Today’s blog is going to focus on Regulation E – specifically, provisional credit. First, when are credit unions required to provide provisional credit? Generally, under Regulation E, once a credit union has received a member’s notice of error, the credit union has 10 business days to complete its investigation in order to determine whether an error has occurred. However, section 1005.11(c)(2)(i) provides, in part, that:
“(2) Forty-five day period. If the financial institution is unable to complete its investigation within 10 business days, the institution may take up to 45 days from receipt of a notice of error to investigate and determine whether an error occurred, provided the institution does the following:
(i) Provisionally credits the consumer’s account in the amount of the alleged error (including interest where applicable) within 10 business days of receiving the error notice. If the financial institution has a reasonable basis for believing that an unauthorized electronic fund transfer has occurred and the institution has satisfied the requirements of § 1005.6(a), the institution may withhold a maximum of $50 from the amount credited.” (Emphasis added).
As such, if within 10 business days a credit union is not able to complete its investigation, it may take “up to 45 days from receipt of a notice of error to investigate”, so long as the credit union provisionally credits the member’s account “in the amount of the alleged error (including interest where applicable) within 10 business days of receiving the error notice.” Please note, section 1005.11(c)(3)(i) permits a credit union 20 business days to provide provisional credit for EFTs made within 30 days after the first deposit to an account.
Another question we sometimes receive in the compliance inbox is when are credit unions not required to provide provisional credit even though the credit union is unable to complete its investigation within 10 business days? Under section 1005.11(c)(2)(i), a credit union does not need to provide provisional credit to the member’s account if:
- The credit union requires written confirmation of an oral notice of error and does not receive one within 10 business days of the verbal notice; or
- The alleged error involves an account that is subject to Regulation T.
Credit unions should note that though they may not need to provisionally credit a member, they are still required to comply with the other requirements of section 1005.11.
It’s also helpful to note that when providing provisional credit, Regulation E requires credit unions to inform the member “within two business days” after providing provisional credit “of the amount and date of the provisional crediting.” It also requires credit unions to give members “full use of the funds” during the investigation.
So, if the credit union ultimately determines that an error did occur, then the provisional credit will likely be made permanent. Section 1005.11(c)(2)(iii)-(iv) requires credit unions to do the following:
“(iii) Corrects the error, if any, within one business day after determining that an error occurred; and
(iv) Reports the results to the consumer within three business days after completing its investigation (including, if applicable, notice that a provisional credit has been made final).” (Emphasis added).
If, on the other hand, the credit union determines that no error occurred (or a different error occurred), section 1005.11(d) requires the following:
“(d) Procedures if financial institution determines no error or different error occurred. In addition to following the procedures specified in paragraph (c) of this section, the financial institution shall follow the procedures set forth in this paragraph (d) if it determines that no error occurred or that an error occurred in a manner or amount different from that described by the consumer:
(1) Written explanation. The institution’s report of the results of its investigation shall include a written explanation of the institution’s findings and shall note the consumer’s right to request the documents that the institution relied on in making its determination. Upon request, the institution shall promptly provide copies of the documents.
(2) Debiting provisional credit. Upon debiting a provisionally credited amount, the financial institution shall:
(i) Notify the consumer of the date and amount of the debiting;
(ii) Notify the consumer that the institution will honor checks, drafts, or similar instruments payable to third parties and preauthorized transfers from the consumer’s account (without charge to the consumer as a result of an overdraft) for five business days after the notification. The institution shall honor items as specified in the notice, but need honor only items that it would have paid if the provisionally credited funds had not been debited.” (Emphasis added).
The commentary to section 1005.11(d)(2) also notes an “alternative procedure for debiting of credited funds”, stating:
“The financial institution may comply with the requirements of this section by notifying the consumer that the consumer’s account will be debited five business days from the transmittal of the notification, specifying the calendar date on which the debiting will occur.”