60 DAYS IN: Error Notices from the Incarcerated Member
“When you’re in jail, a good friend will be trying to bail you out. A best friend will be in the cell next to you saying, ‘I think your good friend withdrew money from your account to bail us out.’”
Or whatever Groucho Marx said! The compliance team has received several questions in the context of what to do when receiving late error notices from incarcerated members. Today, we will discuss what a credit union’s course of action is once they receive an untimely error notice about an unauthorized transaction from an incarcerated member.
Error Resolution: 1005.11
There are times when credit union members do not receive (or receive tardily) the periodic statement reflecting an alleged error, because they are incarcerated. So, what should the credit union do? Procedure lies within the knowledge of the timelines located within the federal code sections. Regulation E error resolution time limits under section 1005.11 are distinct from the time limits for liability for unauthorized transfers under section 1005.6.
Section 1005.11 provides the error resolution procedures a credit union must follow when it receives a timely valid notice of error found in paragraph (b)(1). This section provides that a credit union receives timely notice “no later than 60 days after the institution sends the periodic statement or provides the passbook documentation, required by § 1005.9, on which the alleged error is first reflected.”
The commentary says a financial institution does not have to comply with the requirements of 1005.11, if it receives the notification AFTER 60 days of “which the periodic statement first reflecting the error is sent. Some industry professionals believe a member has the obligation to review statements. This theory likely impacts the operation of the error resolution timeline for an incarcerated member when the periodic statement has been sent.
Think about it like this, if the member could notify the credit union upon actual delivery/receipt, which usually means in the member’s or his agent’s custody, credit unions would be at the member’s mercy. Potentially, the credit union could suffer increased costs for sending routine periodic statements by certified mail, return receipt to simply track delivery and ensure an accurate error resolution timeline. To avoid another added cost of hiring the sole capable detective, Inspector Jacques Clouseau, credit unions are relieved from obeying error resolution requirements due to late notice. Despite this, credit unions must still determine the member’s potential liability for the unauthorized transaction.
Liability of Member for Unauthorized Transfers: 1005.6
Bearing the brunt of a fraudulent transaction seems like an unfair trade for the member, but section 1005.6(b) provides tiers of liability to potentially curb the amount to be paid. Essentially, the tier system limits consumer liability based upon when a member learns her access device (debit card, username/password, etc.) was lost or stolen and how quickly she reports the fraudulent transaction.
In cases where the member has not lost her card, but fails to notify the credit union within 60 days of periodic statement being sent, section 1005.6(b)(3) provides for unlimited member liability only for unauthorized transfers that occur after the 60-day period.
Upon reading the language in section 1005.6(b)(4), it appears there may be a financial safeguard for the incarcerated member who misses the periodic statement showing the unauthorized transaction. After all, it grants the credit union with the ability to extend the time limits, within reason, if a member reports a delayed unauthorized transaction “due to extenuating circumstances.”
Unfortunately for the member, the commentary seems to limit extenuating circumstances to “the consumer's extended travel or hospitalization.” There is no explicit exception for incarceration of member. Some industry professionals believe confinement is not awarded an extension of time, because mail is possible to reach the member. Logically, the member may be imprisoned for a long time; so, how would a credit union gauge the appropriate amount of “reasonable” extended time?
Arguably, the member has just as much responsibility (if not more) in protecting her account as the credit union, whether she is incarcerated. The member is usually the first person to notice when her card is missing, an inaccurate account balance, or mysterious exorbitant purchases listed on her statement. If the member fails to report an unauthorized transaction within the stated time limits (60 days) under the error resolution procedures, the credit union is still obligated to determine how much liability passes to the member.
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About the Author
JaMonika Williams joined NAFCU as regulatory compliance counsel in July 2022. In this role, JaMonika assists credit unions with a variety of compliance issues.