IBA Compliance Connection

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We are launching person-to-person payments on our mobile app, using a service provided by our core processor. The service allows our customers to send money to any debit cardholder using the recipient’s debit card number. We have received conflicting opinions as to whether these transactions are covered by Regulation E, meaning that we would be liable for fraud losses (or even customer errors). Our core processor tells us the transactions are not covered by Regulation E, since they are account-to-card transactions.

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We believe that Regulation E and its error resolution requirements would apply to these person-to-person transactions, which qualify as electronic fund transfers. A customer’s electronic authorization of a debit to their account fits squarely in Regulation E’s definition of an “electronic fund transfer.”

Regulation E applies to “electronic fund transfers,” defined as transfers initiated through an “electronic terminal, telephone, computer, or magnetic tape for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit a consumer’s account.”

Your customers would be using your bank’s mobile app to authorize your bank to debit their account and send funds to a recipient’s debit card. Your core processor appears to be reasoning that these transactions would not qualify as electronic fund transfers made “to . . . a consumer’s account” (since the term “account” does not include debit cards). However, your customers would be using their phones to authorize debits to their accounts to fund the transactions. Consequently, we recommend treating these transactions as electronic fund transfers subject to Regulation E and its error resolution requirements.

For resources related to our guidance, please see:

  • Regulation E, 12 CFR 1005.3(b)(1) (“The term ‘electronic fund transfer’ means any transfer of funds that is initiated through an electronic terminal, telephone, computer, or magnetic tape for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit a consumer’s account. The term includes, but is not limited to: (i) Point-of-sale transfers; (ii) Automated teller machine transfers; (iii) Direct deposits or withdrawals of funds; (iv) Transfers initiated by telephone; and (v) Transfers resulting from debit card transactions, whether or not initiated through an electronic terminal.”)
  • Regulation E, 12 CFR 1005.2(b)(1) (“‘Account’ means a demand deposit (checking), savings, or other consumer asset account (other than an occasional or incidental credit balance in a credit plan) held directly or indirectly by a financial institution and established primarily for personal, family, or household purposes.”)