Know Your Error Resolution Rules

Arnold Ramirez
December 12, 2011 | COMMENTS

Access devices have changed slowly over the years since the ATM card achieved critical mass, and now we are seeing the next change: decoupled access devices and electronic wallet programs, or “e-wallets.” In either case, credit union regulatory specialists may be wondering, “Who is responsible for error resolution?”

Error resolution rules clarify how credit union members and bank customers resolve disputed or unauthorized transactions on their accounts, and how liability is allocated.

First, let’s define both technologies. E-wallets are directly linked to a checking account at a financial institution, or are loaded like a prepaid debit card, whereas decoupled debit cards are issued to members by an entity other than the credit union that holds the member’s checking account. When the member performs a transaction, the merchant and the card issuer settle the transaction over one of the payment networks, such as Visa or MasterCard. Then the issuer deducts funds from the member’s checking account at the credit union using the Automated Clearing House network.

Now for the answer: The financial institution holding the consumer account and the financial institution issuing an access device linked to the account are generally the same, with the responsibility for error resolution falling solely on that financial institution under provisions of Regulation E (12 CFR Part 205). However, in the case of a decoupled debit card or e-wallet, the responsibility for error resolution is split between the financial institution holding the account and the one issuing the access device, depending on the type of unauthorized transaction being disputed.

Section 205.2 (i) says, “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.” In most cases, credit unions will be able to direct a member to the financial institution that issued the access device to settle a dispute. But
before a credit union turns anyone away, it must still complete the error resolution process provided by §205.11 to determine if an error occurred. If an error occurred, the credit union must notify the member of the findings within three business days of completing the investigation and correct the error within one business day of determining an error occurred.

Such errors are likely due to a decoupled debit card being linked to the member’s account without his or her authorization, or an e-wallet prepaid function being loaded without the member’s approval. If a credit union determines no error took place under its responsibility, it will need to provide a written explanation to the member, including the notices required if a provisional credit will be debited. The credit union may also want to alert members that they might have a right to dispute errors with the financial institution issuing the access device.

As decoupled debit cards and e-wallets evolve, it’s even more important for credit unions to become familiar with error resolution requirements and how they apply to various types of access devices.

Arnold Ramirez is a research and information consultant with the California and Nevada Credit Union Leagues. This article was reprinted with permission from Credit Union Digest, the publication of the California and Nevada Credit Union Leagues (www.ccul.org).