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Understanding Regulation E compliance: What financial institutions need to know

Kate Randazzo
March 7, 2025
Read Time: 0 min
business woman typing on laptop

Learn the ins and outs of Regulation E   

Even if you’re not in the banking industry, you've likely heard the term Regulation E compliance (Reg E). Reg E was created to protect consumers using electronic payment systems. While it may sound complex, understanding its requirements is essential for avoiding costly penalties and protecting your financial institution’s members and clients. This blog will break down what Reg E compliance entails, the basics of the Electronic Fund Transfer Act (EFTA), and the potential consequences for financial institutions that fail to comply.

Key topics covered in this post: 

What is Regulation E?

Regulation E is a federal rule that governs electronic fund transfers (EFTs) and is enforced by the Consumer Financial Protection Bureau (CFPB). It is part of the Electronic Fund Transfer Act (EFTA), a law passed in 1978 to safeguard consumers using electronic payment systems. Reg E applies to transactions such as:

  • Debit card purchases
  • Direct deposits and withdrawals
  • Online bill payments
  • Automated teller machine (ATM) transfers

It doesn’t apply to business accounts, including business checking and business savings accounts. And it doesn’t cover credit cards either. Credit cards, however, are protected under the Fair Credit Billing Act, which outlines your rights and responsibilities for disputing unauthorized charges.

The goal of Reg E compliance is to protect consumers from unauthorized transactions and provide clear guidelines on how disputes should be handled by financial institutions (FIs).

Key requirements for Reg E compliance

To comply with Reg E, financial institutions must follow these key requirements:

Consumer disclosures

FIs must provide clear information to consumers about their rights regarding electronic transactions. This includes:

  • Any fees associated with EFT services
  • How to report unauthorized transactions
  • Liability limits for fraudulent activity

Error resolution procedures

If a consumer identifies an error in an electronic transaction, Reg E requires that FIs:

  • Investigate the claim within 10 business days
  • Resolve disputes promptly, typically within 45 days
  • Provide provisional credit if an investigation takes longer than 10 days

According to the CFPB’s FAQs on Electronic Fund Transfers, financial institutions must also inform consumers of the results of their investigations and provide written explanations if a claim is denied​.

Liability limits for consumers

Reg E limits consumer liability for unauthorized transactions based on when they report the issue:

  • If reported within two business days, the consumer is only liable for up to $50
  • If reported after two business days but within 60 days, liability increases to $500
  • If reported after 60 days, the consumer may be responsible for the full amount

The CFPB clarifies that even if a consumer delays reporting, financial institutions must still conduct an investigation to determine whether the transaction was unauthorized​.

Potential consequences for non-compliance

Failing to comply with Reg E can result in severe repercussions for financial institutions. Here’s what could happen if FIs do not follow proper procedures:

Financial penalties

Regulatory bodies, such as the CFPB, can impose substantial fines on institutions that do not adhere to Reg E. These penalties can add up quickly, especially if multiple violations occur.

Legal risks

Consumers who feel their rights under Reg E were violated may file lawsuits against the FI. Legal disputes can be expensive, time-consuming, and damaging to a financial institution’s reputation.

Reputational damage

Failing to follow Reg E compliance requirements can lead to negative publicity. Consumers expect financial institutions to safeguard their money and handle disputes fairly. Poor compliance practices can erode trust and result in lost business.

Increased regulatory scrutiny

Financial institutions that repeatedly fail to comply with Reg E may face more frequent audits and stricter oversight. This increased scrutiny can divert resources away from core operations and impact overall efficiency.

Operational inefficiencies

Non-compliance with Reg E can lead to a higher volume of disputes and regulatory reviews, placing a strain on customer service teams. Inefficient dispute resolution processes can increase operational costs and reduce customer satisfaction.

Staying compliant with Regulation E

To avoid fines and reputational harm, financial institutions should take proactive steps to ensure Reg E compliance:

  • Train staff regularly on Reg E requirements and dispute resolution processes
  • Review and update consumer disclosures to ensure transparency
  • Implement strong fraud detection practices and monitoring systems
  • Maintain clear documentation of dispute investigations and resolutions
  • Conduct internal audits to identify and address compliance gaps

Finally, consider centralizing your institution's compliance efforts. Fragmented, siloed compliance systems lead to inefficiencies and increase the risk of missed suspicious activities. Shared AML case management can improve coordination and information sharing. Modernizing AML/CFT programs with shared case management also aligns with FinCEN’s emphasis on innovation and streamlining processes.

By staying compliant with Regulation E, financial institutions can protect consumers, reduce legal risks, and maintain trust in electronic transactions.

Looking to strengthen your AML/CFT program? Learn how Abrigo’s AI-powered solutions can help you streamline compliance and mitigate risk.

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About the Author

Kate Randazzo

Content Marketing Manager
Kate Randazzo is a Content Marketing Manager at Abrigo, where she works with industry thought leaders to create digital content that helps financial institutions better serve their customers. Before joining Abrigo, Kate managed social media and produced articles for Campbell University’s quarterly magazine and other university content initiatives. She earned

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About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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