FEDERAL RESERVE SYSTEM 

12 CFR Part 205 

[Regulation E; Docket Nos. R-1210 and R-1234] 

Electronic Fund Transfers 

AGENCY: Board of Governors of the Federal Reserve System. 

ACTION: Final rule; official staff interpretation. 

______________________________________________________________________ 

SUMMARY: The Board is amending Regulation E, which implements the Electronic Fund 

Transfer Act, and the official staff commentary to the regulation. The commentary interprets the 

requirements of Regulation E to facilitate compliance primarily by financial institutions that 

offer electronic fund transfer services to consumers. 

 The revisions address the regulation’s coverage of electronic check conversion services. 

Under the final rule, merchants and other payees that initiate electronic check conversion 

transactions must obtain a consumer’s authorization for each transaction. In addition, 

commentary revisions address preauthorized transfers, error resolution, and other matters. 

DATES: The final rule is effective [Insert date 30 days from the date of publication in the 

Federal Register.] The mandatory compliance date is January 1, 2007. 

FOR FURTHER INFORMATION CONTACT: Ky Tran-Trong, Senior Attorney, or Daniel 

G. Lonergan, David A. Stein or John C. Wood, Counsels, Division of Consumer and Community 

Affairs, Board of Governors of the Federal Reserve System, Washington, D.C. 20551, at (202) 

452-2412 or (202) 452-3667. For users of Telecommunications Device for the Deaf (TDD) only, 

contact (202) 263-4869. 

SUPPLEMENTARY INFORMATION: 

I. Statutory Background 

 

 The Electronic Fund Transfer Act (EFTA or Act) (15 U.S.C. 1693 et seq.), enacted in 

1978, provides a basic framework establishing the rights, liabilities, and responsibilities of 

participants in electronic fund transfer (EFT) systems. The EFTA is implemented by the Board’s 

Regulation E (12 CFR part 205). Examples of types of transfers covered by the Act and 

regulation include transfers initiated through an automated teller machine (ATM), point-of-sale 

(POS) terminal, automated clearinghouse (ACH), telephone bill-payment plan, or remote 

banking service. The Act and regulation require disclosure of terms and conditions of an EFT 

service; documentation of EFTs by means of terminal receipts and periodic account activity 

statements; limitations on consumer liability for unauthorized transfers; procedures for error 
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resolution; and certain rights related to preauthorized EFTs. Further, the Act and regulation also 

prescribe restrictions on the unsolicited issuance of ATM cards and other access devices. 

 

 The official staff commentary (12 CFR part 205 (Supp. I)) is designed to facilitate 

compliance and provide protection from liability under Sections 915 and 916 of the EFTA for 

financial institutions and persons subject to the Act. 15 U.S.C. 1693m(d)(1). The commentary is 

updated periodically to address significant questions that arise. 

 

II. Background and Overview of Comments Received 

 On September 17, 2004, the Board published a notice of proposed rulemaking in the 

Federal Register (69 FR 55,996) (September 2004 proposal) to provide guidance regarding the 

rights, liabilities, and responsibilities of parties engaged in electronic check conversion (ECK) 

transactions and to provide rules governing the coverage under Regulation E of payroll card 

accounts. In addition, proposed commentary revisions provided guidance on preauthorized 

electronic transfers from a consumer’s account, error resolution procedures, ATM disclosures, 

and other matters. 

 The Board received nearly 120 comment letters on the September 2004 proposal. 

Comments were received from a variety of industry commenters, including banks, thrifts, credit 

unions, payment card companies, payment processing companies, and industry trade 

associations. Comments were also received from consumer groups, the Department of the 

Treasury, the Federal Trade Commission and individual consumers. The following is a summary 

of significant proposed revisions to the regulation and the staff commentary, and the comments 

received. 

Electronic Check Conversion

The EFTA expressly provides that transactions originated by check, draft, or similar 

paper instrument are not governed by the Act. In an ECK transaction, a consumer provides a 

check to a payee and information from the check is used to initiate a one-time EFT from the 

consumer’s account. Specifically, the payee electronically scans and captures the MICRencoding on the check for the routing, account, and serial numbers, and enters the amount to be 

debited from the consumer’s asset account. 

Under the staff commentary, electronic check conversion transactions are covered by the 

EFTA and Regulation E if the consumer authorizes the transaction as an EFT. Under existing 

commentary provisions, a consumer authorizes an EFT if the consumer receives notice that the 

transaction will be processed as an EFT and the consumer completes the transaction. See

comment 3(b)-3. This standard applies whether the check conversion occurs at a point-of-sale 

(where a person goes to a merchant’s physical location to obtain goods or services) or in an 

accounts receivable conversion (ARC) transaction where the consumer mails a fully completed 

and signed check to the payee that is converted to an EFT. Although merchants and other payees 

are in the best position to provide notice to a consumer for the purpose of obtaining the 

consumer’s authorization for an ECK transaction, they are not currently covered by the 

commentary provision in Regulation E addressing ECK transactions. 
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Over the past few years, several issues have arisen relating to ECK transactions in 

general, and ARC transactions in particular. Concerns have been raised about the uniformity and 

adequacy of some of the notices provided to consumers about ECK transactions. Some in the 

industry would like the flexibility to obtain a consumer’s authorization to process a transaction 

either as an EFT or as a check. Board staff also has received inquiries from financial institutions 

and other industry participants concerning their obligations under Regulation E in connection 

with ECK services. 

The Board proposed to revise the regulation to require merchants and other payees that 

use information from a check to initiate a one-time EFT from a consumer’s account to provide 

notice to the consumer and obtain the consumer’s authorization for each EFT. The Board 

specifically solicited comment on whether payees should be required to obtain a consumer’s 

written, signed authorization when the transaction occurs at POS. To help consumers understand 

the nature of an ECK transaction, the Board also proposed to require payees in ECK transactions 

to disclose to consumers that when a check is converted, funds may be withdrawn from their 

accounts quickly, and that the check will not be returned by the consumer’s financial institution. 

 

Industry commenters supported many of the proposed revisions addressing ECK 

transactions, including coverage under Regulation E of merchants and other payees for the 

limited purpose of providing notice to obtain consumer authorization for ECK transactions. 

Some industry commenters, however, raised concerns about requiring the authorization to be 

written and signed for POS transactions. They also raised concerns about providing consumers 

with disclosures explaining that funds may be withdrawn from the account quickly and that 

checks will not be returned to the consumer. Commenters asserted, for example, that a written, 

signed authorization requirement could stifle industry innovation, and that the additional 

information about ECK transactions would result in overly lengthy disclosures. 

 

Consumer groups also supported many of the proposed revisions addressing ECK 

transactions, including merchant coverage and the additional disclosure requirements. Consumer 

groups stated, however, that the Board should require a consumer’s written, signed authorization 

for other debits that may occur in connection with the underlying ECK transaction, such as for 

debits to collect service fees when consumers have insufficient funds in their account to cover 

the underlying transaction, since consumers are unlikely to expect the additional debits to their 

accounts. 

Error Resolution

 Section 205.11(c)(4) 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. This rule is commonly referred to as the “four walls” rule. The Board 

proposed to revise the staff commentary to clarify that an institution would not satisfy its error 

resolution obligations solely by reviewing the payment instructions if, for example, there is 

additional information within the institution’s own records that would assist in resolving the 

alleged error. 
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Many industry commenters opposed the Board’s proposed commentary revisions, 

expressing concern about the potential scope of information that might need to be reviewed 

under the proposed revisions to the four walls standard. Consumer groups favored the proposed 

comment, and urged the Board to revise the comment to state that an institution’s review should 

consider records that could be helpful to resolving the consumer’s claim, not just those records 

that were dispositive. 

Preauthorized Transfers

 Section 205.10(b) requires that recurring electronic debits from a consumer’s account be 

authorized “only by a writing signed or similarly authenticated by the consumer.” Existing 

commentary provides that a tape recording of a telephone conversation with a consumer who 

agrees to preauthorized debits does not constitute written authorization under § 205.10(b). The 

Board proposed to withdraw the existing commentary to address industry concerns that the 

guidance may conflict with the Electronic Signatures in Global and National Commerce Act 

(E-Sign Act), 15 U.S.C. 7001 et seq. Many industry commenters, in particular those 

representing retailers, supported the proposed withdrawal, with some of these commenters 

asking the Board to explicitly state that a recorded conversation complies with the E-Sign Act. 

Other commenters, however, opposed the withdrawal of the guidance due to concern about 

potential abuses and the possible increase in unauthorized transfers that could result. Consumer 

groups did not comment on the proposed withdrawal. 

ATM Disclosures

 Section 205.16 provides that an ATM operator that imposes a fee (“surcharge”) on a 

consumer for initiating an EFT or balance inquiry must post a sign at ATMs that a fee will be 

imposed for providing EFT services or for balance inquiries. The September 2004 proposal 

included proposed commentary revisions to provide ATM operators flexibility when disclosing 

these surcharges. In particular, the proposal clarified that ATM operators could disclose on 

ATM signage that a surcharge “may” be imposed if there are circumstances where the operator 

would not impose such a fee for use of its ATM. (Before a surcharge may be imposed by an 

ATM operator, the operator must provide a separate on-screen notice or a receipt informing the 

consumer that a fee will be charged and the amount of the fee, and the consumer must elect to 

continue the transaction.) In August 2005, the Board withdrew the proposed commentary 

revisions and issued a new proposal to incorporate this clarification into both the regulation and 

the commentary. See 70 FR 49,891 (Aug. 25, 2005) (August 2005 proposal). The Board 

received approximately 25 comments on the August 2005 proposal from a variety of industry 

commenters, including banks, credit unions and trade associations. Industry commenters 

strongly supported the revised proposal stating that it would provide institutions with flexibility 

to provide more accurate disclosures and reduce consumer confusion. Consumer groups and one 

consumer rights advocate, however, asserted that the revised proposal would not ensure that 

consumers who are charged a fee will receive adequate notice on ATM signage. 

Payroll cards
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The September 2004 proposal also included rules governing the coverage under 

Regulation E of payroll card accounts that are established either directly or indirectly by an 

employer on behalf of a consumer for the purpose of providing salary, wages, or other employee 

compensation on a recurring basis. An interim final rule is being published separately in this 

Federal Register to address payroll card accounts. 

III. Overview of the Final Rule 

 The Board is adopting final revisions to Regulation E and the staff commentary largely as 

proposed. However, several clarifications and modifications to the proposal have been made to 

respond to commenters’ concerns. The following is a summary of significant revisions to the 

regulation and the staff commentary. All of the revisions are discussed in detail below in the 

section-by-section analysis. The rule is effective [Insert date 30 days from the date of 

publication in the Federal Register.] The mandatory compliance date for the final rule is 

January 1, 2007.

Electronic Check Conversion

Merchant coverage The final rule provides that merchants and other payees that use 

information from a check to initiate a one-time EFT from a consumer’s account are subject to the 

regulation solely for the limited purpose of obtaining a consumer’s authorization for the one-time 

transfer. Generally, authorization is obtained when the payee provides a notice to the consumer 

that a check received as payment will be converted to an EFT, and the consumer goes forward 

with the transaction. At POS, the notice must be posted in a prominent and conspicuous 

location, and a copy of the notice must be provided to the consumer at the time of the 

transaction, such as on a receipt. For ARC transactions, the notice will typically be provided on 

a billing statement or invoice. Model clauses are provided to try to minimize the risk that 

merchants and other payees will be subject to private actions. 

Alternative authorization As proposed, the final rule recognizes that payees may obtain a 

consumer’s authorization to use information from the consumer’s check to initiate an EFT, or, 

alternatively, to process the transaction as a check. 

Additional disclosures about ECK transactions To help consumers understand the nature 

of ECK transactions, the final rule provides that persons initiating an ECK transaction, whether 

at POS or in an ARC transaction, must disclose to the consumer that when a check provided as 

payment is used to initiate an EFT, funds may be withdrawn from the consumer’s account as 

soon as the same day payment is made (for POS transactions) or received (for ARC 

transactions). Payees must also disclose, as applicable, that the consumer’s check will not be 

returned by the consumer’s financial institution. Under the final rule, for POS transactions, 

payees may provide these additional disclosures on a sign. The requirement to provide these 

disclosures sunsets three years from the mandatory compliance date of this final rule. 

Collection of Service Fees via EFT 
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The final rule, as proposed, provides that payees that choose to collect a service fee via an 

EFT due to 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. Authorization 

is obtained when a payee provides notice to the consumer stating that the fee will be collected 

via an EFT and the consumer goes forward with the transaction. Payees also are required to 

disclose the amount of the fee on the notice. 

Error Resolution

 The final rule provides that a financial institution does not satisfy its error resolution 

responsibilities under the “four walls” rule by solely reviewing the payment instructions; an 

institution 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. 

Preauthorized Transactions

 The final rule, as proposed, withdraws the existing commentary stating that a tape 

recording of a telephone conversation with a consumer who agrees to preauthorized debits does 

not constitute written authorization under the regulation. 

Disclosures at Automated Teller Machines

 The final rule, as proposed in the August 2005 proposal, revises the regulation to permit 

ATM operators to alternatively 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. 

Effective Date of Rule

 The effective date of the final rule is [Insert date 30 days from the date of publication 

in the Federal Register]. While institutions may, if they choose, begin complying with the new 

requirements on [Insert date 30 days from the date of publication in the Federal Register], 

compliance with this final rule is not mandatory until January 1, 2007. The additional time 

should give persons affected by this final rule adequate time to implement the new requirements, 

including developing the new required notices for ECK transactions. 

IV. Section-by-Section Analysis 

Section 205.3 Coverage

3(a) General

 Section 205.3(a) is revised to provide that § 205.3(b)(2), discussed below, applies to any 

person. 

3(b) Electronic Fund Transfer
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 The term “electronic fund transfer” is defined in § 205.3(b)(1) as “any transfer of funds 

that is initiated through an electronic terminal, telephone, computer, or magnetic tape for the 

purpose of ordering, instructing, or authorizing a financial institution to debit or credit an 

account.” The term includes POS transfers, ATM transfers, direct deposits or withdrawals of 

funds, telephone transfers and debit card transactions. The final rule includes language in the 

existing regulation that was inadvertently omitted in the September 2004 proposal. Comments 

3(b)-1 and 3(b)-2 are redesignated as comments 3(b)(1)-1 and 3(b)(1)-2, and conforming 

changes are made to comments 2(a)-2 and 3(c)(1)-2. 

Electronic Check Conversion

The EFTA excludes from the definition of “electronic fund transfer” any transaction 

“originated by check, draft, or similar paper instrument.” 15 U.S.C. 1693a; see also 

§ 205.3(c)(1). In ECK transactions, a consumer provides a check to a merchant or other payee to 

use as a source of information to initiate an EFT from the consumer’s account as payment for the 

purchase of goods or services, and not to initiate a payment by check. The payee electronically 

captures the routing, account, and serial numbers from the check and initiates a one-time EFT 

from the consumer’s account. The Board proposed to amend § 205.3(b)(2) of Regulation E and 

comment 3(b)(2)-1 to clarify that ECK transactions are covered by Regulation E and deemed not

to originate by check. Substantially similar guidance previously had been provided in the 

commentary to Regulation E. The few commenters addressing the issue agreed that the guidance 

regarding the status of ECK transactions under Regulation E is more appropriately placed in the 

regulation. Accordingly, the proposal has been adopted in § 205.3(b)(2)(i) with minor revisions. 

Section 205.3(b)(2)(i) further provides that a consumer must authorize an ECK transaction 

(discussed below). 

One industry commenter expressed concern that the proposed regulatory language was 

too broad in stating that a transaction is covered by Regulation E where a check is “used as a 

source of information to initiate a one-time EFT.” According to the commenter, some may 

interpret the language to include transactions arising from electronic check presentment or image 

exchange. The Board agrees; § 205.3(b)(2)(i) is intended to apply only when a payee uses a 

check as a source of information to initiate an EFT from the consumer’s account. New comment 

3(b)(1)-2. iv clarifies that transactions arising from the electronic collection, presentment, or 

return of checks through the check collection system, such as through the transmission of 

electronic check images, are not EFTs covered by Regulation E. 

