I recently attended a training on deposit regulations that covered Regulation E (Electronic Fund Transfer Act) and Regulation CC (Expedited Funds Availability Act), and the presenter made two statements that conflict with my bank’s understanding of the regulatory requirements.
Q First, the presenter stated that under Regulation E, reimbursement of interest and fees is not required until the bank makes the consumer’s credit final. My bank’s understanding is that §1005.11(c)(2)(i) requires interest and fees to be provisionally credited along with the amount of the error if the bank cannot resolve the consumer’s claim within 10 business days.
Q Second, the presenter stated that under Regulation CC, closed accounts always affect the determination of whether an account is a “new account” subject to a new account exception hold, regardless of how long ago they were closed. However, my bank relies on § 229.13(a)(2), which states that an account is a “new account” if the customer has not had an account at the bank for “at least 30 calendar days.”
These concerns are justified and understandable.
A To the first question, §1005.11(c)(2)(i) applies here — but the bank’s interpretation is only partially correct. If a bank cannot resolve a consumer’s claim within 10 business days, Regulation E requires that interest be included in the provisionally credited amount; fees must only be refunded after the bank determines that an error occurred and corrects the error.
Under Regulation E, when a financial institution cannot complete its investigation within 10 business days, it may extend the investigation period to 45 calendar days (or longer in certain cases). However, § 1005.11(c)(2)(i) provides that the financial institution may only do so where it “[p]rovisionally 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.”
So, contrary to the idea that reimbursement of interest is only required after the final credit, Regulation E mandates that interest (where applicable) be included in the provisional credit itself.
However, Regulation E treats interest and fees differently. Fees resulting from the error, such as overdraft charges, are only required to be refunded after the institution determines that an error occurred and corrects the error, not at the provisional credit stage.
The Commentary to §1005.11(c)-6 states, in relevant part, that “[i]f the financial institution determines an error occurred… it must correct the error… including, where applicable, the crediting of interest and the refunding of any fees imposed by the institution. In a combined credit/EFT transaction, for example, the institution must refund any finance charges incurred as a result of the error. The institution need not refund fees that would have been imposed whether or not the error occurred.”
The key phrase here is “if the institution determines that an error occurred.” Note, though, that although fees do not have to be included in the provisionally credited amount, many banks do so to minimize consumer harm.
A Second, regarding the Regulation CC new account exception hold, you are correct; prior account history is only relevant to the determination of a “new account” if the customer had another account open within the 30 days immediately preceding the new account’s opening. The specific language in Regulation CC, §229.13(a)(2), states:
“An account is not considered a new account if each customer on the account has had, within 30 calendar days before the account is established, another account at the depositary bank for at least 30 calendar days.”
This means that, if a customer closed their previous account more than 30 days before opening a new account, that prior account does not disqualify the new account from being treated as a “new account.”
For example:
- A customer had a checking account open for 2 years, and they closed it 45 days ago.
- They now open a new account.
- Because the prior account was not open within the 30 days before the new account was established (and was open for at least 30 days), the new account qualifies for the new account exception hold.
Thus, the information provided in the presentation that a prior closed account relationship would always disqualify a subsequent account from “new account” status, regardless of when the account had been closed, is not accurate.
For more information, contact ABA’s Leslie Callaway.
Please note that this section is not a substitute for professional legal advice.
