Our customer claims that an individual forced them to make an ATM transaction and debit card purchases at three stores. Our customer said the individual claimed they had just been released from prison and lifted their shirt to reveal gunshot wounds. However, our customer did not mention that the individual had a weapon. Was our customer actually “forced” to make these transactions, and would they be considered unauthorized under Regulation E? Our customer said they were going to file a police report, but we have not seen it.

In our view, the debit card transactions that occurred at the stores would not be considered “unauthorized transactions” under Regulation E, regardless of whether your customer was forced to make them. Conversely, an ATM transaction “induced by force” would be considered unauthorized under Regulation E. Whether your customer’s ATM transaction was “induced by force” is uncertain, since Regulation E does not define this term, and we are not aware of any guidance or case law describing what constitutes inducement by force. However, given this lack of guidance, you may wish to proceed as though the ATM transaction was an unauthorized transaction induced by force. Also, while you may not be required to reimburse your customer for the in-store transactions, you may wish to do so voluntarily due to concerns for relationship or reputational risk or other considerations.

Regulation E’s definition of an “unauthorized electronic funds transfer” generally does not cover transactions initiated by a customer under threat or force. The definition covers transactions “initiated by a person other than the consumer without actual authority to initiate the transfer and from which the consumer receives no benefit.” However, this definition is accompanied by an official interpretation stating that a transfer initiated at an ATM that has been “induced by force” is “unauthorized,” even though it technically is initiated by the consumer.

Based on your customer’s description of events, the threat of force may have been implied even if the individual did not brandish a weapon. As a result, you may wish to treat the ATM transaction as unauthorized and reimburse your customer according to Regulation E’s error resolution provisions. Also, we note that you may not require a consumer to file a police report or other documentation as a condition of initiating your error resolution investigation.

Further, while Regulation E appears to exclude other kinds of forced transactions, it nonetheless may be advisable to consider reimbursing your customer for the in-store transactions, since doing so would track the logic of Regulation E’s official interpretation involving ATM transactions. Additionally, combined with other factors, such as elder abuse, it could arguably be viewed as unfair or abusive, or at least pose a reputational risk, to treat such transactions as “authorized” when your customer may have been induced by force to initiate the transfers.

For resources related to our guidance, please see:

Regulation E, 12 CFR 1005.2(m) (“‘Unauthorized electronic fund transfer’ means an electronic fund transfer from a consumer’s account initiated by a person other than the consumer without actual authority to initiate the transfer and from which the consumer receives no benefit. The term does not include an electronic fund transfer initiated:

(1) By a person who was furnished the access device to the consumer’s account by the consumer, unless the consumer has notified the financial institution that transfers by that person are no longer authorized;

(2) With fraudulent intent by the consumer or any person acting in concert with the consumer; or

(3) By the financial institution or its employee.”)

Regulation E, Official Interpretations, Paragraph 2(m), Comment 4 (“Forced initiation. An EFT at an ATM is an unauthorized transfer if the consumer has been induced by force to initiate the transfer.”)

CFPB, Electronic Fund Transfers FAQs — Error Resolution, Question 4 (June 4, 2021) (“Can a financial institution require a consumer to file a police report or other documentation as a condition of initiating an error resolution investigation? No. A financial institution must begin its investigation promptly upon receipt of an oral or written notice of error and may not delay initiating or completing an investigation pending receipt of information from the consumer. See Comments 11(b)(1)-2 and 11(c)-2.”)

Regulation E, Official Interpretations, Paragraph 11(b)(1), Comment 2 (“Investigation pending receipt of information. While a financial institution may request a written, signed statement from the consumer relating to a notice of error, it may not delay initiating or completing an investigation pending receipt of the statement.”)