 A few commenters asked the Board to clarify that the rules applying to ECK transactions 

were not intended to apply to Internet- or telephone-initiated transactions (where a consumer 

provides information—including the MICR-encoding—from his or her check to pay for a 

purchase via these payment channels). While Internet- and telephone-initiated transactions are 

covered by Regulation E because they result in electronic transfers from the consumer’s account, 

the rules for ECK transactions do not apply to these transactions. 

Coverage of merchants and other payees
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 Currently, a merchant or other payee that engages in ECK transactions is not covered by 

Regulation E because it does not meet the definition of “financial institution.” Under § 205.2(i) 

the term “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.” The 

Board has previously acknowledged that a merchant or other payee is in the best position to 

provide notice to a consumer for the purpose of obtaining authorization of an ECK transaction. 

See 66 FR 15,187, 15,189-90 (March 16, 2001). The Board has not covered merchants and other 

payees previously under the regulation because it expected that these persons would provide 

consumers with the necessary notice. In response to concerns about the uniformity and adequacy 

of some of the notices provided to consumers about ECK transactions, the Board proposed to 

exercise its authority under Sections 904(c) and 904(d)(1) of the EFTA to require merchants and 

other payees that initiate a one-time EFT using information from the consumer’s check, draft or 

similar paper instrument, to provide notice to obtain a consumer’s authorization for the transfer. 

The final rule is adopted, as proposed. Coverage of merchants and other payees under the final 

rule is solely for the limited purpose of obtaining consumer authorizations for ECK transactions. 

A financial institution will be subject to the requirement to obtain consumer authorization for the 

transaction to the extent that the institution initiates an EFT using information from a consumer’s 

check (e.g., if the institution converts checks provided as a payment for a mortgage loan). 

 Most commenters supported the proposed revision in § 205.3(b)(2)(ii) because they 

believe the merchant is in the best position to provide the notice. According to one commenter, 

the consumer’s financial institution has no control over a consumer receiving proper notice for 

purposes of authorization. A few commenters noted the importance of covering merchants and 

other payees for enforcement purposes. Several commenters also noted that requiring merchants 

and other payees to adhere to minimum authorization and related notice provisions will better 

inform consumers on a consistent basis about ECK transactions. Moreover, according to these 

commenters, the authorization requirement would not pose new or significant compliance 

burdens since payment system rules currently impose an authorization requirement on merchants 

and other payees. While supporting the proposed requirement, a few commenters requested 

clarification that merchants and other payees would be covered solely for the limited purpose of 

the authorization requirement for ECK transactions. 

 Some industry commenters opposed the proposed requirement. A few commenters 

believed merchants and other payees should not be required to assume the liability risks that may 

be associated with ECK transactions. A few commenters requested clarification of the FTC’s 

enforcement authority for merchants and other payees not regulated by federal banking agencies. 

A few commenters believed the requirement is an unnecessary duplication of payment system 

rules. 

The Board believes coverage of merchants and other payees in § 205.3(b)(2)(ii) for the 

limited purpose of providing a notice to obtain consumer authorization for ECK transactions is 

appropriate to ensure consumers understand that checks will be processed as EFTs. Without 

such a notice requirement, different information may be given by merchants to consumers, or 

information may be given solely by signage or other forms that may not be easily discernable by 

consumers. In addition, coverage of merchants and other payees for the limited purpose of 
9

obtaining consumer authorization for ECK transactions will provide a mechanism to ensure that 

consumers, in fact, receive appropriate notice of check conversion. For those entities subject to 

FTC enforcement, the FTC would have enforcement authority pursuant to Section 917(c) of the 

EFTA and under the Federal Trade Commission Act. Merchant coverage would also enable the 

Board to provide model clauses that will aid consumer understanding of ECK transactions. The 

model clauses provide a safe harbor from liability, thereby reducing liability risks. See 

§ 205.3(b)(2)(iv). 

 General authorization requirements

 As previously noted, revised § 205.3(b)(2)(i) provides that a consumer must authorize an 

ECK transaction. The current commentary states that a consumer authorizes an ECK transaction 

when the consumer receives notice that the transaction will be processed as an EFT and 

completes the transaction. See comment 3(b)-3. This guidance, originally proposed to be placed 

in comment 3(b)(2)-1, is moved to § 205.3(b)(2)(ii) of the final rule. The phrase “completes the 

transaction” is replaced with “goes forward with the transaction” to clarify that it is not necessary 

for a transaction to clear or settle in order for authorization to occur. In addition, under the final 

rule, for POS transactions, a notice must be posted in a prominent and conspicuous location, and 

a copy of the notice must be provided to the consumer at the time of the transaction, such as on a 

receipt. 

In the proposal, the Board stated that at POS, a written, signed authorization may be a 

more effective means than posted signage for informing consumers that their checks are being 

converted. The Board did not propose to require merchants or other payees to obtain the 

consumer’s signed authorization to convert checks received at POS, but specifically solicited 

comment on whether this should be required. The final rule does not require a merchant or other 

payee to obtain the consumer’s signed authorization for an ECK transaction. 

 Some commenters supported a signed authorization requirement for POS transactions. 

Several of these commenters stated the requirement would be beneficial for enforcement 

purposes to ensure that consumer authorization is, in fact, obtained by a payee. A few 

commenters stated that the Regulation E rule should be consistent with the rules established by 

NACHA – the Electronic Payments Association (NACHA rule(s))—which requires a 

consumer’s written, signed authorization. One such commenter stated making the rules 

consistent would address consumer confusion issues. Another commenter stated that the current 

difference between the NACHA rule and Regulation E creates the potential for monetary 

penalties imposed by NACHA if the payee follows the Regulation E notice rule and does not 

also comply with NACHA’s signed authorization rule. A few commenters noted that there 

would be no additional regulatory burden associated with a signed authorization requirement 

since it is already required by NACHA. Some commenters expressed the view that a signed 

authorization requirement calls a consumer’s attention to, and reinforces an awareness of, check 

conversion. 

 The majority of commenters opposed a signed authorization requirement for POS 

transactions under Regulation E. Specifically, some of these commenters stated that the 

NACHA rule is sufficient, and that a payments system rules-driven approach is preferable to 
10

regulation. Several commenters expressed concern that such a requirement would unnecessarily 

delay transactions at POS. According to one commenter, a signed authorization requirement 

could impede the general movement toward facilitating paperless payments. A few commenters 

stated the requirement may limit the industry’s flexibility to deal with changing market 

circumstances. Some commenters expressed concern that a signed authorization requirement 

may stifle the creation and development of payment system innovations. 

 The final rule sets forth the authorization requirements for ECK transactions under 

§ 205.3(b)(2)(ii). Generally, a consumer authorizes a one-time EFT (in providing a check to a 

merchant or other payee for the MICR encoding) when the consumer receives a notice that the 

transaction will be processed as an EFT and goes forward with the transaction. This guidance 

was originally in proposed comment 3(b)(2)-1. (Existing comment 3(b)-3 is deleted.) The 

phrase “completes the transaction” is replaced with “goes forward with the transaction” to clarify 

that it is not necessary for the transaction to clear or settle, for example, in order for authorization 

to occur. Section 205.3(b)(2)(ii) also addresses the possibility that a payee might elect to obtain 

a consumer’s authorization either to convert a check provided as payment to an EFT or to 

process the check as a check transaction. See also comment 3(b)(2)-2 (further discussed below). 

For ARC transactions, a payee (such as a utility company) obtains a consumer’s 

authorization when it provides notice of its intent to convert checks received as payment – for 

example, on a monthly billing statement or invoice – and the consumer provides or mails a check 

as payment. 

For transactions at POS, the final rule requires payees to post the notice in a clear and 

prominent location. The requirement for posted signage is necessary to alert consumers that a 

check provided as payment will be converted to an EFT before the consumer selects a payment 

method. The Board believes that providing this notice on a sign enables the consumer to 

authorize the ECK transaction after being given prior notice. The final rule also requires 

merchants and other payees at POS to provide consumers with a copy of the notice in a form the 

consumer can keep at the time of the transaction. For example, merchants and other payees 

could provide the notice on the receipt given to the consumer. The written receipt allows 

consumers to refer to the notice later, if necessary. 

The final rule does not require merchants or other payees at POS to obtain a consumer’s 

signed authorization for ECK transactions. The Board believes that a signed authorization 

requirement would provide minimal additional benefit given that consumers will be given notice 

that their checks will be converted at two different points during the ECK transaction, first 

through posted signage which consumers can read prior to providing a check as payment, and 

second on a receipt provided to the consumer, presumably after the check has been provided to 

the merchant. In addition, the periodic statement provided by the consumer’s bank will typically 

reflect ECK transactions in a different manner than check transactions. 

New comment 3(b)(2)-1 provides that a payee at POS does not violate the requirement to 

provide a copy of the check conversion notice to the consumer if the payee is unable to provide 

notice because of a bona fide unintentional error, so long as the payee maintains procedures 

reasonably adapted to avoid such occurrences. Thus, for example, a payee will not be deemed to 
11

have violated the regulation if it cannot provide a paper notice if its terminal printing mechanism 

jams, provided that the payee maintains procedures reasonably adapted to avoid such 

occurrences. 

Authorization language

 Proposed comment 3(b)(2)-2 provided that a payee must obtain the consumer’s 

authorization to use information from his or her check to initiate an EFT or, alternatively, to 

process a check. The comment is adopted, largely as proposed. Model notices are provided in 

Appendix A-6 to assist merchants and other payees in complying with the requirements. See 

§ 205.3(b)(2)(iv). Regulation E coverage of ECK transactions continues to be predicated on the 

consumer’s authorization to allow the merchant or other payee to use a check as a source of 

information to initiate an ECK transaction. 

 Due to processing or technical errors, a transaction authorized as an ECK transaction 

ultimately may not be processed as an EFT. Furthermore, in some cases, a payee may decide to 

process the original check or create a demand draft, or the payee may choose to create a 

substitute check in accordance with the Check Clearing for the 21st Century Act (Check 21).1

 

Currently, if a payee obtained a consumer’s authorization solely to initiate an EFT using 

information from the consumer’s check, the payee may have difficulty processing the same 

document as a check because such an action would arguably fall outside the consumer’s payment 

instructions. Thus, without the consumer’s authorization to alternatively process the transaction 

as a check, the payee may not be able to obtain payment. In other cases, a merchant or payee 

operating in multiple states may choose to pilot ECK in some locations while processing the 

payments as checks in others. To address these and similar concerns, and to provide flexibility, 

the Board proposed three authorization approaches for ECK transactions. 

 First, the Board proposed to allow a payee to obtain a consumer’s authorization to use 

information from his or her check to initiate an EFT or, alternatively, to process the transaction 

as a check. See proposed Model Clause A-6(a). The Board specifically solicited comment, 

however, on whether this alternative authorization approach may result in any consumer harm or 

create any other risks. In particular, comment was solicited on whether payees that obtain 

alternative authorization should be required to specify the circumstances under which a check 

that can be used to initiate an EFT will be processed as a check. Second, the Board proposed an 

optional authorization clause for use by payees that intend to convert all checks to ECK 

transactions. See proposed Model Clause A-6(b). Third, the Board proposed an optional 

authorization clause for use by payees that choose to disclose the specific circumstances when 

checks will not be converted to ECK transactions. See proposed Model Clause A-6(c). 

 Most industry commenters supported the alternative authorization approach as illustrated 

in proposed Model Clause A-6(a), stating that the approach provides needed flexibility. The 

majority of these commenters did not believe any consumer harm would result from the lack of 

specification of circumstances under which check conversion would or would not occur. One 

commenter did not believe consumers would be confused about their rights since many accountholding financial institutions list EFT and check transactions separately on periodic statements 

 

1

 Pub. L. 108-100, 117 Stat. 1177 (codified at 12 U.S.C. 5001-5018). 
12

given to consumers. A few commenters stated that consumers will have sufficient protections 

regardless of how the transactions are processed. 

Some industry commenters supported alternative authorization, but stated that the Board 

should also require payees to disclose the circumstances under which conversion will not occur. 

One such commenter believed the disclosure of the specific circumstances would eliminate any 

risk of consumer harm. 

 One federal enforcement agency observed generally that consumers may not understand 

the differences between checks and ECK transactions or the protections that apply to each, but 

did not otherwise express a view on the merits of permitting alternative authorization. This 

commenter thought that focus group testing of the model clauses would be useful to determine 

what information consumers understand. 

 A few commenters opposed the alternative authorization clause as unclear and potentially 

confusing to consumers. According to one industry commenter, confusion arising from an 

alternative authorization may cause consumers to instruct their financial institutions to state that 

ECK transactions were unauthorized. This commenter therefore believed the rule should require 

the authorization notice to specify the circumstances when conversion would not occur. 

According to another commenter, requiring payees to specify the circumstances when a check 

will be processed as a check is consistent with the purpose of the EFTA—for consumers to know 

their rights, responsibilities, and liabilities when they engage in EFT services. This commenter 

believed such disclosure also enhances consumer understanding by making it clear that there are 

different methods to collect checks and by providing greater certainty as to which method is 

most likely to apply to a particular transaction. The commenter stated that given the efficiency 

of check conversion, there should be limited circumstances to disclose. Accordingly, the 

commenter requested that the Board delete Model Clause A-6(a) as an option. 

 Some industry commenters supported the approach illustrated in proposed Model Clause 

A-6(b) for when a payee converted all checks, as long as the use of the clause is optional. One 

commenter believed the clause unworkable absent additional authorization to process the 

transaction as a check where the ECK will not clear for technical reasons. 

A few industry commenters also supported the specific authorization approach illustrated 

in Model Clause A-6(c) as long as it is optional. Other industry commenters did not believe the 

clause would provide a significant benefit to consumers. Several commenters believed a specific 

disclosure would be highly detailed and complex; if circumstances changed new disclosures 

would be required. One consumer group commenter was concerned that the burden of providing 

this notice could result in payees favoring substitute checks under Check 21 which they believed 

would provide fewer consumer protections. A few industry commenters thought the clause 

should not be adopted. 

A few industry commenters stated that all three model clauses should be retained for 

flexibility. Other commenters believed that all three clauses should be consolidated to address 

various payment options available to payees. Several commenters supported having one model 

notice to avoid confusing consumers. Many commenters expressed concern about the length of 
13

the notices. A few commenters requested additional guidance on the clear and conspicuous 

standard as it pertains to the notices. 

 In the final rule, Model Clause A-6(a) is retained as proposed, but proposed Model 

Clauses A-6(b) and (c) have been consolidated in a single Model Clause A-6(b) for simplicity 

and to facilitate compliance by payees. Model Clause A-6(a) may be used in all instances, 

including when a payee will process a check as an EFT in all circumstances, when the 

transaction is processed as a check for technical reasons, or because a payee simply chooses to 

process the transaction as a check. While the Board believes that most payees will likely choose 

to use Model Clause A-6(a) in all cases, the Board is aware that some payees may want to 

provide more specific information concerning their ECK practices for business reasons, such as 

for customer service and education, as well as to reduce possible consumer inquiries. Model 

Clause A-6(b) offers that flexibility. Thus, for example, payees may choose to use Model Clause 

A-6(b) to disclose the circumstances under which they will not process a check as an EFT, such 

as when it is impossible for technical or other processing reasons. 

 Model Clauses A-6(a) and (b) have also been revised to clarify their application to 

transactions where a consumer’s check is provided as payment. Some commenters expressed 

concern that without this revision, consumers might mistakenly believe the notice applied to 

preauthorized transfers—where a consumer provides a check and a signed authorization in 

advance to authorize future payments. See § 205.10. 

 Consistent with § 205.4(a)(1), notices provided to consumers regarding check conversion 

must be clear and readily understandable. For example, in ARC transactions, notices in small 

print and buried in the middle of unrelated information would likely not meet the standard. 

Payees may also consider using headings preceding the notice to call attention to the information 

presented. For POS transactions, signage informing consumers about check conversion should 

not be obscured by other information or signs that may also be located at POS. 

