Consumer Compliance Outlook: Third Issue 2025

Error Resolution Procedures Under the Electronic Fund Transfer Act and Regulation E

By Kenneth Benton, Principal Consumer Regulations Specialist, Federal Reserve Bank of Philadelphia

Editor’s Note: In 2012, Consumer Compliance Outlook (CCO) reviewed the procedures financial institutions must follow under the Electronic Fund Transfer Act (EFTA) and Regulation E when consumers allege an error occurred in an electronic fund transfer (EFT) from or to their account. The article also discussed a consumer’s potential liability under the EFTA and Regulation E when the error is an unauthorized EFT.¹ CCO is updating this article to reflect the 2016 final rule to provide Regulation E coverage of prepaid accounts and to discuss the requirements of an error resolution investigation.²

Part 1 of this two-part updated article discusses error resolution, and Part 2 discusses liability for unauthorized transactions. A companion article in this issue discusses how the EFTA and Regulation E apply to instant payment services introduced by The Clearing House in 2017 and the Federal Reserve System in 2023.

ERROR RESOLUTION PROCEDURES 12 C.F.R. §1005.11

Congress passed the EFTA³ in 1978 to protect consumers engaging in EFTs by providing “a basic framework establishing the rights, liabilities, and responsibilities of participants in electronic fund and remittance transfer systems.”⁴ The scope of the EFTA, as implemented by the CFPB’s Regulation E (12 C.F.R. Part 1005), includes transactions involving automated teller machines (ATM), point-of-sale debit cards, certain government benefit accounts,⁵ direct deposits, gift cards, payroll cards, prepaid accounts,⁶ and foreign remittance transfers.⁷

Regulation E includes specific procedures that financial institutions⁸ must follow when consumers allege an error. Section 1005.11(a) defines error to include:

an unauthorized EFT;
an incorrect EFT to or from a consumer’s account;
an omission of an EFT from a consumer’s periodic statement;
a computational or bookkeeping error by the institution for an EFT;
an electronic terminal’s disbursement of an incorrect amount of money;⁹
an EFT that was not identified in accordance with §1005.9 or §1005.10(a); and
the consumer’s request for documentation required by §1005.9 or §1005.10(a) or for additional information or clarification concerning an electronic fund transfer, including a request the consumer makes to determine whether one of the errors listed above exists.

To clarify the definition of error, the regulation specifies it does not include:

routine inquiries about a consumer’s account balance,
requests for information for tax or other recordkeeping purposes, or
requests for duplicate copies of documentation.¹⁰

A financial institution must follow the required error resolution procedures even if it receives notice of an error after the consumer has closed the account.¹¹

NOTICE OF ERROR REQUIREMENTS

A financial institution must comply with the error resolution procedures specified in §1005.11 for any notice of an error from the consumer that:

is received by the institution no later than 60 days after transmitting the periodic statement on which the error is first reflected;¹²
enables the institution to identify the consumer’s name and account number;¹³ and
indicates why the consumer believes an error exists and includes, to the extent possible, the type, date, and amount of the error.¹⁴

Consumers can provide either written or oral notice. If a consumer provides oral notice, the institution may require the consumer to provide written confirmation of the error within 10 business days after the oral notice.¹⁵ The Official Staff Commentary for Regulation E clarifies that “the error resolution procedures … apply when a notice of error is received from the consumer, and not when the financial institution itself discovers and corrects an error.”¹⁶

INVESTIGATION

Timing of an Investigation

An investigation must begin promptly after the receipt of an oral or written notice of an error.¹⁷ When the error is an unauthorized EFT, one related issue is whether an institution may impose conditions before it will begin an investigation, such as requiring the consumer to first dispute the transaction with the merchant or file a police report. The Official Staff Commentary states that an institution may not delay its investigation pending receipt of information from the consumer.¹⁸

Burden of Proof

When the alleged error is an unauthorized EFT, the EFTA places the burden of proof on the financial institution to establish that the transaction was authorized. Therefore, if the institution cannot establish that the disputed EFT transaction was authorized, the transaction is considered an unauthorized EFT, and the institution must correct the error in accordance with the liability limits in §1005.6.¹⁹

To mitigate this risk, a financial institution’s compliance department can conduct transaction testing on previously denied error notices. For each previously denied allegation within the selected sample, the institution can confirm that employees reviewed all relevant information within the institution’s records and that the findings of the investigation met the institution’s burden of proof to establish that an error did not occur. If the transaction testing revealed that the institution was not adhering to regulatory requirements, it could enhance its internal controls by, for example, providing additional training to the staff handling the investigations.

