A customer is claiming that his brother initiated unauthorized electronic fund transfers (EFTs) from his account. We learned through our investigation that our customer executed a power of attorney (POA) for property naming his brother as agent a few years ago for purposes of selling a home they co-owned. We do not have a copy of the POA, but we have a written statement from the customer stating that he gave his brother a POA for property. He does not know whether the POA had a termination date. Can we conclude no error occurred based on the customer’s written statement? Or do we need to have the POA on file? If the transactions are considered unauthorized, can we take legal action against the brother?

Completing Your Regulation E Error Investigation

Based on the information you have so far, we do not believe you have satisfied your institution’s burden of proof to conclude that no error occurred. You may be able to complete your investigation and make a conclusion regarding whether an error occurred without obtaining a copy of the POA, but we believe you will need to obtain more information about the POA, perhaps from your customer — with the complication of being unable to review the POA itself — before doing so.

Regulation E defines an “unauthorized electronic fund transfer” as “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.” When investigating an unauthorized EFT or other error, you must review your institution’s own records, and there is no requirement to investigate outside of your institution’s records. However, as noted in the Federal Reserve Bank of Philadelphia’s Consumer Compliance Outlook, the Electronic Funds Transfer Act “places the burden of proof on the financial institution to establish the transaction was authorized.” Consequently, if your institution cannot conclude that these EFTs were unauthorized by reviewing your own records, you will have to obtain more information before making that conclusion.

Without gathering more information about the POA, it remains unclear whether your customer’s brother acted “without actual authority” from your customer. If the POA was based on an Illinois Statutory Short Form Power of Attorney for Property, you would need to know whether your customer had stricken out any of the categories of powers listed on the form, which include “(a) Real estate transactions” and “(b) Financial institution transactions,” among other categories.

If your customer did not strike out the “Financial institutions transactions” power, the Illinois Power of Attorney Act provides that the POA agent (your customer’s brother) would have been authorized to “exercise all powers with respect to financial institution transactions which the principal could if present and under no disability.” We believe these financial institutions transactions powers would include initiating EFTs, in which case it appears that your customer’s brother had actual authority to initiate the EFTs under the POA.

However, even if you answer the question regarding the categories of powers authorized in the POA, another open question about the POA remains: Did it have a termination date, and did it remain in effect when your customer’s brother initiated the EFTs?

Outside of the POA, you may be able to conclude that no error occurred on other grounds under Regulation E. For example, Regulation E provides that an EFT is not unauthorized if it was initiated 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.” Also, an EFT is not unauthorized if you find that your customer received a benefit from the transactions initiated by his brother.

Legal Action Against Initiator of Unauthorized EFTs

Whether you may initiate legal action against your customer’s brother depends on the specific facts and circumstances of the fraudulent transactions. Consequently, we recommend consulting with bank counsel before pursuing a legal claim against the brother.

For resources related to our guidance, please see:

Illinois Power of Attorney Act, 755 ILCS 45/3-4(a) (“Real estate transactions. The agent is authorized to: buy, sell, exchange, rent and lease real estate (which term includes, without limitation, real estate subject to a land trust and all beneficial interests in and powers of direction under any land trust); collect all rent, sale proceeds and earnings from real estate; convey, assign and accept title to real estate; grant easements, create conditions and release rights of homestead with respect to real estate; create land trusts and exercise all powers under land trusts; hold, possess, maintain, repair, improve, subdivide, manage, operate and insure real estate; pay, contest, protest and compromise real estate taxes and assessments; and, in general, exercise all powers with respect to real estate which the principal could if present and under no disability.”)

Illinois Power of Attorney Act, 755 ILCS 45/3-4(b) (“Financial institution transactions. The agent is authorized to: open, close, continue and control all accounts and deposits in any type of financial institution (which term includes, without limitation, banks, trust companies, savings and building and loan associations, credit unions and brokerage firms); deposit in and withdraw from and write checks on any financial institution account or deposit; and, in general, exercise all powers with respect to financial institution transactions which the principal could if present and under no disability. . . .”)

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.”)

Regulation E, Official Interpretations, Paragraph 1005.2(m), Comment 2 (“If a consumer furnishes an access device and grants authority to make transfers to a person (such as a family member or co-worker) who exceeds the authority given, the consumer is fully liable for the transfers unless the consumer has notified the financial institution that transfers by that person are no longer authorized.”)

Regulation E, 12 CFR 1005.2(a)(1) (“‘Access device’ means a card, code, or other means of access to a consumer’s account, or any combination thereof, that may be used by the consumer to initiate electronic fund transfers.”)

Regulation E, 12 CFR 1005.11(c)(4) (“With the exception of transfers covered by § 1005.14 of this part, a financial institution's review of its own records regarding an alleged error satisfies the requirements of this section if:

(i) The alleged error concerns a transfer to or from a third party; and

(ii) There is no agreement between the institution and the third party for the type of electronic fund transfer involved.”)

FRB Philadelphia, Consumer Compliance Outlook, Error Resolution and Liability Limitations Under Regulations E and Z: Regulatory Requirements, Common Violations, and Sound Practices (2Q 2021) (“A financial institution cannot deny a consumer’s claim of an error without conducting a reasonable investigation, unless it corrects the error as alleged by the consumer. A reasonable investigation includes reviewing relevant information within the institution’s records. If this review confirms the error, the claim cannot be denied. When the alleged error is an unauthorized EFT, the EFTA places the burden of proof on the financial institution to establish the transaction was authorized. Therefore, if the institution cannot establish the disputed EFT transaction was authorized, the institution must credit the consumer’s account.”)