 Notice for each transfer

ECK transactions are one-time, and not preauthorized, transfers. Therefore, under the 

final rule, a notice must be provided and an authorization must be obtained from the consumer 

for each transfer. Section 205.3(b)(2)(ii) contains the general rule that the person initiating an 

ECK transaction must provide notice of check conversion to the consumer before each transfer. 

Some industry commenters stated that while it may be appropriate to require notice for 

each transfer for most ECK transactions, there are certain circumstances where one advance 

notice may suffice. Coupon books were the most frequently-cited examples. Lenders provide 

coupon books to consumers typically for mortgages, automobile loans, personal loans, and other 

recurring loan payments. According to some commenters, coupon books do not present the same 

notice opportunities as POS and ARC transactions because they are provided in advance and 

include coupons for several payments. Some credit card issuers suggested that it may be 

similarly appropriate to allow a consumer to contract with its card issuer for regular ECK 

payments rather than requiring a notice to be sent on or with each periodic statement sent to the 

consumer. A few commenters stated that recurring notice is appropriate only for POS 
14

transactions. One commenter stated that the consumer benefit of receiving a notice with each 

periodic statement is negligible compared to the ongoing cost to institutions. 

 Because a coupon book is designed so that a consumer must detach a coupon from the 

book and provide the coupon with each payment, the Board believes that it is unnecessary to 

require that a separate notice of check conversion be printed on each coupon. New comment 

3(b)(2)-3 provides that for coupon books, a notice placed on a conspicuous location of the 

coupon book that the consumer can retain is deemed to constitute the provision of notice on each 

coupon that accompanies a check provided as payment, for purposes of obtaining a consumer’s 

authorization to convert each check. The notice must be placed on a location of the coupon book 

that a consumer can retain – for example, on the first page, or inside the front cover. The Board 

believes this new comment will facilitate compliance with the requirements of the Act and 

regulation. 

Unlike coupon books which contain several payment coupons and are sent once near the 

beginning of the payment period, periodic statements for credit card accounts are typically sent 

on a monthly basis. Thus, the Board believes that credit card issuers have the capability of 

providing a notice of check conversion with each statement without an undue burden. In 

contrast, payees that send coupon books may not otherwise send monthly information; thus, 

requiring a separate monthly notice could be costly for these payees. Accordingly, comment 

3(b)(2)-3 in the final rule is limited to coupon books. 

If a coupon book is issued before the effective date of the final rule, and will cover a time 

period when notice otherwise must be provided under the final rule, payees may provide a onetime notice to obtain the consumer’s authorization to convert each check submitted with a 

coupon. For example, a payee may provide a separate mailing informing the consumer that by 

mailing a check with each payment coupon included in the book, the consumer authorizes the 

payee to convert each check provided as payment to an EFT. Without such relief, payees would 

have to re-issue coupon books at considerable expense in order to comply with the new rule. 

The final rule also clarifies that the notice regarding a payee’s intent to collect a service 

fee for insufficient or uncollected funds via an EFT and the notice providing additional 

information about the nature of ECK transactions (further discussed below) must also be 

provided for each transfer. However, the special exception regarding coupon books would also 

apply to notices regarding the electronic collection of service fees for insufficient or uncollected 

funds and the nature of ECK transactions. 

Imputed notice

 Proposed § 205.3(b)(2)(ii) provided that obtaining authorization from the consumer 

holding the account for which a check may be converted constitutes authorization for all checks 

provided for a single payment or invoice for that account. Proposed comment 3(b)(2)-4 stated 

that notice of check conversion to the person holding the account for which a check may be 

converted may be imputed to anyone who writes a check as payment for the particular invoice or 

bill. In the final rule, comment 3(b)(2)-4 is adopted with certain revisions for clarity. The 
15

guidance in proposed § 205.3(b)(2)(ii) is also moved to comment 3(b)(2)-4, with some revisions 

for clarity. 

All commenters who addressed the issue of imputed notice supported the proposal. One 

commenter noted that the rule is consistent with current industry practice. Another commenter 

stated that complying with a different rule would be unduly burdensome, if not impossible. A 

few commenters supported the proposal, but stated that alternative authorization would also be 

necessary to accommodate payees who may choose not to process multiple transactions all as 

EFTs. A few commenters also suggested that the authorization of the person holding the billing 

account should apply to all checks received prior to the next bill, not just to checks related to the 

particular invoice. 

In the final rule, comment 3(b)(2)-4 provides that notice to the consumer listed on the 

billing account constitutes sufficient notice to convert all checks provided in payment for the 

billing cycle or the invoice for which notice has been provided, whether the check(s) is received 

from the consumer or someone else for that account. The notice applies to all checks submitted 

as payment until the provision of notice on or with the next invoice or statement. Thus, if a 

merchant or other payee receives a check as payment from the consumer listed on the billing 

account after providing notice that the check will be processed as a one-time EFT, the 

authorization from that consumer constitutes authorization to convert all other checks provided 

for a single invoice or statement. 

Other required notices for ECK transactions may also be similarly imputed to any other 

consumer who may provide a check for the same billing cycle or invoice if such notices are 

provided to the consumer listed on the billing account. Thus, for example, a notice to the 

consumer on the billing account informing the consumer that a service fee for insufficient or 

uncollected funds will be debited via an EFT from the consumer’s account constitutes notice to 

obtain authorization for electronically collecting the fee to any other consumer who may provide 

a check for the same billing cycle or invoice. 

Additional ECK disclosures

 

Consistent with the EFTA’s purpose to enable consumers to understand their rights, 

liabilities, and responsibilities concerning EFT services, and given the unique characteristics of 

ECK transactions, the Board believes it is appropriate to provide consumers with additional 

information to help them understand the nature and potential consequences of an ECK 

transaction. Proposed § 205.3(b)(2)(iii) thus required a person that initiates an ECK transaction 

to provide a notice to the consumer that when a check is used to initiate an electronic fund 

transfer, funds may be debited from the consumer’s account quickly, and, as applicable, that the 

consumer’s check will not be returned by the financial institution holding the consumer’s 

account. Under the proposal, this information would be provided at the same time a notice is 

provided to obtain authorization for the underlying ECK transaction. Section 205.3(b)(2)(iii) is 

adopted as proposed, with some revisions to address commenter concerns. Proposed comment 

3(b)(2)-3 is re-designated as comment 3(b)(2)-5, and provides additional guidance to facilitate 

compliance. 
16

 Consumer group commenters stated that the additional information answered many of the 

common questions they receive from consumers about ECK transactions; thus, they believed that 

the additional information would help avoid consumer confusion and enhance consumer 

understanding of ECK transactions. A federal enforcement agency similarly noted that 

consumers may be more willing to engage in ECK transactions if they better understand them. 

In particular, the agency stated that the disclosure regarding the quick debiting of deposit 

accounts through ECK transactions could help consumers avoid the possibility of overdrafts for 

insufficient funds. 

Some industry commenters requested that the Board revise the requirement to state 

instead that the transaction will be reported on the consumer’s periodic account statement. One 

industry commenter stated that much of the consumer education responsibility for ECK 

transactions should be borne by the consumer’s financial institution. A few industry commenters 

were concerned about the length of the disclosures, particularly in combination with the 

authorization disclosure, and expressed concern that consumers may be discouraged from 

reading them. One industry commenter stated that the disclosures may not be feasible as an 

ongoing requirement. Another industry commenter expressed concern about the cost of 

reprogramming terminals. One industry commenter thought the Board should require financial 

institutions to include the disclosures in their account agreements or on each periodic statement 

that includes an ECK transaction. 

 A number of industry commenters opposed the proposed disclosure that states when a 

consumer’s check is used for an ECK transaction, the transaction may clear quickly. Many of 

these commenters stated that in the majority of cases an EFT and a check will clear in roughly 

the same period of time. Other commenters stated that under Check 21, checks may clear as fast 

or faster than EFTs, and expressed concern that the disclosure may mislead consumers. A few 

commenters stated it might be impossible to explain the meaning of “quickly” in different 

circumstances. 

Many industry commenters also opposed the proposed disclosure that the consumer’s 

check will not be returned by the consumer’s financial institution. The majority of these 

commenters stated the disclosure would be misleading, particularly to consumers whose checks 

currently are not returned by their financial institutions under the terms of their account 

agreements. A few commenters asserted the disclosure might become less significant to 

consumers in light of Check 21. One commenter believed that consumers may confuse the 

disclosure with similar statements from their financial institution about check handling under 

Regulation CC, as amended to implement Check 21. 

 As the payment system evolves, consumers’ checks are being used differently than in the 

past, and consumer rights with respect to EFT transfers are different than those for check 

transactions. Given the unique characteristics of ECK transactions, the Board believes it would 

be beneficial to provide additional information to consumers to help them better understand the 

nature of these transactions. The additional information highlights and may draw consumers’ 

attention to some of the key differences in the way payments are handled under the ECK process, 

and possibly reduce consumer confusion about ECK transactions. Moreover, the Board notes 

that some payees, particularly in the ARC environment, are currently providing this information 
17

to their customers to help reduce consumer inquiries and complaints. Requiring this notice could 

facilitate consumer understanding by ensuring that all consumers who engage in ECK 

transactions receive this information. Accordingly, the Board is exercising its authority under 

Sections 904(c) and 904(d)(1) of the EFTA and adopting the proposed notice in the final rule, 

with certain modifications to address commenters’ concerns. 

The Board recognizes that a check may be processed as fast or faster than an ECK 

transaction in some instances based on current industry practices and potential changes in check 

processing facilitated by the Check 21 Act. Nevertheless, the Board believes it is important to 

draw a consumer’s attention to the fact that an ECK transaction “may” clear quickly. The 

purpose of the notice is to emphasize to consumers the importance of having sufficient funds in 

their accounts at the time of the transaction, since many consumers may still believe that use of a 

check will result in a significant time lag between the time the consumer provides a check as 

payment and when funds are in fact debited from the consumer’s account. To address 

commenter concerns about potential comparisons with check processing, the notice in 

§ 205.3(b)(2)(iii) has been revised to state that funds may be debited from consumers’ accounts 

as soon as the same day payment is received. 

 Section 205.3(b)(2)(iii) also retains the requirement to notify consumers that they will not 

receive their checks back from their financial institution if their checks are converted. The 

disclosure addresses complaints received by the Board from consumers expressing confusion 

about not receiving their checks back in ECK transactions. In particular, some consumers may 

rely on the checks they receive back with their periodic statements for account reconciliation and 

recordkeeping purposes. Comment 3(b)(2)-5 clarifies that the statement that a check will not be 

returned by the consumer’s financial institution is not required at POS, if, as is typically 

currently the case, the merchant returns the check to a consumer. 

To provide flexibility and address the concerns about the length of ECK disclosures, 

payees at POS may provide the notice in § 205.3(b)(2)(iii) on posted signage, and need not also 

provide the notice on the receipt provided to the consumer at the time of the transaction. 

However, payees in ARC transactions must provide the notice with the general notice to obtain 

consumer authorization for the ECK transaction. The Board expects that ARC payees will likely 

provide the combined notice on a billing statement or invoice. As provided in § 205.3(b)(2)(iv), 

model clauses are provided in Appendix A-6 to help payees comply with the additional 

disclosure requirements. Model Clause A-6(c) sets forth two different formulations for the 

statement regarding when funds may be debited from a consumer’s account, depending on where 

the payment is made. If the payment is made at POS, the statement refers to the possibility that 

funds may be debited from the consumer’s account as soon as the same day the consumer makes

the payment. For ARC transactions, the statement refers to the date that the payee receives the 

payment. 

Consistent with § 205.4(a)(1), and as stated above in the context of the notice to obtain 

consumer authorization for an ECK transaction, the notice provided under § 205.3(b)(2)(iii) to 

consumers about the nature of ECK transactions must be clear and readily understandable. For 

example, notices in small print and buried in the middle of unrelated information would likely 
18

not meet the standard. Payees may also consider using headings preceding the notice to call 

attention to the information presented. If payees elect to provide the information under 

§ 205.3(b)(2)(iii) separately on a sign, the notice should not be obscured by other information or 

signs that may also be located at POS. 

As stated above, with ECK transactions, consumers’ checks are being used differently 

than in the past, and consumers may not be aware that the conversion of their checks to EFTs 

may impact the collection time for the payment, or that they will not receive their checks (or 

images of their checks) back with their statements as has been the case for check transactions in 

the past. Thus, the Board believes that these additional disclosures are appropriate at present. 

Moreover, many payees are already providing similar disclosures to reduce possible consumer 

inquiries. Nevertheless, the Board expects that over time, consumers will become more familiar 

with ECK transactions, thereby reducing the need for the additional information. Thus, the final 

rule provides a sunset date of three years from the mandatory compliance date of January 1, 2007 

for the final rule, after which time payees will no longer be required to provide the notice set 

forth in § 205.3(b)(2)(iii). 

 Transactions initiated by mistake

 The supplementary information to the proposed rule clarified that where a merchant or 

other payee initiates an EFT in error, the transaction would not be covered by Regulation E 

where the transaction does not meet the definition of an EFT. Few commenters addressed the 

statement, but one requested clarification because the inability to process an item is not 

necessarily the result of an “error.” The Board agrees that the word “error” has a particular 

meaning in the EFTA, Regulation E and other rules, and that in some cases a transaction may not 

be able to be processed as an EFT for other reasons. Accordingly, the Board believes that the 

statement applies to transactions where a payee mistakenly initiates an ECK transaction, such as 

when the payee attempts to convert a money order. Such a transaction is not subject to the 

coverage of the EFTA and Regulation E, even if initiated as an ECK transaction. 

Collection of Service Fees Via Electronic Fund Transfer

 In the proposal, comment 3(b)-3 was added to clarify that an EFT from a consumer’s 

account to collect a service fee due to insufficient funds is covered by Regulation E, and must be 

authorized by the consumer. Under the proposal, the provision of notice to the consumer, 

coupled with the consumer’s decision to proceed with the transaction, would constitute 

authorization for the debit. This provision has been adopted in the regulation in new 

§ 205.3(b)(3), which also requires payees to notify consumers about the specific amount of the 

fee in order to obtain the consumer’s authorization for the transaction. Consistent with the 

authorization requirement at POS for ECK transactions, the final rule requires that where a 

service fee for insufficient or uncollected funds in connection with a POS transfer may be 

collected via an EFT, the notice must be posted in a prominent and conspicuous location, and a 

copy of the notice must be provided to the consumer. Comment 3(b)(3)-1 clarifies that the 

requirement to obtain the consumer’s authorization does not apply to fees imposed against the 

consumer’s account by the consumer’s account-holding institution for paying overdrafts or 

returning a check or EFT unpaid. 
19

 The majority of commenters generally agreed that EFTs initiated to collect service fees 

for insufficient funds should be covered by Regulation E. A few industry commenters stated 

coverage was appropriate as long as a merchant or other payee could obtain authorization of the 

service fee when it provides notice to the consumer that the fee will be debited electronically 

from the consumer’s account, and the consumer decides to proceed with the transaction. Other 

industry commenters generally supported the notice requirement, but believed the Board should 

also require signed authorization. Several industry commenters requested clarification that 

additional authorization requirements may be established by payment system rules. A few 

commenters requested clarification that the proposed rule did not intend to address “NSF” fees 

assessed by a consumer’s financial institution for returning a check unpaid. Some industry 

commenters requested revising the comment to clarify that a check might be returned for reasons 

other than “insufficient” funds. 

 Consumer group commenters opposed the proposed comment. These commenters stated 

that notice and the consumer writing a check alone should not be sufficient to authorize the 

debiting of service fees, noting that while a consumer may reasonably anticipate a withdrawal 

from his or her account for the face amount of the check, the consumer would not expect an 

additional debit for the fee, absent additional prior, written authorization. Consumer groups also 

stated that a written, signed authorization requirement would encourage consumers to exercise 

more care in determining their actual balances before making a payment. 