Investigation Must Be Reasonable

A financial institution cannot deny a consumer’s claim of an error without conducting a reasonable investigation.²⁰ However, a financial institution may forgo an investigation if it corrects the error as the consumer has alleged (and complies with all other applicable requirements of §1005.11).²¹ A reasonable investigation includes reviewing relevant information within the institution’s records when the alleged error concerns a transfer with a third party, and the institution does not have an agreement with that party for the type of EFT involved.²² The Official Staff Commentary provides that the information that may be reviewed may include:

the ACH transaction records for the transfer;
the transaction history of the account for a reasonable time period immediately before the allegation of error;
whether the check number of the transaction in question is notably out of sequence;
the location of the transaction or the payee in question relative to the consumer’s place of residence and usual transaction area;
information relative to the account within the control of the institution’s third-party service providers if the financial institution reasonably believes that it may have records or other information that could be dispositive of the consumer’s alleged error; or
any other information appropriate to resolve the claim.²³

This comment also clarifies that “the investigation required may vary depending on the facts and circumstances. However, a financial institution may not limit its investigation solely to the payment instructions where additional information within its own records pertaining to the particular account in question could help to resolve a consumer’s claim.”²⁴

TIME LIMITS FOR COMPLETING INVESTIGATIONS

Generally, a financial institution must finish investigating an error within 10 business days of receiving a notice of the error, but it can extend the period to 45 calendar days if it cannot complete the investigation within the 10-day period and it satisfies certain requirements.²⁵ In certain circumstances, the 10-day period can be extended to 20 days and the 45-day period can be extended to 90 days.

10 Business Days After Notice: Unless a financial institution is permitted a longer time period to investigate an error in the circumstances described next, the institution has 10 business days after receiving notice from the consumer to investigate if an error occurred.

20 Business Days After Notice Exception: If the alleged error involves an EFT within 30 days after the first deposit into the account, the investigation period is extended to 20 business days instead of 10.²⁶

45 Calendar Days After Notice Exception: If the financial institution is unable to complete its investigation within 10 business days, it may extend the period to 45 calendar days from the receipt of the error notice, provided that the institution:

provisionally credits the consumer’s account for the full amount of the alleged error plus interest, if any. However, the institution may withhold a maximum of $50 of the amount credited if the institution has a “reasonable basis” for believing an unauthorized EFT occurred and complies with the limitation on liability rules in §1005.6(a), which are discussed in a companion article on a consumer’s liability for unauthorized EFTs.
informs the consumer of the amount and date of the provisional crediting within two business days of the crediting.
allows the consumer full use of the provisional funds during the investigation.²⁷

The institution is not required to provisionally credit a consumer’s account to extend the time period for an investigation to 45 days if the institution requires but does not receive written confirmation within 10 business days of an oral notice of error or the alleged error involves an account that is subject to Regulation T, concerning securities credit by brokers and dealers.²⁸

90 Calendar Days Exception: The 45-day period can be extended to 90 days from the receipt of a notice if the conditions previously discussed for extending the time period to 45 calendar days are satisfied²⁹ and the error:

involved an EFT that was not initiated within any state, territory, or U.S. possession; the District of Columbia; the Commonwealth of Puerto Rico; or any political subdivision (i.e., a foreign-initiated EFT);
resulted from a point-of-sale debit card transaction; or
occurred within 30 calendar days after the first deposit into the account.

REQUIREMENTS AFTER THE INVESTIGATION

After completing its investigation, a financial institution must:

correct an error within one business day after determining that an error has occurred; and
report the results of its investigation to the consumer (either orally or in writing,³⁰ unless the institution concludes that no error or a different error occurred, in which case the results must be in writing) ³¹ within three business days after completing its investigation.³²

PROCEDURES IF NO ERROR OR DIFFERENT ERROR OCCURRED

If a financial institution concludes that either no error or a different error than the one alleged occurred, the institution must:

include in its report of the results of the investigation a written explanation of the findings and a disclosure of the consumer’s right to request the documents upon which the institution relied; and
upon debiting a provisionally credited amount:
- notify the consumer of the date and amount of the debit; and
- notify the consumer that the institution will honor checks (or similar instruments payable to third parties) and preauthorized transfers from the consumer’s account — without charging overdraft fees — for five business days after the notification, provided that the items honored would have been paid if the institution had not debited the provisionally credited funds.³³

If the consumer reasserts the error and the institution completed the initial investigation in compliance with the regulation, the institution has no further responsibilities to the consumer, except when a consumer asserts an error after receiving documentation requested under §1005.11(a)(1)(vii). See 12 C.F.R. §1005.11(e).

CONCLUSION

Financial institutions should review and test their policies and procedures regarding error resolution investigations to ensure that they comply with the requirements of the EFTA and Regulation E. The table summarizes these requirements. Specific issues should be raised with your primary regulator.

