  • An overview of the relationship between community banks and the Federal Reserve; and
  • A summary of the Consumer Financial Protection Bureau’s Bulletin 2021-02 regarding its expectations for how mortgage servicers should respond to the imminent end of forbearances and foreclosure and eviction moratoria.

The articles regarding error resolution under Regulation E and billing errors covered by Regulation Z contained some useful charts about the scope of both rules (i.e., what constitutes an error or a billing error and what does not), the kind of notice that triggers both requirements, and what the regulations require in terms of a response.

These articles also described some regulatory violations routinely spotted by examiners. With respect to both Regulation E and Regulation Z, one of these violations included issues that institutions had with holding their customers liable for unauthorized use. Examiners noticed that some institutions were holding their customers liable for unauthorized use in excess of what is permitted under both Regulation E and Regulation Z if those customers failed to submit a notice of error or a billing error notice within the time frames required by both regulations—60 days after the first periodic statement evidencing the error. The article noted that failure to submit a timely notice of error under section 1005.11 or a timely billing error notice under section 1026.13 may not trigger the error resolution requirements in those sections, but untimely notices do not affect whether the unauthorized use provisions apply.

The article included an example demonstrating what the rules require when there is unauthorized use and untimely error resolution notices under Regulation E:

“For example, assume a consumer lost his card on January 1, 2021, noticed it was missing the same day, and had unauthorized transactions of $400 occurring on January 2, 2021, which were included on a periodic statement transmitted by the institution on February 5, 2021. The consumer notifies his financial institution of the lost card on April 30, 2021. His liability is limited to $50 for the unauthorized transfers that occurred on January 2, 2021, which is 61 days prior to transmitting the statement showing the unauthorized transactions and still within the $50 liability limit for unauthorized transactions occurring within 48 hours of when the consumer learned the card was missing.”

The article did not include an example for Regulation Z, but it noted that the same rationale applies to unauthorized use for credit cards.

It is important to remember that this is nothing new. The commentary to Regulation E specifically makes this distinction between the effect of late notices of error received from a consumer and liability for unauthorized use:

“7. 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.”

And the staff commentary to Regulation Z contains similar guidance regarding the interplay between late billing error notices and cardholder liability for unauthorized use:

“3. Relationship to §1026.13. The liability protections afforded to cardholders in §1026.12 do not depend upon the cardholder's following the error resolution procedures in §1026.13. For example, the written notification and time limit requirements of §1026.13 do not affect the §1026.12 protections. (See also comment 12(b)-4.)”

The article recommended reviewing policies and procedures to ensure that consumers who submit untimely notices of error and billing error notices for unauthorized use are not held liable in an amount greater than what the regulations permit. For more guidance on those liability limits, please see this NAFCU Compliance Blog post.

About the Author

David Park, NCCO, Senior Regulatory Compliance Counsel, NAFCU

David joined NAFCU in September 2018.  As part of the Regulatory Compliance Team, he provides daily compliance assistance to member credit unions on a variety of topics. 
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