Topic: Electronic Fund Transfer Act (EFTA)
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A consumer customer recently discovered that one of their monthly bills was being automatically paid out of a business customer’s account for over a year. The billing company is at fault, as the ACH entries they generated used the wrong account number. The business customer found out about the unauthorized payments from the billing company and is now threatening to sue us. How should we handle this situation? The business customer is asking for more information about the consumer customer.
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Your bank may have a claim against the originating depository financial institution (ODFI) that transmitted entries with an incorrect account number — but we recommend consulting with bank counsel before pursuing those claims, particularly because the business customer is threatening litigation. As to the business customer whose account was mistakenly debited, we recommend reviewing your…
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We would like to eliminate automatic transfer notices for transfers between linked accounts held at our financial institution. We currently mail a notice whenever there is an automatic transfer from an account to cover an overdraft in another account belonging to the same customer. Our customers have agreed to the transfers, and we charge a general transfer fee for each automatic transfer. We believe these transfers are exempted from coverage under Regulation E. If we show the transfer on the demand deposit account statement, are we required to send other notices?
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No, we are not aware of any laws or regulations requiring you to send notice when you make transfers between linked accounts to prevent overdrafts. The 2005 Joint Guidance on Overdraft Programs recommends that banks “[p]romptly notify” their customers each time “overdraft protection has been accessed, for example, by sending a notice to consumers the…
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Does the Illinois Electronic Fund Transfer Act (EFTA) require that the logos of the ATM networks we participate in be included on our ATMs?
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No, we do not believe that the Illinois EFTA requires you to place the logos of the networks you participate in on your ATMs, provided that you are in compliance with the federal EFTA requirements. However, the networks themselves may require such signage as part of your agreements with them. The Illinois EFTA contains a…
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We recently received a Regulation E claim from a customer regarding fraudulent charges to their account that first occurred two years ago and have continued since that time. Is there a time limit for how long a customer has to submit a claim? For overdraft fees and interest that may have been imposed due to the fraudulent charges, do we need to examine only the sixty-day period since the first fraudulent charge, or do we need to review the last two years and credit back any resulting fees and interest?
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No, we do not believe there is a time limit on filing a claim for unauthorized transactions under Regulation E. We believe your bank likely will be required to credit the customer for any unauthorized transactions that occurred during the first sixty days following the periodic statement reflecting the initial fraudulent transaction. We also believe…
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Under Regulation E, would it be considered an unauthorized transaction if a consumer is fraudulently induced to send an electronic payment — as opposed to when a consumer is induced to a provide a fraudster with their account information or access device?
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No, we do not believe that an electronic payment initiated by a consumer — even if fraudulently induced — would be considered an unauthorized transaction under Regulation E. An “unauthorized electronic fund transfer” is defined as “an electronic fund transfer from a consumer’s account initiated by a person other than the consumer without actual authority…
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A customer recently notified us of several unauthorized online debit card transactions that occurred during a four-month period earlier this year, and their debit card was not lost or stolen. We are aware that under Regulation E, customers face unlimited liability for unauthorized transactions that occur more than sixty days after transmission of a periodic statement showing an unauthorized transaction up to the date we are notified of the unauthorized transaction. However, is there a requirement that those subsequent unauthorized transactions be recurring or initiated from the same place as the first unauthorized transaction?
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No, we are not aware of any requirement under Regulation E that subsequent unauthorized transactions be recurring or from the same place as the first unauthorized transaction for a customer to be liable for them. Your bank likely will be required to credit the customer for any authorized transactions that occurred during the first sixty…
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Our Electronic Funds Transfer (EFT) disclosure provides that a customer may withdraw no more than a specified amount per day, with a higher aggregate limit on total transactions per day. The disclosure also provides that cash withdrawal limits and point of sale limits are subject to change without notice. If an existing cardholder requests lower transaction limits (for a student, for example,) do we need to note that they are agreeing to a lower limit than disclosed?
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We recommend sending a written change in terms notice to a customer before enforcing stricter EFT limits than you have originally disclosed. Regulation E requires that you send your customer a change in terms notice reflecting lower limits on the frequency and dollar amount of transfers at least twenty-one days before they become effective. There…
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Are there any age restrictions on issuing debit cards to minors? We have received a request to open two separate joint accounts with debit cards for minors aged ten and twelve, for which their parent would be a joint owner. Currently, we offer student checking accounts for individuals aged fifteen to twenty-one, and for those under eighteen, we require a parent or guardian to be a joint owner on the account. If we grant an exception to our usual policy and open these accounts, what legal issues should we be concerned about? Would the parent assume liability for overdrafts, and are there any concerns about unauthorized activity if the minor allows a friend to use the debit card and the parent claims the use was unauthorized?
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We are not aware of any age restrictions on issuing debit cards in Illinois or federal law, but we recommend contacting your debit card issuer and reviewing any agreements for age limitations. Additionally, we caution you against making individual exceptions to your policies and procedures. If you decide to open these accounts, you may wish…
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Are you aware of any guidance or standards on how banks should handle frequent wire transfers from personal accounts? We have several clients that have included their personal accounts on our business wire transfer agreement and are wiring funds regularly even though our agreement is for business purposes only. We would like to know if there any alternatives other than having these customers come in and sign for each wire in person. Or does Regulation E trump any agreements on file because these wires are coming out of consumer accounts? We use a wire transfer system known as Wire Exchange (soon to be known as Payments Exchange), not Fedwire.
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We believe that Article 4A of the Illinois Uniform Commercial Code (UCC) would protect you from liability for sending unauthorized wires on behalf of non-business customers if you have previously agreed to verify their identities through a commercially reasonable security procedure (other than signing for each one in-person). While requiring in-person signatures would help ensure…
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We are implementing procedures for processing Single Entry Telephone-Initiated (TEL) Entry ACH loan payments. For Single Entry TEL Entries, the updated Nacha rules going into effect on September 17, 2021, state that an Originator must make an audio recording of the oral authorization or provide written notice confirming the oral authorization to the Receiver. If we provide the written notice electronically, must we follow the E-Sign Act and related Illinois laws? The Nacha rules state that Originators must comply with Regulation E for authorizations of Recurring TEL Entries but are silent on this point for Single Entry TEL Entries.
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We do not believe you are required to follow the E-Sign Act or related Illinois laws when providing electronic written notices confirming consumers’ oral authorizations for Single Entry TEL Entries (in lieu of making audio recordings of the oral authorizations). We believe that the E-Sign Act applies only to statutes, regulations, and other rules of…