Consumer Compliance Outlook: Fourth Issue 2023

Top Federal Reserve System Violations in 2022: Regulation E Error Resolution Requirements and Regulation X Escrow Account Requirements

By Kate Loftus, Examiner, Federal Reserve Bank of Minneapolis

As discussed in the cover article in this issue, CCO is regularly publishing articles that leverage Federal Reserve supervisory data. The 2022 data (see Table 1 in the cover article) reveal that violations of the Electronic Fund Transfer Act (Regulation E) and the Real Estate Settlement Procedures Act (Regulation X) were among the most cited consumer compliance violations in examinations of state member banks in 2022. This article discusses violations of Regulations E and X, examiner observations, and sound practices to mitigate associated compliance risks.


Regulation E — Electronic Fund Transfer Act

12 C.F.R. §1005.11(c) Time Frames for Investigating Errors

Ten business days: A financial institution shall promptly investigate and determine whether an error occurred within 10 business days of receiving a notice of error (20 business days if the notice of error involved an electronic fund transfer (EFT) to or from a new account within 30 days after the first deposit to the account was made).1 The bank is not required to provide provisional credit.

Forty-five days: If the institution cannot complete an investigation within 10 business days (20 business days for a new account), it may take up to 45 days from receipt of a notice of error to investigate and determine if an error occurred, provided the institution:2

Ninety days: An institution may take up to 90 days in place of 45 days to complete an investigation if a notice of error involves an EFT that was not initiated within the state, resulted from a point of sale debit card transaction, or occurred within 30 days after the first deposit to the account was made.5 The bank is required to provide provisional credit.

The Electronic Fund Transfer Act (EFTA), as implemented by Regulation E, provides the legal framework for the rights, liabilities, and responsibilities of participants in EFTs involving a consumer’s checking, savings, or other asset account held by a financial institution.6

If a consumer notifies a financial institution that an error occurred with an EFT, the institution must investigate and notify the consumer of its findings and the action taken to resolve the error. The regulation defines an error as follows:

The regulation further clarifies this definition by providing these examples of inquiries that are not errors:

Section 1005.11(c) requires institutions to investigate errors within certain time frames as applicable. Examiners commonly observed these violations and the underlying causes:

These errors occurred because staff either did not review or research all the transactions the consumer disputed or denied claims because of prior disputed transactions with the same merchant. Examiners identified root causes as not providing effective policies and procedures and not conducting adequate training and monitoring.


Regulation E — Electronic Fund Transfer Act

12 C.F.R. §1005.11(d) Procedure When an Error Did Not Occur or Did Not Occur as Alleged

After an institution completes its investigation, if it determines an error did not occur, or one occurred that differs in the manner or amount the consumer alleged, the institution must notify the consumer in writing of the results of its investigation and the consumer’s right to request the documents the institution relied on in making its determination.10 If the institution debits a provisional credit, it must also notify the consumer of the date and amount of debiting and that the institution will honor checks, drafts, or similar instruments payable to third parties and preauthorized transfers from the consumer’s account for five business days after the notification (without charge to the consumer as a result of an overdraft).11

Examiners cited institutions for not explaining the results of an investigation and not providing a notice to the consumer of the right to request the documents the institution relied on in making its determination. These errors occurred primarily because staff did not adhere to the institution’s policies and procedures.

Sound Practices to Mitigate Regulation E Risks

Sound practices can help limit these types of violations, including:


Regulation X — Real Estate Settlement Procedures Act

12 C.F.R. §1024.17(c) Escrow Requirements

Section 17(c) specifies the procedures for administering an escrow account, including the following requirements:

The Real Estate Settlement Procedures Act (RESPA),19 as implemented by Regulation X, provides the legal framework of consumer protections for the servicing of federally related mortgage loans, as defined in 12 C.F.R. §1024.2(b).20 These protections include the procedures in §17(c) servicers must follow for a federally related mortgage loan with an escrow account, which lenders may require to pay real estate taxes, insurance premiums, and other mortgage-related disbursements.

Examiners frequently found bank staff inaccurately computed and disclosed the initial and annual escrow analyses. Incorrect system settings and payment amount issues typically caused these errors. For the system settings, bank staff erroneously used the payment due date rather than the anticipated disbursement date as the disbursement date for escrow items on the initial and annual escrow analyses. Using the payment due date rather than the anticipated disbursement date resulted in computation and disclosure errors on the initial and annual escrow account analyses. For the payment amount issue, bank staff itemized the incorrect number of payments from the escrow account on the initial and annual escrow account analyses, resulting in inaccurate initial and annual escrow computations and projections.

Examiners also observed errors related to bank staff conducting annual escrow account analyses beyond the 12-month computation year, without issuing short-year statements as required under the regulation. In these cases, staff conducted annual escrow analyses for all loans during the same month. If a loan was originated outside of this month, an annual escrow account analysis was not prepared until the loan aligned with the bank’s escrow analysis schedule. This resulted in staff not conducting timely annual escrow account analyses, as §1024.17(c)(3) requires.


Several sound risk management practices can facilitate compliance with escrow account requirements:


This article discussed the most common Regulation E and X violations from 2022 and sound risk management practices institutions can consider to help mitigate compliance risk. Specific issues and questions related to these regulations should be raised with your primary regulator.



1 12 C.F.R. §1005.11(c)(1) and (c)(3)(i).

2 12 C.F.R. §1005.11(c)(2).

3 12 C.F.R. §1005.11(c)(2)(i).

4 12 C.F.R. §1005.11(c)(2)(ii).

5 12 C.F.R. §1005.11(c)(3)(ii).

6 12 C.F.R. §1005.2(b)(1).

7 12 C.F.R. §1005.11(a).

8 15 U.S.C. §1693g(b).

9 Scott Sonbuchner, “Error Resolution and Liability Limitations Under Regulations E and Z: Regulatory Requirements, Common Violations, and Sound Practices,” CCO (Second Issue 2021).

10 12 C.F.R. §1005.11(d)(1).

11 12 C.F.R. §1005.11(d)(2).

12 12 C.F.R. §1024.17(c)(2).

13 12 C.F.R. §1024.17(f) and (c)(3). An exception applies if a servicer is issuing a short-year statement to change one escrow account computation year to another. See 12 C.F.R. §1024.17(i)(4).

14 12 C.F.R. §1024.17(i)(4)(i)

15 12 C.F.R. §1024.17(f)(2)(i).

16 12 C.F.R. §1024.17(c)(4).

17 12 C.F.R. §1024.17(k)(1).

18 12 C.F.R. §1024.17(c)(9).

19 12 U.S.C. §2601 et seq.

20 12 C.F.R. §1024.5(a), (b), and (d).