Some industry commenters also opposed the proposed comment. One commenter 

asserted that providing notice at POS would not sufficiently inform the consumer of the 

possibility that a service fee could be debited electronically from the consumer’s account. A few 

commenters opposed the comment as inconsistent with the NACHA rule, which requires written, 

signed authorization for collection of service fees via an EFT. A couple of commenters believed 

it important to require signed authorization so a consumer will know and understand the fee 

imposed. One commenter expressed the concern that some payees believe the current 

Regulation E notice equals authorization comment grants a substantive right to collect a service 

fee, notwithstanding other federal or state law requirements that might apply. 

Proposed comment 3(b)-3 has been moved to the regulation as new § 205.3(b)(3) in the 

final rule. In general, § 205.3(b)(3) provides that a consumer authorizes the electronic collection 

of a fee for a check or EFT returned due to insufficient funds when the consumer receives notice 

of a payee’s intent to collect the fee via an EFT, and the consumer goes forward with the 

transaction. The final rule also requires payees to include the specific amount of the fee imposed 

in the notice provided to consumers to ensure that consumers are informed of the amount of the 

fee they may be charged in the event they have insufficient funds in their account. Section 

205.3(b)(3) requires payees to obtain a consumer’s authorization for the debit regardless of 

whether the underlying transaction is an EFT or is a check transaction, as long as the payee 

intends to collect a service fee for insufficient funds via an EFT to the consumer’s account. See 

also comment 3(c)(1)-1. 

In addition, section 205.3(b)(3) has been further revised to address some commenters’ 

concerns. First, the provision was not intended to address fees assessed on a consumer’s account 
20

by the consumer’s financial institution for the return of a check or EFT unpaid (commonly 

known as “NSF fees”), but rather, to address service charges assessed by a payee because the 

consumer’s check or EFT was returned unpaid. Accordingly, references to “NSF fees” in the 

proposed comment have been deleted and replaced with “service fee(s)” in the final rule. New 

comment 3(b)(3)-1 further provides that the authorization requirement does not apply to fees 

imposed against the consumer’s transaction account by the consumer’s account-holding 

institution for paying overdrafts or returning a check or EFT unpaid. (However, where a 

financial institution holds the consumer’s deposit or checking account and also acts as a payee, 

such as in connection with a loan or credit card account, it would be required to obtain the 

consumer’s authorization in order to collect a service fee for insufficient or uncollected funds in 

connection with the underlying transaction, but not to collect any separate service fee that may 

be assessed against the deposit or checking account for returning the check or EFT unpaid.) 

Second, because a check or EFT may be returned for reasons other than insufficient funds 

in the consumer’s account, § 205.3(b)(3) states that the rule applies where an EFT or check is 

returned for “insufficient or uncollected” funds. 

Third, consistent with the authorization requirements for the ECK transaction, the Board 

is exercising its authority under Sections 904(c) and 904(d)(1) of the EFTA to require payees at 

POS to provide notice of their intent to collect service fees for insufficient or uncollected funds 

via EFT, and to disclose the amount of the fee, on signage posted in a prominent and 

conspicuous location at POS. A copy of the notice must also be provided to the consumer at the 

time of the transaction, such as on the sales receipt. Payees in ARC transactions will typically 

provide written notice on a billing statement or invoice. Model Clause A-6 contains model 

language that payees may use to obtain a consumer’s authorization for the collection of the 

service fee for insufficient or uncollected funds via an EFT. 

The final rule does not require payees to obtain a consumer’s signature to authorize the 

collection of service fees for insufficient or uncollected funds via an EFT. Particularly at POS, 

the Board believes the added benefit of a signature would be minimal in light of the requirements 

to provide notice of the intent to collect the service fee via an EFT both on posted signage, and 

on a receipt provided to the consumer at the time of the transaction. The Board further notes that 

§ 205.3(b)(3) addresses only the requirement that a payee obtain a consumer’s authorization for a 

service fee for insufficient or uncollected funds the payee intends to collect via EFT. The final 

rule does not, however, address whether a payee has a substantive right to collect the service 

fee—that is a matter of state or other law. The Board notes that other federal or state laws, such 

as the Fair Debt Collection Practices Act, as well as payment system rules, may impose 

additional requirements. 

3(c) Exclusions From Coverage

When payees re-present checks electronically, they may also seek to debit a service fee 

for insufficient funds via EFT from the consumer’s account. Although the electronic representment of the returned check (RCK) is not covered by Regulation E because the transaction 

was originated by check, the separate electronic debit of the service fee is covered by the 

regulation. Proposed comment 3(c)(1)-1 clarified that a consumer authorizes the debit of the 
21

service fee when the consumer goes forward with the transaction after receiving notice that the 

fee will be collected electronically. No commenters opposed the clarification. Comment 

3(c)(1)-1 is revised, consistent with § 205.3(b)(3), to add a reference to “uncollected” funds and 

to provide that authorization at POS for the electronic debit of the service fee from the 

consumer’s account in connection with a re-presented check requires notice posted on signage, 

with a copy of the notice provided to the consumer. 

Section 205.5 Issuance of Access Devices

Section 911 of the EFTA, which is implemented by § 205.5 of Regulation E, generally 

prohibits financial institutions from issuing debit cards or other access devices except (1) in 

response to requests or applications or (2) as renewals or substitutes for previously accepted 

access devices. Comment 5(a)(2)-1 generally provides that a financial institution may not issue 

more than one access device as a renewal of or substitute for an accepted device (the “one-forone rule”). Section 205.5(b) provides, among other things, that any access device issued on an 

unsolicited basis must not be validated at the time of issuance. Under the proposal, comment 

5(b)-5 clarified that a financial institution may issue more than one access device in connection 

with the renewal or substitution of a previously accepted access device, provided it complied 

with the conditions set forth in § 205.5(b) for the additional unsolicited devices. The proposal 

retained the general one-for-one rule in comment 5(a)(2)-1; however, a cross-reference to 

proposed comment 5(b)-5 was added. The revisions are being adopted substantially as proposed, 

with some modifications to address commenters’ concerns. 

Most commenters addressing this issue supported the proposal. One commenter asserted 

that since liability for unauthorized use is on a per-account (not per-device) basis, issuing 

additional devices would not impose added risk on the consumer. Another commenter agreed 

that an additional access device should be issued in unvalidated form, but suggested that new 

initial Regulation E disclosures should not be required to accompany the additional device. (One 

of the requirements for issuing an unsolicited access device under § 205.5(b) is to provide the 

initial disclosures required by § 205.7 that will apply to the device. See § 205.5(b)(3).) One 

commenter suggested that the proposed commentary changes be expanded to provide financial 

institutions flexibility to replace access devices having limited functions with devices having 

additional functions. For example, cards usable only at ATMs could, under this approach, be 

replaced with cards usable at POS as well. 

A few commenters suggested the Board clarify that when an additional access device is 

issued at the time of replacement or substitution, both the additional device and the device that 

replaces the accepted access device may be issued in unvalidated form and a single validation 

procedure may be used to validate both devices. Under such a procedure, the consumer would 

not have the option to validate only the device replacing the existing device and refuse to 

validate the additional device; the consumer would have to choose to validate both devices or 

neither device. 

The revisions to the commentary regarding the issuance of additional access devices are 

adopted as proposed, with a few clarifying changes as described below. Unlike credit cards, a 

consumer’s own funds are at risk of loss in the event of unauthorized use of a debit card or other 
22

access device. The potential for unauthorized use may increase if validated cards are intercepted 

in the mail and consumers are unaware that they may be receiving multiple cards as 

replacements for an existing access device. The validation requirement of § 205.5(b) limits the 

risk of monetary losses from the theft of debit cards sent through the mail. Although there would 

be no increase in a consumer’s liability where multiple access devices are issued, asserting a 

claim of unauthorized use can be inconvenient and time-consuming, and, at least temporarily, the 

consumer may be deprived of needed funds. Therefore, the Board believes the benefits afforded 

by the one-for-one rule and the validation requirements of § 205.5(b) are critical in the context of 

debit cards, and outweigh any benefits of providing greater flexibility to issue access devices. In 

addition to the validation requirement in § 205.5(b), the Board notes that where additional access 

devices are issued unsolicited, whether in connection with the issuance of a replacement or 

substitute device or otherwise, the other provisions of § 205.5(b), including the requirement to 

provide new initial disclosures, also apply. (See, however, comment 2(a)-2, providing that the 

term “access device” does not include a check used as a source of information to initiate an 

EFT.) 

With respect to the suggestion to expand the proposed comment to provide financial 

institutions with flexibility to replace access devices with limited functions with devices having 

additional functions, comment 5(a)(2)-1 already addresses the issue; institutions are permitted to 

expand functions upon replacement or substitution of access devices. When the proposed 

revisions to comment 5(a)(2)-1 were issued, existing commentary language on this point was not 

included for the sake of brevity. To clarify this matter, the language in question is set forth in 

full in the text of the final commentary revisions. Also, the language is modified slightly to 

make clear that either the access device replacing the existing device, or the additional access 

device (or both), may provide expanded functions compared to the existing device. 

Regarding validation procedures, an institution may require a consumer to choose to 

either validate all access devices provided by an issuer, including the replacement and any 

additional devices, or validate none of the issued devices. Also, although an institution is 

permitted to issue a validated access device to replace an existing accepted access device, the 

institution may choose instead to issue the replacement device in a form that requires validation. 

Furthermore, an institution may choose to link the validation of one access device with the 

validation of another one. Accordingly, comment 5(b)-5 is revised to include a clarification on 

this issue. The comment also notes that an institution using such a validation procedure should 

disclose to the consumer in a clear and readily understandable manner that the single validation 

will validate both access devices, to ensure that the consumer will not, for example, improperly 

discard the additional, now validated, device. 

Section 205.7 Initial Disclosures

7(a) Timing of Disclosures

 Electronic check conversion transactions are a new type of EFT requiring new 

disclosures. See discussion below under § 205.7(c). The Board proposed to revise comment 

7(a)-1 to provide that an institution may choose to provide disclosures about ECK transactions 
23

early, i.e., prior to the first ECK transaction involving the consumer’s account. Commenters 

supported the proposed revision. One trade association representing credit unions observed that 

early notification is a cost-effective way of enabling institutions to establish a single means of 

notifying and educating consumers about their rights concerning electronic fund transfers. 

Comment 7(a)-1 is adopted as proposed, with a minor revision. See also comment 7(a)-2 

(permitting an institution that has not received advance notice of a third party transfer to provide 

required disclosures as soon as reasonably possible after the first transfer). 

7(b) Content of Disclosures

 The Board proposed to clarify that financial institutions must list ECK transactions 

among the types of transfers that a consumer can make. See proposed comment 7(b)(4)-4. As 

further discussed below under § 205.7(c), the Board adopts comment 7(b)(4)-4 as proposed. 

7(c) Addition of Electronic Fund Transfer Services

 Former comment 7(a)-4 stated that if an EFT service is added to a consumer’s account 

and is subject to terms and conditions different from those described in the initial disclosures, 

disclosures for the new service are required. Under the final rule, as proposed, this interpretation 

is moved to § 205.7(c) of the regulation for consistency with other regulations. See, e.g., 

§ 226.9(b)(2) of Regulation Z. New comment 7(c)-1 is adopted as proposed to provide that ECK 

transactions are a new type of transfer requiring new disclosures to the consumer, to the extent 

applicable. The model clauses for initial disclosures are revised to provide guidance to 

institutions regarding their disclosure obligations to consumers about ECK transactions. See

Appendix A, Model Clauses in A-2. 

 The Board proposed comment 7(c)-1 to address industry uncertainty about the extent of 

an account-holding institution’s disclosure obligations to new and existing consumers regarding 

ECK transactions. As stated in the proposal, new disclosures about ECK transactions are 

necessary because a consumer’s check can be used differently than in the past, that is, 

information from the check can be used to initiate EFTs. Industry comments generally favored 

including information about ECK transactions in initial disclosures, and many noted that they 

already have adjusted their disclosures to reflect the fact that ECK transactions are a new type of 

transfer that may be made to or from the consumer’s account. One commenter stated that ECK 

transactions should not be treated as a new type of transfer because the consumer intended to pay 

by check, rather than by EFT. The Board notes, however, that if a merchant or other payee 

provides proper notice about the transaction (see § 205.3(b)(2)), a consumer, by providing the 

check as payment, authorizes the use of the check as a source of information to initiate a onetime EFT from the consumer’s account. Comment 7(c)-1 is thus adopted as proposed. 

To assist institutions in implementing the new disclosure requirements, the Board also 

proposed model initial disclosure language to reflect that one-time EFTs are a new type of 

transfer that may be made from a consumer’s account using information from the consumer’s 

check, and to further instruct consumers to notify account-holding institutions when an 

unauthorized EFT has occurred using information from their check. Commenters supporting the 
24

new model language stated that the proposed language was clear, concise, and helpful. A few 

commenters requested sufficient time for institutions to make the new disclosures. 

A few industry commenters stated that certain of the disclosures were unnecessary. Two 

commenters observed that referring specifically to ECK transactions in the initial disclosures 

regarding error resolution might mislead consumers to believe that they only had error resolution 

rights when their check is converted to an EFT. Another commenter, however, believed that 

including information about ECK transactions in the liability provisions was appropriate, but this 

commenter objected to listing ECK transactions as a new type of transfer since the consumer 

intended to pay by check, and not by EFT, and therefore ECK transactions should not be 

considered to be EFTs. The Board notes that the model language informs consumers that, in 

addition to notifying their bank when their card or code has been lost or stolen, or when money 

has been transferred from their account without their permission, they may also contact their 

institution if an unauthorized transfer has been made using the information from their check. 

Consumer groups commented that the new model disclosure language was helpful, but 

urged the Board to also include other practical information about the nature of ECK transactions, 

and to include information about consumers’ rights under check law to differentiate such 

transactions from ECK transactions. For example, while the current model disclosures describe 

the 60-day time frame for consumers to exercise their error resolution rights with respect to 

EFTs, including ECK transactions, shorter time periods for asserting errors may apply to checks 

processed by means other than check conversion. While institutions may choose to provide 

consumers with additional information regarding their rights when a check is processed by other 

means, the model disclosures are solely intended to address consumers’ rights under the EFTA 

when the transaction involves an EFT to the consumer’s account. Other error resolution rights 

which may exist under other laws, including state check law, are outside the scope of this 

rulemaking. Consumer groups further suggested that the error resolution notice should state 

more clearly that an institution “must” correct any error within 10 business days, rather than use 

the current language that an institution “will correct any error promptly.” However, under 

certain circumstances, including where an institution provides a provisional credit to the 

consumer’s account or where the error involves a new account, an institution may extend their 

investigation period to up to 90 days. Therefore, the Board believes the current language is more 

accurate. 

Consumer groups also urged the Board to subject the model notices to a complete review 

for readability and understandability. For instance, consumer groups observed that the term 

“code” may not be as well understood as “PIN” or even “access code.” Based on the FleschKincaid scale, the model initial disclosures in the final rule score at a 9.9 grade level, with a 

Flesch reading ease score of 60.3 on a 100.0 scale, indicating a high level of readability. The 

Board agrees that in general consumer disclosures benefit from consumer testing, and anticipates 

that testing of this and other notices could be made part of a future comprehensive review of the 

regulation. 

One trade association and a company that provides compliance forms for institutions 

expressed their concerns about the scope of the proposed disclosures, stating that the Board’s 

model disclosures were not broad enough to address other types of third-party initiated EFTs 
25

which may be initiated using account information from a check, in particular those initiated via a 

telephone or the Internet. As noted previously in the discussion of § 205.3(b), while telephone 

and Internet transactions are covered by Regulation E, the proposed rule was intended to address 

ECK transactions only; other types of EFTs are not addressed by these provisions in the final 

rule. 

A few industry commenters asserted that since most banks have considered electronically 

converted checks to be EFTs since adoption of the 2001 commentary, and have already amended 

their initial disclosures to include ECK transactions, institutions should not be required to amend 

their disclosures again to include additional detail that is only applicable to ECK transactions. 

These institutions also stated that the cost of reprinting and mailing the revised disclosures would 

far exceed any consumer benefit of receiving a notice that explains a process that financial 

institutions have already been following. Two commenters asked the Board to clarify that the 

introduction of ECK services would not require change-in-terms notices to existing consumers, 

because none of the terms of the underlying account agreement are affected by the new type of 

transfer. 