EFT Errors Overview
Error Resolution Coverage	Unauthorized EFT Incorrect EFT EFT omitted from the periodic statement Computational error for EFT Receipt for an incorrect amount of money from an electronic terminal EFT not identified per §1005.9 or §1005.10(a) Request for documentation under §1005.9 or §1005.10(a) or for information concerning an EFT
Consumer Obligations When Submitting Error Notice	Oral or written notice must be received by the institution within 60 days after the institution sends the periodic statement reflecting the disputed transactions (can be extended for extenuating circumstances) Notice must enable the institution to identify the consumer’s name and account number Notice must indicate why the consumer believes an error exists and include information about the error
Institution Obligations After Receiving an Error Notice	Promptly investigate the oral or written allegation of the error Complete its investigation within the time limits as specified in Regulation E Correct the error within one business day after determining that an error has occurred Report the results of its investigation within three business days after completing its investigation

ENDNOTES

¹ Kenneth Benton and Robert Sheerr, “Error Resolution Procedures and Consumer Liability Limits for Unauthorized Electronic Fund Transfers,” Consumer Compliance Outlook (Fourth Quarter 2012).

² 81 FR 83934 (November 22, 2016). In 2018, the Consumer Financial Protection Bureau amended the rule to change the effective date, modify the error resolution and consumer liability provisions, and make other changes. 83 FR 6364 (February 13, 2018). CCO previously discussed these requirements. See Scott Sonbuchner, “Error Resolution and Liability Limits for Prepaid Accounts and Foreign Remittance Transfers,” Consumer Compliance Outlook (Second Issue 2021).

³ 15 U.S.C. §1693 et seq.

⁴ 15 U.S.C. §1693(b).

⁵ 12 C.F.R. §1005.15.

⁶ Prepaid accounts are addressed in 12 C.F.R. §1005.18, including modified rules in 12 C.F.R. §1005.18(e) for error resolution and liability.

⁷ Regulation E “applies to any electronic fund transfer that authorizes a financial institution to debit or credit a consumer’s account.” 12 C.F.R. §1005.3. See also 12 C.F.R. §1005.2(b)(3) (scope of Regulation E, including prepaid accounts, such as payroll cards and government benefit accounts), §1005.3 (overall coverage), §1005.20 (gift cards), and §1005.30–1005.36 (remittance transfers).

⁸ “ ‘Financial institution’ means a bank, savings association, credit union, or any other person that directly or indirectly holds an account belonging to a consumer, or that issues an access device and agrees with a consumer to provide electronic fund transfer services,” other than auto dealers excluded from coverage of this part by §1029 of the Dodd–Frank Act. 12 C.F.R. §1005.2(i).

⁹ For example, the consumer withdraws $100, but the terminal dispenses only $20.

¹⁰ 12 C.F.R. §1005.11(a)(2).

¹¹ Comment 11(a)-4.

¹² When a notice of error is based on documentation or clarification that the consumer requested under §1005.11(a)(1)(vii), the notice is timely if the institution receives it no later than 60 days after the bank transmits the requested documentation. 12 C.F.R. §1005.11(b)(3).

¹³ Comment 11(b)(1)-1.

¹⁴ 12 C.F.R. §1005.11(b)(1). However, the consumer is not required to allege any specific error if the consumer requests documentation or clarification pursuant to 12 C.F.R. §1005.11(a)(1)(vii) to determine if an error occurred. 12 C.F.R. §1005.11(b)(1)(iii).

¹⁵ 12 C.F.R. §1005.11(b)(2).

¹⁶ Comment 11(b)(1)-5.

¹⁷ Comments 11(b)(1)-2 and 11(c)-2.

¹⁸ Comments 11(b)(1)-2 and 11(c)-2. See also CFPB EFTA Error Resolution FAQ 4.

¹⁹ See EFTA §909(b) (codified at 15 U.S.C. §1693g(b)).

²⁰ 71 FR 1638, 1654 (January 10, 2006).

²¹ Comment 11(c)-4.

²² 12 C.F.R. §1005.11(c)(4).

²³ Comment 11(c)(4)-5.

²⁴ Comment 11(c)(4)-5.

²⁵ 12 C.F.R. §1005.11(c)(2).

²⁶ 12 C.F.R. §1005.11(c)(3)(i).

²⁷ 12 C.F.R. §1005.11(c)(2).

²⁸ 12 C.F.R. §1005.11(c)(2)(i); see also 12 C.F.R. Part 220 (Securities Credit by Brokers and Dealers).

²⁹ 12 C.F.R. §1005.11(c)(3)(ii).

³⁰ 12 C.F.R. §1005.11(c)(1); Comment 11(c)-1. Comment 11(c)-5 states that an institution may include the notice of correction on the periodic statement that is mailed or delivered within the time limits of 10 or 45 business days and clearly identifies the correction on the consumer’s account.

³¹ Comment 11(d)(1)-1.

³² The three-day requirement applies to both 10-day and 45-day investigations. See 12 C.F.R. §1005.11(c)(1) and (c)(2)(iv), respectively.

³³ 12 C.F.R. §1005.11(d).