Compliance Blog

Each year, NCUA identifies some areas related to consumer compliance to take a closer look at during exams. Regulation E has been one of these areas since 2018. For the first two years, Regulation E reviews focused on overdraft policies and procedures. When the NCUA issued their 2020 supervisory priorities earlier this month, a new Regulation E focus was included: policies and procedures; initial disclosures and error resolution. Today’s post will focus on a couple of key components of the Regulation E initial disclosures. 

Section 1005.7(b) provides the required initial disclosures. These disclosures include, but are not limited to:

• Summary of the member’s liability for unauthorized electronic fund transfers (EFTs) and contact information to report them;
• Notice describing the credit union’s error resolution responsibilities;
• Types of EFTs the member may make and any limitations on the frequency or dollar amount;
• Fees imposed for EFTs;
• Summary of the member’s right to receipts, periodic statements and preauthorized transfer notices; and
• Summary of the member’s right to and procedures for stopping payment of a preauthorized EFT.

While most of these disclosures are rather straightforward, the disclosures regarding the types of EFTs a member may make and fees can cause some confusion for credit unions. The commentary and appendices provide some additional clarification on these disclosures.

When it comes to the types of EFTs members may make, a general description of the transfers must be accompanied by all limitations regardless of the reason for the limitation. One common limitation described in the commentary comes from Regulation D. Section 204.2(d) requires credit unions to limit certain transfer from an account in order to classify that account as a “savings deposit” for reserve purposes. If a credit union elects to classify certain accounts as a savings deposit, then Regulation E requires the credit union to describe the Regulation D limitations in the initial disclosures if it declines those transactions that exceed the limits. Fraud protection limits and information about checks that can be converted to EFTs must also be disclosed. Appendix A, form A-2(d), provides some helpful examples of each of these disclosures that credit unions may use to meet these disclosure requirements:

• Types of transfers: “Make deposits to your [savings] account”; “Transfer funds between your checking and savings accounts whenever you request”; and “Pay for purchases at places that have agreed to accept the [card].”
• Frequency limitations: “You may make only [3] cash withdrawals from our terminals each [week]” and “You can use our point-of-sale transfer service for [6] transactions each [month].”
• Amount limitations: “You may withdraw up to [$500] from our terminals each [time] you use the [card]” and “You may buy up to [$2,000] worth of goods or services each [time] you use the [card] in our point-of-sale transfer service.”
• Check conversion: “You may authorize a merchant or other payee to make a one-time electronic payment from your checking account using information from your check to: [p]ay for purchases [or p]ay bills.”

For the fee disclosure, only those related to EFTs must be disclosed.  The commentary explains the following fees do not have to be disclosed under Regulation E: minimum balance fees, stop payment fees, account overdraft fees and interchange fees that are not passed on to the member. While these fees may not have to be disclosed under Regulation E, they may have to be disclosed under Truth in Savings. Appendix A, form A-2(e), provides some helpful examples of the fee disclosures:

• Transfer fees: “We will charge you [$2] for each transfer you make using our [ATMs]” and “We will only charge you for using our [ATMs] if the [average] balance in your [checking account] falls below [$500]. If it does, we will charge you [$4] each [transfer].”
• Fixed transfer fees: “We will charge you [$5] each [month] for our [telephone bill-payment service].”

Credit unions anticipating exams this year may find it useful to review their initial disclosures to ensure all required information is disclosed properly. For other resources on Regulation E, NAFCU members can check out this month’s Compliance Monitor article.