Under the final rule, for customers opening accounts after the mandatory compliance date 

of January 1, 2007, institutions must include in initial disclosures that ECK transactions are 

among the types of transfers that a consumer can make. Where institutions have already 

amended their disclosures to notify their consumers that ECK transactions may be made from 

their account, they would not be required to make new disclosures about such transactions to 

those consumers. New disclosures to existing customers would be required to be provided after

the mandatory compliance date, however, if an institution has not disclosed to those consumers 

that ECK transactions may be made, even if other terms of the underlying account agreement 

would equally apply to the new type of transfer. See comment 7(c)-1. 

The Board specifically solicited comment on whether six months following adoption of 

the final rule would provide sufficient time for financial institutions to revise their disclosures to 

comply with the rule. The vast majority of industry commenters urged the Board to extend the 

time for compliance to one year. The final rule reflects commenters’ suggestions; institutions 

will have until the mandatory compliance date of January 1, 2007 to revise their initial 

disclosures to reflect ECK transactions, and to provide new disclosures to existing customers if 

necessary. The Board anticipates that institutions will have depleted their existing stocks of 

initial disclosures by that time. Institutions are not required to provide new disclosures reflecting 

ECK transactions until the mandatory compliance date. 

Section 205.10 Preauthorized Transfers

10(b) Written Authorization for Preauthorized Transfers from Consumer’s Account

Under § 205.10(b), preauthorized EFTs from a consumer’s account may be authorized 

only by a writing signed or similarly authenticated by the consumer. Under existing comment 

10(b)-3, a merchant or other payee could not obtain authorization by tape recording a telephone 

conversation with a consumer who agrees to recurring debits. Comment 10(b)-3 was adopted 
26

prior to the enactment of the E-Sign Act. The final rule withdraws the interpretation in comment 

10(b)-3 would be withdrawn in light of the E-Sign Act, as proposed. 

The E-Sign Act provides, in general, that electronic records and electronic signatures 

satisfy legal requirements for traditional written records and signatures. Some have suggested 

that, given the E-Sign Act’s broad definitions of “electronic record” and “electronic signature,” a 

tape-recorded authorization, or certain types of tape-recorded authorizations, for preauthorized 

debits might be deemed to satisfy the Regulation E signed or similarly authenticated written 

authorization requirements. The Board proposed to withdraw the guidance regarding tape 

recordings because of E-Sign Act considerations, but did not propose to amend comment 10(b)-3 

to address how the E-Sign Act should be interpreted with regard to tape recordings of telephone 

conversations. 

 Many commenters, including several financial institutions and financial trade 

associations, as well as a retailer trade association, supported the proposed withdrawal. These 

commenters stated that without the proposed change, consumers who do not have, or do not want 

to use, credit cards would not be able to use the telephone to purchase goods or services 

involving recurring debits to their deposit accounts. One commenter noted that many less 

affluent consumers do not own computers, so such consumers would be unable to electronically 

authorize recurring payments unless the proposal is adopted. Another commenter noted that if 

the proposal is not adopted, merchants may tend to use alternatives such as demand drafts, which 

offer less consumer protection than debit cards. 

 Other commenters, including financial institutions and financial trade associations, 

retailer trade associations, automated clearing house organizations, and a federal government 

agency, supported the proposal but with modifications or conditions. A few commenters 

recommended that merchants be permitted to obtain authorization for recurring debits by 

telephone, without recording, followed by written confirmation, if the consumer was given the 

option to cancel the transaction. Because of concerns about deceptive telemarketing, other 

commenters suggested that the use of telephone authorization be limited to situations where 

(1) the consumer and the merchant have a preexisting relationship, or (2) the consumer initiates 

the telephone call. 

 Several industry commenters urged the Board to remove uncertainty by explicitly stating 

that a recorded telephone conversation complies with the E-Sign Act and, therefore, Regulation 

E, to facilitate telephone authorizations of recurring debits. A few such commenters argued that 

merely withdrawing a portion of comment 10(b)-3 as proposed would cause further confusion 

and, absent additional guidance, would lead merchants to adopt differing practices. One 

commenter, a federal enforcement agency, recommended that the Board state affirmatively that 

if a payee relies upon the E-Sign Act in connection with obtaining the consumer’s authorization, 

it must also fully comply with the E-Sign Act with respect to other provisions of the EFTA and 

Regulation E, including the requirement to provide a clear and conspicuous copy of the full 

authorization to the consumer. In contrast, a law firm representing retailers asserted that further 

clarifications regarding the E-Sign Act in the recurring debit context are unnecessary and may 

cause confusion in other instances when such clarifications are not provided. 
27

 A few industry commenters opposed the proposed withdrawal of the guidance due to the 

potential abuses and increased unauthorized transfers that could result. One such commenter 

contended that tape recordings do not provide clear evidence of a consumer’s authorization, 

which may be important in the event of a dispute. This commenter also asserted that banks 

receive many complaints from consumers alleging that the consumer only authorized a one-time 

electronic debit, but that recurring debits are being processed. 

 The final rule withdraws the existing guidance regarding whether a tape recording may 

satisfy the requirement to obtain a consumer’s written authorization for recurring debits as 

proposed. The final rule does not interpret Regulation E to treat recorded telephone 

authorizations as written authorizations; however, the Board believes that the E-Sign Act’s 

provisions regarding written documents are applicable to the EFTA and Regulation E. As a 

result, if, under the E-Sign Act, a tape-recorded authorization, or certain types of tape-recorded 

authorizations, constitute a written and signed (or similarly authenticated) authorization, then the 

authorization would satisfy the Regulation E requirements. 

In addition to complying with the E-Sign Act,2

 payees will need to ensure that they 

comply with the requirements of § 205.10(b) of Regulation E. Specifically, the authorization 

must be readily identifiable as such to the consumer, and the terms of the preauthorized debits 

must be clear and readily understandable to the consumer. See comment 10(b)-6. Payees must 

also provide the consumer a copy of the authorization. With respect to additional suggestions 

from commenters to permit authorization by telephone without recording but with written 

confirmation, or to limit the use of telephone authorizations to specific circumstances, such 

changes would require amendments to the EFTA or Regulation E rather than the staff 

commentary, and thus the Board has decided not to consider these suggestions at this time. 

Comment 10(b)-7 addresses authorizations for recurring payments obtained by telephone 

or on-line, and states that the payee’s failure to obtain written authorization is not a violation if 

the failure was not intentional and resulted from a bona fide error, notwithstanding the 

maintenance of procedures reasonably adapted to avoid any such error. For example, an error 

might occur where the consumer indicates that a credit card (for which no written authorization 

would be required) is being used for the authorization, when in fact the card is a debit card. 

 Concerns were expressed by retail and other industry groups about what procedures 

would be deemed reasonably adapted to avoid error where a telemarketer seeks to obtain a 

consumer’s authorization for recurring payments for goods or services, such as newspaper 

subscriptions, using the consumer’s credit or debit card. The Board proposed to revise comment 

10(b)-7 to state that procedures reasonably adapted to avoid error will vary with the 

circumstances. The proposed revision also stated that asking the consumer to specify whether 

the card to be used for the authorization is a debit card or a credit card, using those terms, is a 

reasonable procedure. 

 The Board also proposed to add an example of a payee learning, after the transaction 

occurred, that the card used was a debit card as a result of the consumer bringing the matter to 

 

2

 See, e.g., § 106(5) of the E-Sign Act (definition of “electronic signature”). 
28

the payee’s attention. For example, the consumer may call the merchant to assert a complaint 

about use of a debit card. 

 Most industry commenters supported the proposal as written, and a few suggested 

modifications. No commenters opposed the proposal. One trade association representing 

retailers suggested that comment 10(b)-7 not provide the example of asking the consumer 

whether the card being used is a debit card or a credit card as the safe harbor for compliance. 

Another trade association requested that the comment not state that a reasonable procedure 

would require use of the term “debit card.” This commenter also recommended that the Board 

indicate in the comment that confirmation of the type of card being used is not necessary when 

the authorization is given in writing, including on-line. In contrast to the comments from the 

retailer trade associations, a federal enforcement agency urged the Board to require payees to ask 

whether the consumer is using a debit or credit card, in lieu of creating a safe harbor for that 

procedure. However, one law firm representing retailers opposed this suggestion contending that 

such a requirement would be unduly restrictive because merchants might have procedures that 

would not include asking whether the card is a debit or credit card. 

The federal enforcement agency also suggested that the Board clarify that, in some cases, 

merchants should consider additional information as part of reasonable procedures to avoid error. 

Such information might include, for example, repeated consumer complaints about unauthorized 

debits. This commenter suggested that the commentary provide that if a merchant becomes 

aware of repeated authorization problems, it should examine and possibly change its procedures. 

A law firm, however, argued that such a requirement would be unnecessary because merchants 

would have insufficient guidance as to what other information they should consider and under 

what circumstances. 

One consumer group stated that the final rule should require that where the merchant 

learns only later, after the telephone authorization, that the card used was a debit card, the 

merchant must obtain a written and signed (or similarly authenticated) authorization or cease 

debiting the consumer’s account. 

 The Board adopts the revisions to comment 10(b)-7 as proposed, with minor revisions. 

As stated in the proposal, it may have been reasonable in the past, when relatively few debit 

cards were in use compared to credit cards, for payees to use procedures that did not involve 

asking questions about the type of card being used. Today, however, given the growth of debit 

card usage, the Board believes that reasonable procedures should include interaction with the 

consumer specifically designed to elicit information about whether a debit card is involved. 

Accordingly, the final rule retains the safe harbor example of a reasonable procedure of asking 

the consumer to specify whether the card to be used for the authorization is a debit (or check) 

card or a credit card. The final comment includes a reference to “check cards” to reflect current 

terminology. To illustrate the safe harbor, assume that a consumer makes a purchase which will 

result in a series of recurring payments. After the merchant inquires about the payment method, 

the consumer indicates that they intend to use “Bank X” card, without stating whether the card is 

a debit card or a credit card. In order to fall under the safe harbor, the merchant should then ask 

the consumer whether the card is a debit (or check) card or a credit card. 
29

The final rule does not impose an express requirement of inquiring whether a card 

provided is a debit card or a credit card, because the determination of whether a procedure is 

reasonably adapted to avoid the error of failing to obtain a consumer’s written authorization for 

recurring debits may vary with the circumstances. Similarly, although it may be reasonable in 

some cases for a merchant to revise their authorization procedures to avoid error based on 

additional information about potential authorization problems, such as repeated consumer 

complaints about unauthorized debits, the Board believes it is unnecessary to add a specific 

provision to the commentary that would require revised procedures in those limited instances. 

 The Board also does not believe that it is necessary to incorporate in the final rule a 

requirement that a merchant should promptly notify the consumer when it chooses to cease 

debiting the consumer’s account upon learning that the card used was a debit card. The Board 

believes that a merchant, due to its own interest, will likely contact the consumer to arrange for 

some other means of payment. 

 A few industry commenters also addressed the Board’s discussion in the proposal 

regarding whether merchants should be required to verify card numbers presented by consumers 

against lists of credit and debit card Bank Identification Numbers, commonly referred to as “BIN 

tables,” as a reasonable procedure to avoid error. See In re Visa Check/Mastermoney Antitrust 

Litigation, No. CV-96-5238 (E.D.N.Y. 2003) (requiring Visa and MasterCard to make BIN 

tables available to merchants as part of a litigation settlement). These commenters agreed with 

the Board’s observation that to the extent that BIN tables are not available to merchants in an online, real-time form, it would be burdensome for merchants to verify card numbers presented by 

consumers against the BIN tables. Moreover, the Board understands that Visa and MasterCard 

debit cards issued after January 1, 2005 display the word “debit” on the front of the card. 

Accordingly, the final rule does not require merchants to obtain or consult BIN tables to maintain 

procedures reasonably adapted to avoid error. Similarly, merchants are not required to check 

card numbers already on file against BIN tables. 

10(c) Consumer’s Right to Stop Payment

Proposed comment 10(c)-3 stated that an institution need not have the capability to block 

preauthorized debits, for example, where a preauthorized debit is made through a debit card 

system, and may instead use a third party to block the transfer(s), as long as such payments are in 

fact stopped. The proposal revised comment 10(c)-2 to cross-reference the new proposed 

comment. Comment 10(c)-2 is adopted as proposed, and comment 10(c)-3 is adopted with 

revisions for clarity. 

In the proposal, comment 10(c)-3 was added to address procedures for stopping recurring 

debits where the account-holding institution is unable to block a payment from being posted to 

the consumer’s account because, for example, the posting occurs soon after the transaction has 

been approved, such as where the transaction takes place over a debit card network. In these 

cases, the institution may not have sufficient time to identify payments against which stoppayment orders have been entered. The proposed comment provided an alternative procedure for 

how the account-holding institution can comply with the stop payment requirements of 

Regulation E in these circumstances. 
30

 Most commenters addressing this issue supported the proposal. One commenter 

observed that in the case of debit card transactions, the interception of transactions at the network 

level may be more effective than blocking transactions at the level of the account-holding 

institution. Some commenters requested clarification on various points. A few industry 

commenters asked that the Board clarify that comment 10(c)-3 does not apply to recurring debits 

processed through batch systems, such as the ACH network. Consumer groups were concerned 

that the proposal might imply that even if a consumer revokes authority for all future recurring 

debits by a payee, the financial institution may comply by stopping a single payment; these 

commenters believed that the obligation should be to cancel the debits permanently. 

 A number of commenters suggested that the Board adopt other revisions to the existing 

commentary under § 205.10(c). Several industry commenters asserted that the EFTA and 

Regulation E only require a financial institution to stop a single preauthorized debit, and do not 

require the institution to take action to respond to a consumer’s revocation of authority for all 

future debits from a particular payee, as stated in comment 10(c)-2. The commenters suggested 

that the comment be removed or modified accordingly. In addition, some commenters suggested 

revising comment 10(c)-1 to state that a stop payment order need not be maintained by the 

consumer’s financial institution for more than six months, maintaining that such a revision would 

make the comment consistent with Uniform Commercial Code (UCC) provisions relating to stop 

payment orders on checks and with industry practice. 

 Comment 10(c)-3 is adopted as proposed. The comment permits an institution, upon 

receiving a consumer’s stop payment order, to use a third party to block a preauthorized transfer 

if the institution does not have the capability to block the preauthorized debit from being posted 

to the consumer’s account, as long as the payment is in fact stopped, i.e., the consumer’s account 

is not debited for the payment. Comment 10(c)-2 is also revised as proposed. The Board did not 

intend to imply that an institution’s obligation to honor a stop-payment request is limited to a 

single preauthorized debit. If a consumer revokes authority for all further payments from a 

particular payee, the institution (through its own procedures or by using those of a third party, as 

provided in new comment 10(c)-3) must make arrangements such that no further debits 

originated by that payee are made to the consumer’s account. However, the Board notes that 

under comment 10(c)-2, institutions may require the consumer to provide a copy of a written 

notice sent to the payee, revoking authority for the payee to originate debits to the consumer’s 

account. If the consumer does not provide the copy within 14 days, the institution is not required 

to continue stopping payments to the payee. 

 As stated above, the proposal was intended to address problems in stopping recurring 

debits that take place over debit card networks, where the account-holding institution may not be 

able to timely block a debit from being posted to the consumer’s account. Nevertheless, 

although comment 10(c)-3 primarily focuses on debits over debit card networks and other “realtime” systems, the comment is not limited to such systems and any institution that does not have 

the capability to block a preauthorized debit from being posted to the consumer’s account may 

instead use a third party to block the debit, so long as the consumer’s account is not debited for 

the payment. 

10(d) Notice of Transfers Varying in Amount
31

 When a preauthorized EFT from a consumer’s account will vary in amount from the 

previous transfer, or from the preauthorized amount, § 205.10(d) requires the designated payee 

or the consumer’s financial institution to send written notice of the amount and date of the 

transfer at least 10 days before the scheduled date of the transfer. Paragraph 10(d)(2) permits the 

payee or the institution to give the consumer the option of receiving notice only when a transfer 

falls outside a specified range of amounts or only when a transfer differs from the most recent 

transfer by more than an agreed-upon amount. Under the proposal, comment 10(d)(2)-2 would, 

in limited circumstances, relieve financial institutions of giving the consumer the option of 

receiving notice each time a transfer varies from the previous transfer. The final rule adopts 

proposed comment 10(d)(2)-2, with some revisions for consistency with the regulation. 

