Q: What is the line between relying on the National Automated Clearing House Association (NACHA) warranty and Regulation E requirements in resolving disputes unauthorized transaction disputes?
A: Regulation E and NACHA are two requirements that while each govern electronic transactions, run parallel to each other, but never intersect. NACHA requirements can never supersede Regulation E provisions in resolving disputes, the regulatory timelines requirements, or the requirement to provide credit to a consumer.
Regulation E, § 1005.11, requires the bank to investigate upon learning of a dispute within the definition of Regulation E. Additionally, the Regulation allows consumers to make a dispute in any manner, orally or in writing. If the bank learns of a dispute, the duty arises to either investigate and act accordingly or provide credit without an investigation.
The above is in contrast with some of the NACHA requirements. For example, NACHA requires the bank to obtain a Written Statement of Unauthorized Debit (WSUD) for the bank to recover funds from the ODFI, the institution that made the debit. This may create a conflict with Regulation E, as under the regulation, the bank cannot condition conducting investigation or issuing a provisional credit on the consumer executing a WSUD. Regulation E only allows not providing provisional credit in the event the consumer does not provide a written confirmation of a claim. However, the duty to investigate and provide a reimbursement in the event of an unauthorized transaction remains.
When a bank (RDFI) submits a breach of warranty claim to the bank making the debit (ODFI), the ODFI may refute the warranty claim, by showing that the RDFI’s customer did in fact authorize the transaction. This may result in conflicting outcomes under Reg E and NACHA. For example, if the RDFI’s customer does not execute an WSUD fast enough, the RDFI may have no choice but to provide credit, and later learn that the transaction was not unauthorized after the time to revoke provisional credit lapses.
The best course of action is for the bank to require a written confirmation of unauthorized credit under Regulation E, which would allow the bank to avoid providing provisional credit, if the customer fails to provide such a confirmation. Such a confirmation may be in the form of WSUD, but it is sufficient that the customer confirms in writing, without specifically executing a WSUD. Otherwise, the bank must continue investigating upon learning of a Reg E dispute.
Compliance Alliance offers a comprehensive suite of compliance management solutions. To learn how to put them to work for your bank, call (888) 353-3933 or email info@compliancealliance.com and ask for our Membership Team. For timely compliance updates and resources, subscribe to Bankers Alliance’s email newsletters.
Not a member? Learn more about membership with Compliance Alliance by attending one of our live demos:
