Regulation E Disputes Error Resolution Presented by: Ken Simmons - - PowerPoint PPT Presentation

Regulation E Disputes Error Resolution Presented by: Ken Simmons CRCM, CAMS-Audit/ FCI

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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

• f

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

• nly 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
• Lookbacks
• Remediation
• Training

C

• m

p l i a n t ?

UDAAP

— Repeat inaccuracies — Systemic challenges — Ongoing exchange of information on

fraudulently used cards,

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

Complaints

Sometimes complaints are not so

• bvious.

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

CC Rating System – Categories The CC Rating System is organized under three broad categories:

1.

Board and Management Oversight,

2.

Compliance Program, and

3.

Violations of Law and Consumer Harm.

An Effective CMS

• 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

• pportunity 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

• rders 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

• f 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

• f USAA sending the consumer the form

Procedural Oversight

What else, else occurred

USAA had a separate procedure for consumers who notified the Bank

• f 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!

And More…

Representatives provided warnings to consumers, stating: “Also, please understand that it is a federal crime to make a false statement to a bank and this is punishable by a fine of up to one million dollars or imprisonment for up to 30 years, or both.” This warning was part of a general conversation with consumers about payday loan contracts. USAA would send WSUD forms only to consumers who said they wanted to proceed after hearing the warning. USAA required consumers contesting transactions from payday loan lenders to have their WSUDs notarized before submitting them. If a consumer contesting an error concerning a payday loan lender did not provide a notarized WSUD, USAA did not conduct an Error Resolution Investigation.

What does the Reg say:

A financial institution “shall:

• 1. investigate [an] alleged error, determine whether an error has
• ccurred, and report or mail the results of such investigation

and determination to the consumer within ten business days.”

• 2. Regulation E further mandates that the financial institution

must “investigate promptly.” USAA’s failure to promptly initiate and conduct Error Resolution Investigations upon notification from consumers of suspected errors violated section 908 of EFTA and section 1005.11 of Regulation E.

USAA lacked a procedure requiring that a reasonable Error Resolution Investigation occur whenever a consumer notified the Bank about a suspected error regarding an EFT. As a result, the bank routinely failed to conduct a reasonable review of all relevant information within its own records prior to making a determination about whether the consumer had asserted a valid error. When consumers had transactions with the merchant at issue that predated the disputed transaction, the Bank made the summary determination that no error had occurred, without reasonably considering other evidence in its own records, including the consumer’s assertion that the EFT was unauthorized

• r an incorrect amount or the bases for the consumer’s assertion

Overall Findings and Conclusions (1)

On numerous occasions during this period: When consumers had transactions with the merchant at issue that predated the disputed transaction, the Bank made the summary determination that no error had occurred, without reasonably considering other evidence in its own records, including the consumer’s assertion that the EFT was unauthorized or an incorrect amount or the bases for the consumer’s assertion

Overall Findings and Conclusions (2)

Even when the consumer did not have a transaction history with the merchant, USAA failed to reasonably consider relevant details in its own records, including the consumer’s account history, the consumer’s assertions that the EFT was unauthorized or an incorrect amount, or the bases for the consumer’s assertion.

Overall Findings and Conclusions (3)

15 Complaints regarding Reg E and error resolutions

• 1. Because I answered the question ( Was this charged related to previous

purchase? Answered No ) they said that made this claim to be filed under fraud and not dispute. Closed in consumers favor)

• 2. Failure to provide interim and/or final credit (resulted in monetary relief

from CFPB)

• 3. Investigation was incomplete and resulted in Consumer Harm of

$4600(resulted in monetary relief from CFPB)

• 4. Reversing funds from a consumer’s account after the the error resolution

period has passed. (resulted in monetary relief from CFPB)

• 5. Willful and wanton delays in reimbursing the funds, in violation of not only

the regulation cited in the original complaint (resulted in monetary relief from CFPB)

Willful and Wanton delay

• 1. An unauthorized transaction was made and the only stipulation

that designates transactions as unauthorized is a " reporting by the cardholder within 48 hours. '' Here I reported the charge as unauthorized and in only six hours. The bank does not disputed this fact.

• 2. The regulation application notes specifically state that whether a

transaction is " pinned '' is irrelevant unless the person conducting the transaction had at one time been an authorized user and now was not. The suspect in this case was never authorized to use my card and never authorized to even possess the card, Bank of America has provided no evidence ( and can not unless they manufacture it ) that I have ever authorized anyone to use the card. The first complaint for unauthorized charges was denied. Customer circled back with failure to investigate timely.

Information to Obtain and Document - Notice of an Error

• Date customer identified that card was lost or stolen or that

unauthorized transactions were conducted

• Date customer notified the bank of the lost or stolen card or

unauthorized transactions

• Date the periodic statement was sent that showed the 1st

unauthorized transaction

• Was notification oral or written?
• Written - was the account credited within 10 business days
• f receiving notice?
• Oral - Was the customer required to provide written notice

within 10 business days?