 Some financial institutions have suggested that while the notice requirement is 

appropriate where consumer funds are transferred to a third party, it should not apply when the 

transfer is between accounts, as defined under Regulation E, that are owned by the same 

consumer, even when the accounts are held at different financial institutions. These institutions 

assert that the advance notice requirement is particularly burdensome for institutions that offer 

certificate of deposit (CD) products that allow customers to set up preauthorized transfers of 

interest from the CD account to another account of the consumer held at a different institution. 

For such products, monthly interest payments might vary solely because of the different number 

of days in each month, yet such variance would require the institution to send the consumer 

advance notice in each instance before transferring the funds. The proposed comment would 

give financial institutions flexibility to provide notice only when a preauthorized transfer falls 

outside a specified range where funds are transferred and credited to an account of the consumer 

held at a different financial institution. (Preauthorized transfers between accounts of the same 

consumer held at the same institution qualify for the intra-institutional exclusion from coverage 

in § 205.3(c)(5).) Also, the proposal provided that the range must be an acceptable range that 

could be anticipated by the consumer, and the institution would have to notify the consumer of 

the range. 

Commenters generally supported the proposed comment. Some industry commenters 

believed that the new comment could eliminate the need for unnecessary notices without 

detriment to consumers, while providing cost savings for those institutions that offer consumers 

the option of transferring funds to an account at another institution on a preauthorized basis. One 

industry commenter requested that the Board provide examples of acceptable ranges of balances 

and provide optional model language. Another industry commenter urged the Board to go 

further and exclude CD interest via ACH transfers from the scope of § 205.10(d) altogether, 

since CD accounts are not transaction accounts, and because transfers involve accrued interest 

only. 

In contrast, one ACH trade association suggested that it may not be appropriate to allow 

institutions to avoid providing notices with each varying transfer without first obtaining 

consumer consent given that identity theft is an increasingly prevalent problem. This commenter 

noted that the NACHA rules already allow for ranges, and few companies take advantage of that 

opportunity. Consumer groups believed that the proposed commentary provision could facilitate 

transfers out of a consumer’s account to repay payday loans, and urged the Board either to 
32

withdraw the proposed commentary provision, or to strictly limit the exception to transfers of 

interest earned in one account to another account held in the same name. 

The final rule adopts comment 10(d)(2)-2 as proposed, with minor revisions for clarity. 

Given the express language in Section 907(b) of the EFTA, it is not appropriate to remove the 

notice requirement entirely. Nevertheless, the Board believes that requiring a notice for each 

varying transfer where the transfer is between accounts owned by the same consumer provides 

little benefit to the consumer while imposing unnecessary costs on the financial institution 

making the transfer. Because this exception is limited to transfers of consumer funds between 

accounts held by the same consumer at different institutions, the Board believes the risk of loss 

from identity theft is minimal. In addition, because the transfers must be between consumer 

accounts held at different financial institutions, the exception would not be applicable to transfers 

to repay loans, including payday loans, which are not accounts under Regulation E. The Board 

is not aware of any other circumstances that pose additional risks to a consumer’s account if this 

comment is adopted, and thus believes it is unnecessary to limit the exception to accounts solely 

involving transfers of CD interest. 

For consistency with § 205.10(d)(2), the final comment is revised to provide that a 

financial institution may elect to provide notice only when a preauthorized transfer falls outside a 

specified range, or differs from a specified amount from the most recent transfer, without 

providing the consumer the option of receiving notice of all varying transfers, if the funds are 

transferred and credited to an account of the consumer held at another financial institution. The 

range or amount of variance must be reasonably anticipated by the consumer, and the institution 

must notify the consumer of the range or amount at the time the institution obtains the 

consumer’s authorization for the preauthorized transfers. Comment 10(d)(2)-2 includes an 

example of an acceptable range where the preauthorized transfers are for transfers of interest for 

a fixed-rate CD account. In this case, an institution could provide a range based on transfers of 

interest for months containing 28 days and for months containing 31 days. 

Section 205.11 Procedures for Resolving Errors

11(b) Notice of Error from Consumer

The Board proposed to clarify in comment 11(b)-7 that an institution need not comply 

with the procedures and time limits in § 205.11 for investigating a consumer’s assertion of an 

error when the consumer provides a notice of error after the time period specified in § 205.11(b). 

Where the error involves an unauthorized EFT, however, liability for the unauthorized transfer 

may not be imposed on the consumer unless the institution satisfies the requirements of § 205.6. 

Comment 11(b)-7 is adopted generally as proposed, with some revisions to address commenters’ 

concerns. 

 Commenters on the issue uniformly supported the proposed comment, although some 

industry commenters asked the Board to provide certain additional clarifications. A few 

commenters believed that it was unclear which provisions of § 205.6 were applicable where the 

asserted error involves an unauthorized transaction. For example, one commenter stated that the 

generic reference to § 205.6 is confusing in light of the limitation on liability in § 205.6(b)(1) 
33

when the consumer provides timely notice. The final rule retains the general reference because 

the requirements for the consumer to provide timely notice is different under § 205.6 than under 

§ 205.11. Under § 205.11, the consumer must provide notice 60 days after the financial 

institution sends the periodic statement on which the alleged error is reflected. In contrast, under 

§ 205.6, the consumer must provide notice two business days after learning of the loss or theft of 

an access device. Moreover, the consequences to the consumer for failing to provide timely 

notice differ under §§ 205.6 and 205.11. For example, a consumer may not find out about the 

loss or theft of an access device until more than 60 days after a periodic statement is sent.3

 In 

such case, the consumer’s liability could still be capped at $50 or less as provided under 

§ 205.6(b)(1), so long as the consumer notifies his or her financial institution within two business 

days after learning of the loss or theft of the access device, notwithstanding the fact that the 

procedures and time frames in § 205.11 would not apply. 

 Industry commenters also suggested that the Board conform the 60-day time frame for 

providing notices of error in § 205.11 to time frames provided under other laws or payment 

system rules. Several commenters urged the Board to conform the time frame for reporting an 

error in § 205.11(b)(1) from 60 days after the date of availability of the periodic statement to 60 

days after the settlement date of the transaction consistent with the NACHA rules. The 60-day 

time frame for providing a notice of error in connection with an EFT after a periodic statement is 

sent, however, is a statutory requirement under Section 908(a) of the EFTA. Some commenters 

believed that the Board should adopt a time limitation for asserting a claim of an unauthorized 

EFT of one year from the date of availability of the periodic statement, consistent with time 

frames established by Check 21 and § 4-408 of the UCC. The EFTA does not contain a time 

limitation for asserting a claim of unauthorized EFTs, and the Board did not propose such a 

limitation. Accordingly, the Board declines to adopt the suggested changes. 

 Finally, one banking trade association recommended that the Board recognize the 

exception in § 205.6(b)(4) for extending the time frames for reporting an unauthorized 

transaction if the consumer’s delay in notification is due to extenuating circumstances. The 

Board agrees that where a consumer is unable to provide timely notice for an unauthorized EFT 

due to extenuating circumstances, such as extended travel or a hospitalization, an institution must 

extend the time frames provided in § 205.6(b) for reporting the unauthorized transaction. 

11(c) Time Limits and Extent of Investigation

Section 205.11(c)(4) permits an institution to limit the investigation of an alleged error to 

“a review of its own records” where the allegation pertains to a transfer to or from a third party 

with whom the institution has no agreement for the type of EFT involved. This is commonly 

referred to as the “four walls” rule. Comment 11(c)(4)-4 provides that a financial institution 

does not have an agreement with a third party solely because it participates in transactions that 

occur under the federal recurring payments programs, or that are cleared through an ACH or 

similar arrangement for the clearing and settlement of fund transfers generally, or because it 

agrees to be bound by the rules of such an arrangement. Proposed comment 11(c)(4)-5 provided 

that an institution’s “own records” may not be limited to the payment instructions where 

 

3

 Comment 6(b)(1)-2 states that the fact that a consumer has received a periodic statement that reflects unauthorized 

transfers cannot be deemed to represent conclusive evidence that the consumer had such knowledge. 
34

additional information is available within the institution relevant to resolving the consumer’s 

particular claim. As explained in the supplementary information to the proposal, because the 

number and variety of ACH payments has expanded significantly since the “four walls” rule was 

first adopted in 1980, an institution’s review of additional information beyond the payment 

instructions may be necessary to provide consumers with a meaningful investigation of an 

allegedly erroneous or unauthorized payment. Comment 11(c)(4)-5 is adopted as proposed, with 

some modifications to address commenter concerns. 

 Some commenters favored the proposed comment, including consumer groups, a federal 

enforcement agency, and a few industry commenters. These commenters generally agreed with 

the Board’s stated rationale for the proposed comment. For example, several credit union 

commenters stated that it is reasonable to expect financial institutions to exhaust their review of 

internal records when responding to alleged errors regarding consumers’ Regulation E 

transactions. Consumer groups urged the Board to revise the comment to state that an 

institution’s reviews should consider records that could be helpful to resolving a consumer’s 

claim(s), not just those records that are dispositive. One industry commenter generally agreed 

with the proposal in light of both the increased variety of EFT transaction types and its belief that 

information relevant to an assertion of error could likely to be outside the payment instructions 

but within the institution’s “four walls” and records. 

Most industry commenters opposed the proposed comment. Many industry commenters 

raised concerns about ambiguity as to the scope of the required investigation, the potential 

burden on institutions, and the low likelihood of yielding additional, helpful information. 

Several commenters asserted that it would unnecessarily require institutions to look beyond their 

own records and could potentially require that they seek to obtain information from additional 

parties to the transaction when payment instructions could resolve the claim of error. 

Many industry commenters were also concerned that the proposed comment might 

require that an institution look for any and all potentially relevant records – even in cases where 

a consumer may have many different relationships with the institution (deposit, credit, 

investment). One commenter stated that it would be impractical for a large bank to comply with 

the proposed comment, since it would require a review of information relating to other accounts 

and transactions stored in various locations. Similarly, a few commenters noted that a bank 

employee conducting an investigation might not be aware of all of these relationships or may 

lack a practical ability to obtain all information about the bank’s dealings with that customer. 

These commenters argued that a reasonable interpretation of the “four walls” rule must limit the 

bank’s duty to inquire not just about information within the institution’s own records relevant to 

resolving the consumer’s particular claim, but to information that is reasonably available to the 

bank employee investigating the consumer’s claim. 

Several ACH associations asserted that the proposal could further confuse what is already 

a troublesome section of the Commentary for their members. These and other commenters 

generally believed that institutions would be unlikely to have readily available information in 

their records beyond the payment instructions that would assist in the review of the particular 

transaction, noting, for example, that the consumer’s authorization for the transaction would be 

in the possession of the originator-payee, not the consumer’s institution. These commenters 
35

stated that searching for, and obtaining, such additional information would be time-consuming 

and costly. They added that since authorization is between the consumer and the originator of 

the transaction, the proposed comment could inappropriately place the consumer’s institution in 

the position of deciding the legitimacy of the authorization. In their view, this issue should be 

resolved between the merchant or other payee and the consumer – not by the consumer’s 

financial institution. 

Many industry commenters, including ACH associations, noted that the NACHA rules 

already ensure a remedy under which the consumer is already made whole in a timely manner.4

 

One industry commenter, however, argued that the NACHA rules were insufficient because of 

the shorter time period for reversing transactions (chargebacks), urging instead that the Board 

withdraw the proposed comment and encourage NACHA to amend its rules to conform its 

chargeback period to the period set forth under § 205.11 for reporting alleged errors.5

 This 

commenter asserted that this change would properly place the burden of assuring proper 

authorization of transactions on the originating merchant and financial institution – the two 

parties best positioned to monitor and ensure compliance with this requirement. This commenter 

maintained that the automatic right to charge back under the NACHA rules works well for most 

ACH disputes and that extending the time period for permitting charge backs would not impose 

significant additional costs on merchants or its financial institution. 

Many industry commenters recommended that the regulation require a “reasonable” 

investigation and to provide examples of appropriate steps to be taken to minimize the 

compliance burden similar to existing guidance under Regulation Z. See, e.g., § 226.12(b)-3. In 

their view, a reasonable investigation might, for example, consist of an examination of the 

institution’s records for the account in question, but not all accounts held by the particular 

consumer at the financial institution. These commenters believed that a “reasonable 

investigation” standard would enable institutions to take measures appropriate to the nature of 

the error and the size of the institution. 

 A few commenters, including consumer groups, asked the Board to clarify an 

institution’s error resolution responsibilities under the “four walls” rule when it has outsourced 

relevant aspects of its operations, such as payment processing or the investigation of disputes. 

These commenters believe that in such cases an institution’s records should include a review of 

information that is within the institution’s possession or control and not merely within the 

institution’s physical offices. Another commenter inquired how the proposed error resolution 

process would work where an EFT service provider (rather than an account holding institution) is 

providing the EFT service. This commenter asserted that currently, account holding institutions 

have limited error-resolution obligations with respect to errors resulting from a third-party 

service provider, and that the proposed commentary language should clarify whether there is any 

 

4

 Under the NACHA rules, if the consumer executes a written statement under penalty of perjury within the 

prescribed time frame of 60 days from the date of the transaction, the financial institution will promptly re-credit the 

consumer’s account and return the transaction to the payee. 

5

 Section 205.11(b) of Regulation E generally requires a financial institution to investigate a claim of error that is 

received no later than 60 days after the institution sends the periodic statement on which the alleged error is first 

reflected. 
36

intended change in the error resolution responsibilities between the service provider and account 

holding institution. 

 As stated in the proposal, the “four walls” rule was adopted when most third party 

transfers involved preauthorized credits to a consumer’s account to pay salary or other 

compensation, or preauthorized debits from a consumer’s account to pay a utility company or 

other payee. In the absence of an agreement between the financial institution and the third party, 

it was deemed reasonable to permit an institution to limit its investigation to the institution’s own 

records. See 45 FR 8,248 (Feb. 6, 1980). Historically, alleged errors often pertained to the 

amount of the transfer. Consequently, an institution would likely have very limited information–

such as the ACH payment instructions–for purposes of conducting its investigation. The “four 

walls” approach thus sought to strike a balance between an institution’s investigatory burden 

relative to the types of errors commonly asserted and the institution’s practical ability to procure 

relevant information in light of its lack of an agreement with the third party. 

 In the twenty-five years since the “four walls” analysis was adopted, the increasing use of 

ACH as a means to effectuate a wide variety of third-party transfers (and preauthorized transfers) 

has expanded significantly, and, as a result, the types of errors that may occur is far greater than 

those originally contemplated. For example, the ACH network today is used to process ECK 

transactions. Similarly, a merchant may use the ACH network in an on-line or telephone 

transaction to initiate an EFT from a consumer’s account using the consumer’s checking account 

number. In these cases, consumers may encounter errors concerning authorizations and the types 

of transfers, in addition to errors regarding the amounts of the resulting ACH debits. The risk 

that a consumer’s check or checking account number could be used in a fraudulent manner to 

make an ACH transfer from the consumer’s account was not a concern when the “four walls” 

analysis was adopted, since the typical ACH transfer then involved a preauthorized transfer to or 

from a known party. 

Today, when a consumer believes that a transaction is unauthorized, information such as 

the location of the payee, the particular number of the check (to determine if it is notably out of 

order), or prior consumer account transactions with the same payee, that could be relevant to the 

investigation would more likely be within the institution’s own records. Thus, for ACH and 

ECK transactions, for example, the Board believes that an institution’s review of its “own 

records” should not be confined to a mere confirmation of the payment instructions when other 

information within the institution’s “four walls” could also be reviewed. 

