What is Considered Prompt Investigation Under Regulation E Section 1005.11(c)

Regulation E, established by the Electronic Fund Transfer Act (EFTA), provides critical guidelines to safeguard consumers from unauthorized or erroneous electronic transactions. A key component of this regulation is the requirement for a “prompt investigation” of alleged errors, as outlined in section 1005.11(c). This blog post aims to break down the concept of prompt investigation, offer steps for compliance, and highlight common mistakes banking operations professionals should avoid.

What is “Prompt Investigation”?

Section 1005.11(c) of Regulation E mandates that financial institutions promptly investigate any reported errors in electronic fund transfers. This requirement ensures that consumers’ concerns are addressed swiftly and fairly, maintaining trust in the financial system.

Key Elements of Prompt Investigation:

1. Timely Action: The investigation must begin promptly upon receiving notice of the alleged error. Ensure your staff is trained to understand that "notice" can take many forms, including oral notice to a bank teller, notice via the bank's web chatbot, a message sent through the bank's portal, or of course speaking with a bank call center employee.

2. Comprehensive Examination: The institution must thoroughly investigate the circumstances surrounding the error.

3. Provisional Credit: If the investigation takes more than 10 business days, the institution must provisionally credit the consumer’s account, pending the outcome of the investigation.

4. Final Determination: A determination of whether an error occurred must be made within 45 days (90 days for transactions not initiated within the state or involving a point-of-sale terminal).

...“Notice of error” under section 1005.11(b) – which triggers the requirement to investigate promptly – can be either written or oral, which means that oral statements to a member services representative, or even to an AI chatbot, can constitute a notice of error and trigger the requirement to investigate an alleged error. Source: Regulatory Agencies Outline Reg E Pitfalls

Steps to Ensure Compliance

1. Establish Clear Procedures: Develop and document procedures for handling error notifications. This includes training staff to recognize and respond to error claims appropriately.

2. Immediate Acknowledgment: Acknowledge receipt of the error notification promptly, informing the consumer that their claim is being investigated. 

3. Begin Investigation Without Delay: Start the investigation process immediately upon receipt of the error notice. Delaying the start can lead to non-compliance. The investigation cannot be delayed due to waiting for written confirmation or a police report or other document.

4. Thorough Examination: Investigate the transaction comprehensively. This involves reviewing transaction records, account statements, and any relevant communications with the consumer.

5. Provisional Credit: If the investigation is not resolved within 10 business days, provide provisional credit to the consumer’s account for the amount of the alleged error.

6. Notify the Consumer: Communicate the outcome of the investigation to the consumer. If an error is found, correct it promptly. If no error is found, provide an explanation along with evidence supporting your decision.

7. Maintain Records: Keep detailed records of the investigation process, findings, and communications with the consumer. This documentation is essential for regulatory compliance and potential audits.

Common Mistakes to Avoid

1. Delayed Response: Failing to promptly acknowledge and investigate error claims can result in non-compliance. Immediate action is crucial.

2. Incomplete Investigations: Conducting superficial investigations can lead to incorrect conclusions and potential regulatory issues. Ensure a thorough review of all relevant information.

3. Failure to Provide Provisional Credit: Not providing provisional credit when required can lead to penalties and damage consumer trust.

4. Poor Communication: Not keeping the consumer informed throughout the investigation process can cause frustration and erode confidence in your institution.

5. Inadequate Record-Keeping: Lack of detailed records can hinder compliance efforts and make it difficult to demonstrate adherence to regulatory requirements during audits.

Conclusion

Ensuring compliance with the prompt investigation requirements of Regulation E is critical for maintaining consumer trust and avoiding regulatory penalties. By establishing clear procedures, fully training all bank operations staff, responding swiftly, conducting thorough investigations, and maintaining open communication with consumers, banking operations professionals can effectively manage error claims and uphold the standards set forth by Regulation E.

For more detailed guidance on Regulation E and compliance strategies, refer to the Consumer Financial Protection Bureau (CFPB) website and other regulatory resources.

References:

• Consumer Financial Protection Bureau. “Electronic Fund Transfers (Regulation E).” CFPB Regulation E.

• Federal Reserve. “Regulation E – Electronic Fund Transfers.”