Lynn Woosley is a Senior Director with Treliant. She is a seasoned executive with extensive risk management experience in regulatory compliance, consumer and commercial credit risk, credit and compliance risk modeling, model governance, regulatory change management, acquisition due diligence, and operational risk in both financial services and regulatory environments.
- Source: consumerfinance.gov
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The Consumer Financial Protection Bureau (CFPB) noted that it continues to find violations of Regulation E and the Electronic Funds Transfer Act (EFTA) during its supervisory processes. The CFPB highlighted numerous violations related to error resolution, as well as violations of provisional credit requirements. The bureau also found overdraft disclosure and opt-in practices that were in violation of the Truth in Savings Act (TISA) and Regulation DD, EFTA and Regulation E, and the Consumer Financial Protection Act (CFPA) prohibitions on unfair, deceptive, or abusive acts and practices (UDAAPs).
With respect to EFTA and Regulation E error resolution violations, the CFPB noted that many of the violations found were similar to those previously discussed in past editions of Supervisory Highlights, including the Fall 2014, Summer 2017, and Summer 2020 editions. These violations included:
- Blurring the card association chargeback rules and the EFTA error resolution rules by requiring consumers to contact merchants about alleged unauthorized transactions before investigating those transactions;
- Requiring written confirmation of oral error notifications before investigating errors;
- Using incorrect dates to assess the timeliness of an error notice;
- Failing to provide an explanation, or providing an inaccurate explanation, of investigation results when determining no error occurred; and
- Failing to inform consumers of their rights to obtain copies of the documentation that an institution relied on in its error investigation and determination.
In addition, the CFPB found institutions violated EFTA provisional credit requirements by:
- Applying the provisional credit to the wrong account and failing to ensure the ownership of the credited account matched the ownership of the account that should have received the credit;
- Failing to provide provisional credit when error investigations were not completed within 10 business days of receipt of an error notice;
- Excluding interest from provisional credits; and
- Failing to provide provisional credit to consumers that provided timely written confirmation of oral error notices.
In addition, the bureau found several errors in consumer notices of provisional and final credits. These included:
- Using notification templates with inadequate information regarding the date when a provisional credit would be applied;
- Failing to provide notices that provisional credits had been made final; and
- Making errors in consumer notification so reversals of provisional credits, such as:
- Failing to provided the date the credit would be debited;
- Omitting notice to consumers that the institution would honor checks and preauthorized transfers from the customer’s account for five business days after the notification; or
- Omitting both debit date and notice that checks and preauthorized transfers would be honored for a period of five business days following reversal.
Finally, the CFPB found several other violations in financial institutions’ EFTA error resolution processes, including failures to conduct timely investigations after providing provisional credit, failure to conduct reasonable investigations (particularly when the consumer had prior transactions with the merchant in question), and failing to remediate errors in a way that made consumers whole by refunding fees and crediting interest when correcting an error.
Institutions should review their Regulation E error resolution processes to ensure that it conforms with the requirements of the regulation. Continued identification of similar problems nearly seven years after first highlighted by the CFPB suggests significant risks associated with these processes.