Any investigation conducted under the four walls rule must be reasonable. Because the 

nature of a consumer’s allegation of error can vary, the scope of an investigation may vary. In 

each case, an institution should use relevant information available within its own records for 

purposes of determining whether an error occurred. Given the potential size and complexity of 

institutions and their many different relationships with a single consumer, however, it may be 

impractical and burdensome for an institution to look throughout its entire operation for 

potentially relevant records. The final rule clarifies that the information reviewed should pertain 

to the account for which the assertion of error is made and cover a reasonable period of time. 

The revised comment also provides examples of information that an institution might review. 

These examples are not set forth as an exclusive list. 
37

Institutions have flexibility to determine what information is relevant to a meaningful 

investigation of the error in question. To the extent that an account-holding institution has 

outsourced relevant aspects of its operations, the investigation should include a review of service 

provider records if such records could help to resolve the consumer’s claim. Under the “four 

walls” rule, the institution need not, however, include a review of records that are not within its 

possession or control – such as the consumer’s authorization for the transaction if such 

authorization is in the possession of a third-party payee. Additional requirements may be 

established by payment system or other rules, however. 

The proposal also solicited comment as to whether there are circumstances in which the 

“four walls” rule should not apply. Industry commenters generally stated that they were unaware 

of such circumstances at this time, and that there is typically no need to require banks to conduct 

investigations outside of their own records. The Board will continue to monitor institutions’ 

error resolution practices to assess the continued viability of the “four walls” approach to error 

investigation. 

Section 205.16 Disclosures at Automated Teller Machines

 Section 205.16 requires an ATM operator that imposes a fee on a consumer for initiating 

an EFT or a balance inquiry to provide notice to the consumer that a fee will be imposed for 

providing the EFT service or for a balance inquiry and to disclose the amount of the fee. An 

ATM operator is any person who operates an ATM at which consumers initiate an EFT or a 

balance inquiry, and that does not hold the account to or from which the transfer is made, or 

about which an inquiry is made. Notice of the imposition of the fee must be provided in a 

prominent and conspicuous location on or at the ATM. The operator must also provide notice 

that the fee will be charged and the amount of the fee either on the screen of the ATM or by 

providing it on paper, before the consumer is committed to paying a fee. 

In the September 2004 proposal, the Board proposed to revise comment 205.16(b)(1)-1 to 

clarify that ATM operators can disclose on the ATM signage that a fee may be imposed or 

specify the type of EFTs or consumers for which a fee is imposed, if there are circumstances in 

which an ATM surcharge will not be charged for a particular transaction. (69 FR at 56,005.) 

After consideration of the comments received, the Board withdrew the proposed commentary 

revisions and instead proposed to amend § 205.16(b) to clarify that ATM operators may disclose 

on ATM signage that a fee will be imposed or, in the alternative, that a fee may be imposed on 

consumers initiating an EFT or for a balance inquiry if there are circumstances under which 

some consumers would not be charged for such services. (70 FR 49,891 (Aug. 25, 2005).) The 

proposed commentary was revised to clarify that ATM operators that impose an ATM surcharge 

in all cases must provide notice on the ATM signage that a fee will be imposed. The revisions 

are adopted largely as proposed, with certain revisions for clarity. 

 Several large institutions have asked whether it is permissible under § 205.16 to provide 

notice on the ATM that a fee “may be” charged for providing EFT services because many ATM 

operators, particularly those owned or operated by banks, apply ATM surcharges to some 

categories of their ATM users, but not others. For example, an ATM operator might not charge a 
38

fee to holders of cards issued by foreign financial institutions, cardholders of banks that are part 

of a surcharge-free network or that have entered into a contractual relationship with the ATM 

operator with respect to surcharges, and holders of cards issued under governmental electronic 

benefit transfer (EBT) programs. (While many financial institutions do not impose ATM 

surcharges on their own cardholders, they are not ATM operators with respect to those 

cardholders for purposes of § 205.16 because the institutions hold the cardholders’ accounts.) 

More recently, many banks voluntarily waived surcharges for consumers from areas affected by 

Hurricane Katrina. Also, an ATM operator might charge a fee for cash withdrawals, but not for 

balance inquiries. Accordingly, the Board recognized in its two proposals that a disclosure on 

the ATM that a fee “will” be imposed in all instances could be overly broad with respect to 

consumers who would not be assessed a fee for usage of the ATM. 

Industry commenters strongly supported the August 2005 proposal, stating that it would 

give ATM operators the flexibility to more accurately disclose their surcharging practices, and 

thereby reduce consumer confusion. Several industry commenters asserted that a “will” 

disclosure could cause consumers who would not be charged a fee by the particular ATM to go 

to a different ATM, which could inconvenience the consumer, as well as possibly result in a fee 

surcharge at the second ATM that could have been avoided with a more accurate disclosure. 

Another industry commenter noted that most consumers will be unaware that the ATM signage 

disclosure is only required for consumers who do not hold accounts with the ATM operator, and 

that the use of “may” could easily be understood by ATM users as accommodating the ATM 

operator’s cardholders. 

Industry commenters also agreed with the Board’s observation in the August 2005 

proposal’s supplementary information that the signage disclosure is intended to allow consumers 

to identify ATMs that generally charge a fee for use, while the on-screen disclosure made after 

the consumer has entered his or her card into the machine but before the consumer is committed 

to the transaction provides a more specific disclosure regarding whether a fee will be incurred in 

that particular transaction. To support their view that the proposal is consistent with Sections 

904(d)(3)(A) and (B) of the EFTA, industry commenters cited a press release issued by the 

original act’s sponsor, Rep. Marge Roukema, which stated that the act “simply puts existing 

practice into law.”6

 One banking trade association noted that prior to the enactment of the 

Gramm-Leach-Bliley Act, the operating rules for one of the country’s largest ATM networks 

required ATM operators imposing a surcharge for use of their ATMs to post conspicuous notice 

on the ATM that the operator “may” charge a fee for cash withdrawals. The trade association 

further noted that this practice of disclosing that a fee “may” be imposed on signage followed by 

a more transaction-specific on-screen disclosure was, and continues to be, the common practice 

of some of the other larger ATM networks in the United States. 

Several industry commenters specifically addressed the Board’s decision to amend the 

regulation in the August 2005 proposal, instead of revising the commentary as originally 

proposed. One banking trade association stated that amending both the regulation and the 

commentary would facilitate industry understanding and compliance. Two other commenters, 

 

6

 Banking Committee OKs Roukema ATM Fee Disclosure (March 10, 1999), 

http://financialservices.house.gov/banking/31099rou.htm. 
39

representing credit unions, observed that the proposal to amend only the commentary was 

arguably inconsistent with § 205.16’s current language, and therefore the Board’s new proposal 

was appropriate. A few industry commenters asked the Board to clarify that the revisions do not 

represent a change in the ATM disclosure scheme, but merely a restatement and clarification of 

the requirements of existing law. 

Although agreeing that the EFTA permits signage at the ATM machine indicating that 

the fee is not charged in every instance, consumer groups believed that the revised proposal did 

not sufficiently implement the statute because it did not ensure that consumers who “will” be 

charged a fee would be adequately notified of that fact. Consumer groups believed that the 

circumstances in which fees will not be charged generally are limited. Therefore, consumer 

groups proposed an alternative approach that would require ATM operators to generally disclose 

that a fee “will” be imposed along with a list of exceptions when a fee would not be imposed. 

Consumer groups believed that the revised disclosure would more adequately apprise consumers 

of the fact that a fee will be imposed while still allowing ATM operators the flexibility to make 

more accurate disclosures regarding their surcharging practices. 

Industry commenters, however, noted that a rule requiring a “will” disclosure along with 

a list of the circumstances under which a fee would not be disclosed would likely result in 

lengthy and complicated signs that consumers are unlikely to read. Moreover, industry 

commenters also believed that the expense of replacing signs each time a surcharge policy is 

changed could have the unintended effect of discouraging ATM operators from waiving fees to 

accommodate consumers in special circumstances, such as in response to a natural disaster. 

A consumer rights attorney who opposed the Board’s September 2004 proposal on this 

issue reiterated his view that the current rule and commentary more correctly implements the 

statute’s intent, and cited his prior comments. This attorney urged the Board to withdraw the 

current proposal. 

The August 2005 revisions are adopted as proposed under the Board’s authority under 

Section 904(d) of the EFTA. Amending both the rule and the commentary addresses any 

potential inconsistencies between the current language of § 205.16 and the earlier proposed 

commentary, thereby facilitating industry compliance. However, while the Board is amending 

the regulation to address this issue, this amendment does not represent a change in the Board’s 

interpretation of the rule’s requirements. 

The final rule clarifies the two-part disclosure scheme established in Section 904(d)(3)(B) 

of the EFTA. The first disclosure, on ATM signage posted on or at the ATM, allows consumers 

to identify quickly ATMs that generally charge a fee for use. This disclosure is not intended to 

provide a complete disclosure of the fees associated with the particular type of transaction the 

consumer seeks to conduct. Until a consumer uses his or her card at an ATM, the ATM operator 

does not know whether a surcharge will be imposed for that particular consumer. Rather, it is 

the second, more specific disclosure, made either on the ATM screen or on an ATM receipt, that 

informs the consumer before he or she is committed to the transaction whether, in fact, a fee will 

be imposed for the transaction and the amount of the fee. Thus, consumers who are charged a 

fee would not be adversely affected by a general notice that a fee “may” be imposed because 
40

they will have the opportunity to terminate the transaction after receiving the on-screen notice or 

receipt containing the transaction-specific disclosure. 

The Board further believes that an alternative rule requiring institutions to provide a 

general disclosure that a fee “will” be imposed, while also specifying the circumstances under 

which a fee will not be imposed, would impose significant costs on ATM operators without 

corresponding benefit to consumers. Commenters indicated at least ten different circumstances 

in which a waiver may apply for a given ATM transaction, including surcharge-free networks, 

other contractual relationships, cards issued by foreign financial institutions, cards delivering 

governmental benefits, corporate affiliations with the ATM operator, and in response to special 

circumstances, such as to provide disaster relief. Thus, consumers could be confused or 

discouraged by signage containing potentially lengthy disclosures listing the many circumstances 

under which a fee would not be imposed. Such a rule could also require ATM operators to 

modify all of their signs each time they revised their surcharge practices, at considerable cost. 

Industry commenters estimated the cost of a systemwide change in ATM signage anywhere 

between $200,000 for an institution with approximately 6,000 ATMs to over $1 million for an 

institution with over 16,500 ATMs. Moreover, the time necessary for changing all of the signs 

would render at least some of the signs inaccurate for a period of time. 

Accordingly, for the reasons discussed above, § 205.16(b) is revised to explicitly clarify 

that ATM operators may disclose on ATM signage that a fee will be imposed or, in the 

alternative, that a fee may be imposed on consumers initiating an EFT or for a balance inquiry if 

there are circumstances under which some consumers would not be charged for such services. 

The flexibility provided in the final rule allows ATM operators that currently disclose that a fee 

“will” be charged to continue to use existing signs even if a fee is not charged in all cases. 

Comment 16(b)(1)-1 is revised for consistency with the final rule, and to clarify that ATM 

operators that impose an ATM surcharge in all cases must provide notice on the ATM signage 

that a fee “will” be charged. 

Appendix A – Model Disclosure Clauses and Forms

A-2 – Model Clauses for Initial Disclosures

 Model clauses for initial disclosures contained in Appendix A (Form A-2) are revised to 

provide disclosures about ECK transactions. In particular, model clauses (a) and (b) are revised 

to instruct consumers to notify their account holding institution when unauthorized EFTs have 

been made without the consumer’s permission using information from their checks. The 

discussion on the applicable liability limits remains generally unchanged, however, because the 

first two tiers of liability do not apply to unauthorized transfers made without an access device 

(for example, those made using information from a check to initiate a one-time ACH debit). See

comments 2(a)-2, 6(b)(3)-2. 

 Model clause (d) also is revised to list as a new type of transfer a one-time electronic 

fund transfer made from a consumer account using information from the consumer’s check. See

comment 7(b)(4)-4. 

A-3 – Model Forms for Error-Resolution Notice
41

 Paragraph (b) of Model Form A-3 is included after its inadvertent deletion following 

publication of the March 2001 interim final rule establishing uniform standards for the electronic 

delivery of disclosures required by the EFTA and Regulation E. 66 FR 17,786 (April 4, 2001). 

No changes are intended by the re-inclusion of paragraph (b). Paragraph (a) is reprinted for 

convenience. 

A-6 – Model Clauses for Authorizing One-Time Electronic Fund Transfer Using 

Information From a Check (§ 205.3(b)(2)) 

Model Form A-6 is added to provide model clauses for the authorization requirements of 

§ 205.3(b)(2) for a person that initiates an EFT using information from a consumer’s check. 

Consistent with comment 2 for Appendix A, the use of appropriate clauses in making disclosures 

will provide protection from liability under Sections 915 and 916 of the EFTA provided the 

clauses accurately reflect the institution’s EFT services. See also § 205.3(b)(2)(iv). Model 

Clause A-6(a), which permits payees to obtain a consumer’s authorization to use information 

from his or her check to initiate an EFT or to process the transaction as a check, is adopted 

generally as proposed. Model Clause A-6(a) may be used in all instances. Model Clause A-6(b) 

is also adopted to accommodate those payees who may want to provide more specific 

information concerning their ECK practices for business reasons, and consolidates proposed 

Model Clauses A-6(b) and (c). The additional information about when funds may be debited 

from the consumer’s account and the non-return of checks is provided in Model Clause 

A-6(c) of the final rule. 

V. Final Regulatory Flexibility Analysis 

The Board prepared an initial regulatory flexibility analysis as required by the Regulatory 

Flexibility Act (RFA) (5 U.S.C. 601 et seq.) in connection with the September 2004 proposal. 

The Board received no comments on its initial regulatory flexibility analysis. 

Under Section 605(b) of the RFA, 5 U.S.C. 605(b), the regulatory flexibility analysis 

otherwise required under Section 604 of the RFA is not required if an agency certifies, along 

with a statement providing the factual basis for such certification, that the rule will not have a 

significant economic impact on a substantial number of small entities. Based on its analysis and 

for the reasons stated below, the Board certifies that this final rule will not have a significant 

economic impact on a substantial number of small entities. 

1. Statement of the need for, and objectives of, the final rule. The Board is revising 

Regulation E to require a person initiating an EFT using information from a consumer’s check to 

obtain the consumer’s authorization. Generally, authorization is obtained when the payee 

provides notice that a payment by check will or may be converted to an EFT, and the consumer 

provides a check as payment. The amendment to Regulation E will promote consistency in the 

notice provided to consumers by merchants and other payees. 
42

Additional guidance is provided in the staff commentary about a financial institution’s 

error resolution obligations for certain transactions, and to clarify the responsibilities of financial 

institutions and merchants for preauthorized transfers from consumer accounts. 

The EFTA was enacted to provide a basic framework establishing the rights, liabilities, 

and responsibilities of participants in EFT systems. The primary objective of the EFTA is the 

provision of individual consumer rights. 15 U.S.C. 1693. The EFTA authorizes the Board to 

prescribe regulations to carry out the purpose and provisions of the statute. 

15 U.S.C. 1693b(a). The EFTA expressly states that the Board’s regulations may contain “such 

classifications, differentiations, or other provisions, . . . as, in the judgment of the Board, are 

necessary or proper to effectuate the purposes of [the EFTA], to prevent circumvention or 

evasion [of the act], or to facilitate compliance [with the EFTA].” 15 U.S.C. 1693b(c). The 

EFTA also states that “[i]f electronic fund transfer services are made available to consumers by a 

person other than a financial institution holding a consumer’s account, the Board shall by 

regulation assure that the disclosures, protections, responsibilities, and remedies created by [the 

EFTA] are made applicable to such persons and services.” 15 U.S.C. 1693b(d). The Board 

believes that the revisions to Regulation E discussed above are within Congress’ broad grant of 

authority to the Board to adopt provisions that carry out the purposes of the statute. 

2. Issues raised by comments in response to the initial regulatory flexibility analysis. In 

accordance with Section 3(a) of the RFA, the Board conducted an initial regulatory flexibility 

analysis in connection with the proposed rule. The Board did not receive any comments on its 

initial regulatory flexibility analysis. 