• Date on which written notice received.
• Types and amounts of errors and/or unauthorized transactions
• Account number(s) affected
• Start Date of Investigation

Information to Obtain and Document - Notice of an Error

• Date of provisional credit
• Date on which investigation was completed
• Resolution (brief summary)
• Was provisional credit revoked?
• Was provisional credit made final?
• Total consumer liability (document your calculation)
• Bank loss? If so, how much?
• Date of consumer notification of Resolution
• Form of consumer notification of Resolution
• Did the Customer Complain (about the bank or its process),

describe?

• Unfair or Deceptive Statements?
• VAU / ABU configured correctly?

Key Take-Aways

• 1. Reg E – Error Resolution carries a higher risk today
• 2. You cannot always separate Reg E and Complaints
• 3. Unfair & Deceptive could occur ”in this process”
• 4. VAU/BAU may cause additional hurdles for financial

institutions

• 5. Don’t make up rules and expectations
• 6. “We” are not the customer’s moral or legal conscience
• 7. Consider all evidence of “unauthorized”, even when

activity may have previously been authorized.

• 8. Your CMS should address Reg E / Error Resolution

Error Resolution Basics

Summary of Consumer Liability for Unauthorized EFTs Event Timing of Consumer Notice to Financial Institution Maximum Liability Loss or theft of access device Within two business days after learning

• f loss or theft

Lesser of $50 or total amount of unauthorized transfers More than two business days after learning of loss or theft up to 60 calendar days after transmittal of statement showing first unauthorized transfer made with access device 1.Lesser of $500 or the sum of:$50 or the total amount of unauthorized transfers occurring in the first two business days, whichever is less, and 2.The amount of unauthorized transfers occurring after the two business days and before notice to the financial institution. More than 60 calendar days after transmittal of statement showing first unauthorized transfer made with access device 1.For transfers occurring within the 60-day period, the lesser of $500 or the sum of: The lesser of $50 or the amount of unauthorized transfers in the first two business days, whichever is less, and 2.The amount of unauthorized transfers occurring after two business days. For transfers occurring after the 60-day period, unlimited liability (until the financial institution is notified). Unauthorized transfer(s) not involving the loss or theft of an access device Within 60 calendar days after transmittal of the periodic statement

• n which the unauthorized transfer first

appears No liability

—

An unauthorized EFT;

—

An incorrect EFT to or from a consumer’s account;

—

An omission of an EFT from a consumer’s periodic statement;

—

A computational or bookkeeping error by the institution for an EFT;

—

A consumer’s receipt of an incorrect amount of money from an electronic terminal;1

—

An EFT that was not identified in accordance with §1005.9 or §1005.10(a); and

—

The consumer’s request for documentation required by §1005.9 or §1005.10(a) or for additional information or clarification concerning an electronic fund transfer, including a request the consumer makes to determine whether one of the errors listed above actually exists.

What is an ERROR?

Notice of Error Requirements

—

A financial institution must comply with the §1005.11 error resolution procedures with respect to any notice of an error from the consumer that:

—

is received by the institution no later than 60 days after transmitting the periodic statement on which the error is first reflected;

—

enables the institution to identify the consumer’s name and account number;

—

indicates why the consumer believes an error exists; and

—

includes, to the extent possible, the type, date, and amount of the error.

—

Consumers can provide either written or oral notice.

Time Limits for Completing Investigations

Generally, a financial institution must complete its investigation of an error within 10 business days of receiving a notice of error, but it may extend this period to 45 calendar days if certain conditions are met. The 10- business-day limit applies even if an institution received oral notice and required the consumer to provide written notice. The institution must begin the investigation promptly and cannot delay it until it receives written confirmation.7 In certain circumstances, the 10-day period can be extended to 20 days, and the 45-day period can be extended to 90 days.

10 Business Days After Notice

Unless a financial institution is permitted a longer time period to investigate an error in the circumstances discussed below, the institution has 10 business days after receiving notice from the consumer to investigate if an error

• ccurred. However, if the alleged error involves

an EFT to or from the account within 30 days after the first deposit into the account, the investigation period is extended to 20 business days instead of 10.

45 Calendar Days After Notice.

If the financial institution is unable to complete its investigation within 10 business days, it may extend the period to 45 calendar days from receipt of notice provided the institution:

• Provisionally credits the consumer’s account for the full amount of the

alleged error plus interest, if any. However, the institution may withhold a maximum of $50 of the amount credited if the institution has a “reasonable basis” for believing an unauthorized EFT occurred and complies with the limitation on liability rules in §1005.6(a), as discussed later in the article.

• Informs the consumer of the amount and date of the provisional

crediting within two business days of the crediting; and

• Allows the consumer full use of the provisional funds during the

investigation.

Procedures If No Error or Different Error Occurred

If a financial institution concludes that either no error or a different error than the one alleged occurred, the institution must:

• 1. Include in the institution’s report of the results of the

investigation a written explanation of the findings and a disclosure of the consumer’s right to request the documents upon which the institution relied;

• 2. Upon debiting a provisionally credited amount:
• Notify the consumer of the date and amount of the debit; and
• Notify the consumer that the institution will honor checks (or

similar instruments payable to third parties) and preauthorized transfers from the consumer’s account — without charging overdraft fees — for five business days after the notification, provided that the items honored would have been paid if the institution had not debited the provisionally credited funds