The Federal Reserve Board (FRB) has published a final rule addressing Regulation E’s coverage of electronic check conversion services and other matters. Most notably, the final rule provides that:

    • Payees that use information from a check to initiate a one-time electronic funds transfer (EFT) from a consumer’s account are subject to the regulation for the limited purpose of obtaining a consumer’s authorization for the transfer. This authorization may be obtained after the payee provides a specified notice to the consumer and the consumer goes forward with the transaction;
    • Payees that choose to collect a service fee via an EFT because of insufficient or uncollected funds in a consumer’s account in connection with the underlying transaction must obtain the consumer’s authorization to collect the fee. Again, the authorization may be obtained after the payee provides a specified notice to the consumer and the consumer goes forward with the transaction;
    • A financial institution does not satisfy its error resolution responsibilities under the so-called “four walls” rule solely by reviewing the payment instructions associated with an EFT, but rather, must review any additional information within the institution’s own records pertaining to the particular account in question that would assist in resolving the alleged error. The “four walls” rule generally provides that a financial institution may satisfy its obligation to investigate an alleged error by reviewing its own records if the alleged error concerns a transfer to or from a third party and there is no agreement between the institution and the third party for the type of EFT involved;and
    • Automated teller machine (ATM) operators may provide notice on ATM signage that a surcharge may be imposed (in place of a disclosure that a surcharge will be imposed) if there are circumstances in which an ATM fee may not be charged.

    The final rule also withdraws existing Regulation E commentary stating that a tape recording of a telephone conversation with a consumer who agrees to preauthorized debits does not constitute written authorization as required by the regulation.

    The final rule is effective 30 days from the date of its publication in the Federal Register, which is expected soon. The mandatory compliance date is January 1, 2007.

    The FRB also issued an interim final rule providing that Regulation E applies to payroll card accounts established directly or indirectly by an employer on behalf of a consumer to which EFTs of the consumer’s salary, wages or other employee compensation are made on a recurring basis. Interested parties may submit comments on the new rule 60 days after the date of publication in the Federal Register. The interim final rule is effective July 1, 2007.

    Mike Tomkies and Chuck Gall