IBA Compliance Connection

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Is a bank required to give business customers 14 days to report errors regarding electronic fund transfers, including ACH transactions? We have seen this 14-day deadline in business account disclosures at several other banks. We think those banks may be pulling the 14-day deadline from the Regulation E provision regarding a stop payment order on a preauthorized transfer. However, it is our understanding that Regulation E does not apply to businesses, and a bank may establish its own error notification deadlines for business accounts. Is that correct?

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You are correct that Regulation E — including its error resolution deadline — does not apply to businesses.

Regulation E applies only to consumer accounts. The term “consumer” means a “natural person.” The term “account” is defined as “a demand deposit (checking), savings, or other consumer asset account . . . established primarily for personal, family, or household purposes.” Consequently, Regulation E does not apply to accounts established for businesses. Regulation E may apply to an account established by a sole proprietor (who is a natural person), but only if the account was established primarily for personal, family, or household purposes.

Regarding reporting unauthorized transactions on business accounts, we are not aware of any law or regulation that mandates a 14-day deadline. Generally, a bank may establish its own reporting deadlines in its account agreement. The banks you mentioned may have borrowed the 14-day deadline from Regulation E, as you suggested, or they may have decided on the 14-day deadline for some other business purpose.

We do note that your bank’s deadline for reporting an unauthorized ACH transaction for reimbursement from the originating depository financial institution (ODFI) is governed by the NACHA rules and will depend on how the ODFI codes the ACH transaction. In addition, some open-end credit accounts, such as certain MasterCard and Visa credit card programs, offer “zero liability” protections for small businesses.

For resources related to our guidance, please see:

  • Regulation E, 12 CFR 1005.3(a) (“This part applies to any electronic fund transfer that authorizes a financial institution to debit or credit a consumer’s account.”)

  • Regulation E, 12 CFR 1005.2(b)(1) (The term “account” is defined as “a demand deposit (checking), savings, or other consumer asset account . . . established primarily for personal, family, or household purposes.”)
  • Regulation E, 12 CFR 1005.10(c)(2) (“The financial institution may require the consumer to give written confirmation of a stop-payment order within 14 days of an oral notification.”)