Regulation E Disputes Error Resolution Presented by: Ken Simmons CRCM, CAMS-Audit/ FCI .
Error resolution and resolving Reg E Disputes seems like a simple task that most professionals pay little attention to. • VAU & ABU • UDAAP • Complaints • Compliance Management Systems • Violations & Consumer Harm • Error Resolution • Additions to your Reg E log • Back to the Basics Error Resolution is more than a small challenge for FIs
VISA Account Updater (VAU) Mastercard Billing Updater (ABU) These “services” enable a secure electronic exchange of account information updates between participating card issuers and acquirers for credential-on- file merchants, which enables a more seamless payment process. This is mandatory for Issuers with an Opt-out for Consumers. Oversight is placed on Issuers Merchants are billed by VISA/ MASTERCARD for this service.
How VAU/ ABU works? The process works by pre-verifying merchant data against Visa’s on-file information: 1. Under VAU rules, issuing banks are required to send an electronic update to Visa when a cardholder’s account information is ALTERED. Visa processes the updated cardholder information and distributes it via the ACH network. 2. A few days prior to billing, the merchant's acquiring bank receives account numbers for all card-on-file or ongoing payment customers. 3. The acquirer submits the data to VAU, which compares the information against its database and responds with updates. 4. VAU forwards the latest data to the requesting merchants, who are then required to update their customer billing files within five days. Visa Account Updater ensures that the most accurate billing information is used, not only in the next billing cycle, but in future Visa transactions as well.
Issuing bank responsibilities
Inaccuracies in reporting 1. Promptly notify V/MC of Inaccuracies ◦ Individual inaccuracies ◦ Systemic inaccuracies Lookbacks and consequences 2. Investigate claims of inaccuracies ◦ Root-cause C o m ◦ Lookbacks p l i a n t ◦ Remediation ? ◦ Training
UDAAP Repeat inaccuracies Systemic challenges Ongoing exchange of information on fraudulently used cards,
Complaints Complaints are often communicated in a direct manner. They may use the word “Complaint”: 1. I need to complain. 2. How do I file a complaint.
Complaints Sometimes complaints are not so obvious. You need to listen and interpret their words: 1. I am not complaining, but… 2. I have requested a new card “X” times… 3. Why is my card compromised repeatedly
An Effective CMS CC Rating System – Categories The CC Rating System is organized under three broad categories: Board and Management Oversight, 1. Compliance Program, and 2. Violations of Law and Consumer Harm. 3. • How do you manage third-party services? • Compliance monitoring program?
Compliance Program As noted in the Consumer Compliance Rating Definitions, examiners should evaluate activities conducted through third-party relationships as though the activities were performed by the institution itself. Examiners should review a financial institution’s management of third party relationships and servicers as part of its overall compliance program.
Compliance Program Assessment Factors - the examiner should assess other elements of an effective CMS, based on the following assessment factors: 1. whether the institution’s policies and procedures are appropriate to the risk in the products, services, and activities of the institution; 2. the degree to which compliance training is current and tailored to risk and staff responsibilities; 3. the sufficiency of the monitoring and, if applicable, audit to encompass compliance risks throughout the institution; and 4. the responsiveness and effectiveness of the consumer complaint resolution process.
Violations and Consumer Harm The third category includes assessment factors that evaluate the dimensions of any identified violation or consumer harm. Examiners should weigh each of these four factors – root cause, severity, duration, and pervasiveness – in evaluating relevant violations of law and any resulting consumer harm.
Violations and Consumer Harm The examiner should analyze the following assessment factors: 1. the root cause, or causes, of any violations of law identified during the examination; 2. the severity of any consumer harm resulting from violations; 3. the duration of time over which the violations occurred; and 4. the pervasiveness of the violations. While many instances of consumer harm can be quantified as a dollar amount associated with financial loss, such as charging higher fees for a product than was initially disclosed, consumer harm may also result from a denial of an opportunity. Could a consumer be harmed when a financial institution repeatedly updates the VAU/ BUA incorrectly providing a fraudster another opportunity to harm the consumer? Could a consumer be harmed for the financial institutions failure to have effective procedures; that in-turn cause difficulty in resolving regulation E disputes or resolving errors?
Violations and Consumer Harm 1. Could a consumer be harmed when a financial institution repeatedly updates the VAU/ BUA incorrectly providing a fraudster another opportunity to harm the consumer? 2. Could a consumer be harmed for the financial institutions failure to have effective procedures; that in-turn cause difficulty in resolving regulation E disputes or resolving errors?
USAA Challenges USAA violated the Electronic Fund Transfer Act and Regulation E by: failing to properly honor consumers’ stop payment requests on preauthorized electronic fund transfers, and by failing to initiate and complete reasonable error resolution investigations.
USAA –Lookback Period Redress Period” included the period from July 21, 2011 to June 1, 2015.
Stop Payment Practices USAA failed to enter stop payment orders after account holders notified the Bank of their desire to stop payment on Preauthorized EFTs, including: refusing to enter stop payments or requiring consumers to contact the merchants initiating the EFTs as a prerequisite to implementing stop payment orders.
Pay-Day Lenders In some of these instances, USAA failed to enter stop payment orders because consumers requested to stop payments to payday loan lenders.
Oral – Stop Payment Requests USAA did not consistently honor oral stop payment requests for 14 days.
Under EFTA and Regulation E 1. An oral stop payment request for a Preauthorized EFT is binding on the institution for 14 days. 2. A financial institution may require the consumer to give written confirmation of the stop payment order within 14 days. ◦ an oral stop payment order ceases to be binding after 14 days if the consumer fails to provide the required written confirmation.
Stop Payments on Debit Card Transactions USAA lacked a systemic mechanism to stop payment of Preauthorized EFTs processed via a debit card Effective CMS?
Stop Payments on Debit Card Transactions USAA failed to block thousands of Preauthorized EFTs for which consumers requested stop payment orders # Thousands = $ Millions
Under EFTA and Regulation E Consumers may stop payment of a preauthorized electronic fund transfer by notifying the financial institution orally or in writing at any time up to three business days preceding the scheduled date of such transfer.
Findings and Conclusions as to USAA’s Failure to Initiate Error Resolution Investigations On numerous occasions, when consumers notified USAA about suspected errors regarding EFTs that were incorrect, unauthorized, or exceeded the authorization granted by the consumer, USAA failed to promptly initiate Error Resolution Investigations.
What occured as a matter of policy USAA did not investigate reported errors unless the consumer asserting the error submitted a completed WSUD within 10 days of USAA sending the consumer the form Policy Oversight
What else occurred USAA did not investigate reported errors unless the consumer asserting the error submitted a completed WSUD within 10 days of USAA sending the consumer the form Procedural Oversight
What else, else occurred USAA had a separate procedure for consumers who notified the Bank of a suspected error concerning a payday loan: a. The procedure said: “If the account holder wishes to dispute a pay day loan, instruct the account holder to contact the lender to dispute the transaction(s).” On numerous occasions, USAA representatives refused to investigate errors because they related to payday loans. b. The procedure further instructed representatives to warn consumers about potential legal and financial consequences of proceeding with an Error Resolution Investigation. The Bank is not the customer’s Legal or Moral Conscience!
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