3. Small entities affected by the final rule. Merchants or other payees that initiate onetime EFTs from a consumer’s account using information from the consumer’s check are required 

under the regulation to obtain the consumer’s authorization for the transfers. For POS and ARC 

transactions, payees must provide a notice that a check will or may be converted. For ARC 

transactions, notice will likely be provided on a billing statement or invoice. At POS, notice also 

must be provided on posted signage, and a copy of the notice must be given to the consumer at 

the time of the transaction. Payees in ECK transactions must also provide notice that funds may 

be debited from a consumer’s account as soon as the same day payment is made or received and 

that the consumer’s check will not be returned by the consumer’s financial institution. In 

addition, before a payee may collect a service fee for insufficient or uncollected funds via EFT 

from a consumer’s account, the payee must provide a notice that such a fee may be collected by 

use of an EFT and disclose the amount of the fee. Account-holding institutions are required 

under the regulation to disclose to their consumers that electronic check conversion transactions 

are a new type of transfer that can be made from a consumer’s account. 

Merchants and other payees that engage in check conversion transactions must obtain 

consumers’ authorizations for electronic check conversion transactions and for the collection of 

fees debited via an EFT if a payment is returned unpaid, and generally do so via signage and on a 

transaction receipt at the POS. In particular, payment system rules require that authorization for 

one-time debits to a consumer’s account must be in writing and signed or similarly authenticated 

by the consumer. The Board further understands that many payees provide notice on receipts at 
43

POS. Similarly, payees are generally providing written notices in ARC transactions because 

payment system rules require written notices to be provided to consumers. 

Under the amendments to Regulation E, payees must review the notices that they 

presently provide in accordance with payment system rules, and may be required to revise these 

notices in some cases to ensure compliance with the amendments to Regulation E. The Board 

believes that these amendments will not have a significant economic impact on small entities 

because payees are generally providing notices regarding ECK and the collection of service fees 

for insufficient funds electronically in accordance with payment system rules. Furthermore, the 

Board believes that obtaining consumer authorization for ECK transactions via signage at the 

POS is less costly than obtaining authorization via signed receipts. 

Payees will have to revise their notices to inform consumers in ECK transactions that 

funds may be debited from their account soon after payment is received and, if applicable, that 

consumers’ checks will not be returned by their financial institutions. At POS, this additional 

information may be provided separately from the general authorization notice. The Board 

understands that many payees in ARC transactions are already providing notice to consumers 

regarding when funds may be debited from a consumer’s account when consumers’ checks are 

converted, and stating that consumers’ checks will not be returned by their financial institutions. 

For those payees that are not already providing some form of notice at POS or for ARC 

transactions, the final rule provides model language to facilitate compliance. Thus, the Board 

does not believe that the requirement to provide notice about the nature of ECK transactions will 

have a significant economic impact on small entities.

Small financial institutions may need to review their initial disclosures, and perhaps 

revise them to reflect that electronic check conversion transactions are a new type of transfer that 

can be made from a consumer’s account. This disclosure is also “generic” and will not vary 

among consumers. Model language is provided in the rule to facilitate compliance. Thus, the 

Board believes this requirement also should not have a significant economic impact on small 

entities. The Board also understands that many institutions have already revised their periodic 

statements to reflect that checks may be converted. 

4. Other federal rules. The Board believes no federal rules duplicate, overlap, or conflict 

with the final revisions to Regulation E. 

5. Significant alternatives to the proposed revisions. The Board solicited comment about 

potential ways to reduce regulatory burden. Several commenters urged the Board not to require 

written, signed authorization for checks converted at POS. In light of the potential impact on 

entities and limited additional consumer benefit, the final rule does not require a payee to obtain 

a consumer’s signature to convert a check. In the final rule, the Board is also providing a sunset 

period of three years for the additional ECK disclosures about when funds may be debited from 

the consumer’s account and the non-return of checks. The Board anticipates that increased 

consumer familiarity with ECK transactions over time will make unnecessary the provision of 

this additional information. 

. 

VI. Paperwork Reduction Act 
44

 In accordance with the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3506; 

5 CFR 1320 Appendix A.1), the Board reviewed the rule under the authority delegated to the 

Board by the Office of Management and Budget (OMB). The final rule contains requirements 

subject to the PRA. The collection of information that is required by this rule is found in 12 CFR 

205.2(b)(3), 205.3(b)(2) and 205.7. The Federal Reserve may not conduct or sponsor, and an 

organization is not required to respond to, this information collection unless the information 

collection displays a currently valid OMB control number. The OMB control number is 7100-

0200. This information is required to provide benefits for consumers and is mandatory (15 

U.S.C. 1693 et seq.). The respondents/recordkeepers are for-profit financial institutions, 

including small businesses. Institutions are required to retain records for 24 months. 

All financial institutions subject to Regulation E, of which there are approximately 

19,300, are considered respondents for the purposes of the PRA and may be required to provide 

notice to accountholders that electronic check conversion (ECK) transactions are a new type of 

transfer that may be made from a consumer’s account under § 205.7. In addition, all persons, 

such as merchants and other payees, that engage in ECK transactions, of which there are 

approximately 80,000, potentially are affected by this collection of information, because these 

merchants and payees will be required to obtain a consumer’s authorization for the electronic 

transfer under § 205.3(b)(2). 

The following estimates represent an average across all respondents and reflect variations 

among institutions based on their size, complexity, and practices. The other federal agencies are 

responsible for estimating and reporting to OMB the total paperwork burden for the institutions 

for which they have administrative enforcement authority. They may, but are not required to, 

use the Federal Reserve’s burden estimate methodology. 

 The first disclosure requirement, described in § 205.7, is the initial disclosure that a 

financial institution must provide to their accountholders reflecting that ECK transactions are a 

new type of transfer that can be made from a consumer’s account. The Federal Reserve 

estimates that each of the institutions, for which it has administrative enforcement authority 

(collectively referred to in the following paragraphs as “respondents regulated by the Federal 

Reserve”) will be required to provide a revised initial disclosure to their accountholders. 

Currently, all respondents regulated by the Federal Reserve are required to provide a disclosure 

of basic terms, costs, and rights relating to EFT services under Regulation E. For purposes of 

this PRA analysis, the Federal Reserve estimates that it will take financial institutions, on 

average, 8 hours (one business day) to reprogram and update systems to include the new notice 

requirement relating to ECK transactions; therefore, the Federal Reserve estimates that the total 

annual burden for all financial institutions for this requirement will be 154,400 hours. With 

respect to the 1,289 Federal-Reserve-regulated institutions which must comply with Regulation 

E, it is estimated that the total annual burden for this requirement will be 10,312 hours. The final 

revisions to Regulation E provide institutions with model clauses for the initial disclosure 

requirement for ECK transactions (provided in Appendix A) that they may use to comply with 

the notice requirement. 
45

 The second disclosure requirement, described in § 205.3(b)(2), is required when persons, 

such as merchants and other payees, engage in ECK transactions. Under the final rule, 

merchants and payees are generally required to provide written notice to obtain a consumer’s 

authorization for the one-time EFT. Merchants and payees will also be required to provide a 

written notice to obtain a consumer’s authorization to collect any service fees for insufficient or 

uncollected funds via an EFT to the consumer’s account. The notice must also disclose the 

amount of the service fee. Finally, merchants and payees that engage in ECK transactions must 

provide a notice to consumers that when a check is used to initiate an EFT, funds may be debited 

from a consumer’s account as soon as the same day payment is made or received and consumers’ 

checks will not be returned by their financial institution. 

 The Federal Reserve estimates that of the 1,289 respondents regulated by the Federal 

Reserve that are required to comply with Regulation E, approximately 10 originate ECK 

transactions. The Federal Reserve estimates that it will take each respondent, on average, 8 

hours (1 business day) to reprogram and update their systems to include the new notice 

requirement relating to ECK transactions; therefore, the Federal Reserve estimates that the total 

annual burden is 80 hours. The final revisions to Regulation E provide institutions with model 

clauses (provided in Appendix A) for the new disclosure requirements. Using the Federal 

Reserve’s methodology, the total annual burden for all other merchants and payees engaging in 

ECK transactions is 639,920 hours. 

 A third disclosure requirement applies to ATM operators who are required to provide 

notice to consumers of an ATM surcharge. Under this final rule, ATM operators will be 

permitted to disclose on signage posted at the ATM that a surcharge “may” be imposed if there 

are circumstances under which a surcharge is not imposed. All financial institutions, of which 

there are approximately 19,300, potentially are subject to this requirement to the extent they are 

ATM operators under the rule. The extent to which this collection of information affects a 

particular financial institution depends on the number of ATMs an institution operates, and on 

whether the institution elects to revise its ATM signage disclosures. For purposes of this PRA 

analysis, the Federal Reserve estimates that it will take financial institutions, on average, 8 hours 

(one business day) to revise and update ATM signage; therefore the Federal Reserve estimates 

that the total annual burden for all depository institutions for this requirement will be 154,400 

hours. With respect to the 1,289 Federal Reserve-regulated institutions which must comply with 

Regulation E, it is estimated that the total annual burden for this requirement will be 10,312 

hours. 

 The Federal Reserve’s current annual burden for Regulation E disclosures is estimated to 

be 63,047 hours. The final rule will increase the total burden under Regulation E for all Federal 

Reserve-regulated institutions by 20,704 hours, from 63,047 to 83,751 hours. (This burden 

estimate does not include the burden associated with the new disclosure requirements in 

connection with payroll card accounts as announced in a separate interim final rule (Docket No. 

R-1247).) Using the methodology explained above, the final rule would increase total burden 

under Regulation E for all other financial institutions by approximately 928,096 hours. 
46

Because the records would be maintained by the institutions and the notices are not 

provided to the Federal Reserve, no issue of confidentiality arises under the Freedom of 

Information Act. 

Text of Final Revisions 

Comments are numbered to comply with Federal Register publication rules. 

List of Subjects in 12 CFR Part 205 

 Consumer protection, Electronic fund transfers, Federal Reserve System, Reporting and 

recordkeeping requirements. 

 For the reasons set forth in the preamble, the Board amends 12 CFR part 205 and the 

Official Staff Commentary, as follows: 

PART 205 – ELECTRONIC FUND TRANSFERS (REGULATION E) 

1. The authority citation for part 205 continues to read as follows: 

Authority: 15 U.S.C. 1693b. 

2. Section 205.3 is amended by revising paragraph (a), redesignating paragraph (b) as 

paragraph (b)(1), revising paragraph (b)(1), and adding new paragraphs (b)(2) and (b)(3) as 

follows: 

§ 205.3 Coverage 

(a) General. This part applies to any electronic fund transfer that authorizes a financial 

institution to debit or credit a consumer’s account. Generally, this part applies to financial 

institutions. For purposes of §§ 205.3(b)(2), 205.10(b), (d), and (e) and 205.13, this part applies 

to any person. 

(b) Electronic fund transfer – (1) Definition. The term electronic fund transfer means any 

transfer of funds that is initiated through an electronic terminal, telephone, computer, or 

magnetic tape for the purpose of ordering, instructing, or authorizing a financial institution to 

debit or credit a consumer’s account. The term includes, but is not limited to – 

 (i) Point-of-sale transfers; 

 (ii) Automated teller machine transfers; 

 (iii) Direct deposits or withdrawals of funds; 

 (iv) Transfers initiated by telephone; and 
47

 (v) Transfers resulting from debit card transactions, whether or not initiated through an 

electronic terminal. 

(2) Electronic fund transfer using information from a check. (i) This part applies where a 

check, draft, or similar paper instrument is used as a source of information to initiate a one-time 

electronic fund transfer from a consumer’s account. The consumer must authorize the transfer. 

 (ii) The person that initiates an electronic fund transfer using the consumer’s check as a 

source of information for the transfer shall provide a notice that the transaction will or may be 

processed as an EFT, and obtain a consumer’s authorization for each transfer. A consumer 

authorizes a one-time electronic fund transfer (in providing a check to a merchant or other payee 

for the MICR encoding, that is, the routing number of the financial institution, the consumer’s 

account number and the serial number) when the consumer receives notice and goes forward 

with the transaction. For point-of-sale transfers, the notice must be posted in a prominent and 

conspicuous location, and a copy of the notice must be provided to the consumer at the time of 

the transaction. 

(iii) The person that initiates an electronic fund transfer using the consumer’s check as a 

source of information for the transfer shall also provide a notice to the consumer at the same time 

it provides the notice required under paragraph (b)(2)(ii) that when a check is used to initiate an 

electronic fund transfer, funds may be debited from the consumer’s account as soon as the same 

day payment is received, and, as applicable, that the consumer’s check will not be returned by 

the financial institution holding the consumer’s account. For point-of-sale transfers, the person 

initiating the transfer may post the notice required in this paragraph (b)(2)(iii) in a prominent and 

conspicuous location and need not include this notice on the copy of the notice given to the 

consumer under paragraph (b)(2)(ii). The requirements in this paragraph (b)(2)(iii) shall remain 

in effect until December 31, 2009. 

(iv) A person may provide notices that are substantially similar to those set forth in 

Appendix A-6 to comply with the requirements of this paragraph (b)(2). 

(3) Collection of service fees via electronic fund transfer. A consumer authorizes a onetime electronic fund transfer from the consumer’s account to pay a fee for the return of an 

electronic fund transfer or a check unpaid due to insufficient or uncollected funds in the 

consumer’s account, when the consumer receives a notice stating that the fee will be collected by 

an electronic fund transfer from the consumer’s account, along with a disclosure of the amount 

of the fee, and the consumer goes forward with the transaction. If the service fee for insufficient 

or uncollected funds may be collected in connection with a point-of-sale transfer, the notice must 

be posted in a prominent and conspicuous location, and a copy of the notice must be provided to 

the consumer at the time of the transaction. 

* * * * * 

 4. Section 205.7 is amended by adding a new paragraph (c) as follows: 

§ 205.7 Initial disclosures 
48

* * * * * 

(c) Addition of electronic fund transfer services. If an electronic fund transfer service is 

added to a consumer’s account and is subject to terms and conditions different from those 

described in the initial disclosures, disclosures for the new service are required. 

 5. Section 205.16 is amended by revising paragraph (c) as follows: 

§ 205.16 Disclosures at automated teller machines 

* * * * * 

(c) Notice requirement. To meet the requirements of paragraph (b) of this section, an 

automated teller machine operator must comply with the following: 

(1) On the machine. Post in a prominent and conspicuous location on or at the automated 

teller machine a notice that: 

(i) A fee will be imposed for providing electronic fund transfer services or for a balance 

inquiry; or 

(ii) A fee may be imposed for providing electronic fund transfer services or for a balance 

inquiry, but the notice in this paragraph (c)(1)(ii) may be substituted for the notice in paragraph 

(c)(1)(i) only if there are circumstances under which a fee will not be imposed for such services; 

and 

(2) Screen or paper notice. Provide the notice required by paragraphs (b)(1) and (b)(2) 

of this section either by showing it on the screen of the automated teller machine or by providing 

it on paper, before the consumer is committed to paying a fee. 

* * * * * 

 6. In Appendix A to Part 205, 

a. In A-2 MODEL CLAUSES FOR INITIAL DISCLOSURES (§ 205.7(b)), paragraphs 

(a), (b) and (d) are revised; 

b. In A-3 MODEL FORMS FOR ERROR RESOLUTION NOTICE (§§ 205.7(b)(10) and 

205.8(b)), paragraph (a) is republished, and paragraph (b) is added; 

c. Appendix A-6 MODEL CLAUSES FOR AUTHORIZING ONE-TIME 

ELECTRONIC FUND TRANSFER USING INFORMATION FROM A CHECK 

(§ 205.3(b)(2)) is added. 

APPENDIX A TO PART 205 – MODEL DISCLOSURE CLAUSES AND FORMS 
49

* * * * * 

A-2 – MODEL CLAUSES FOR INITIAL DISCLOSURES (§ 205.7(b)) 

(a) Consumer Liability (§ 205.7(b)(1)). 

(Tell us AT ONCE if you believe your [card] [code] has been lost or stolen, or if you 

believe that an electronic fund transfer has been made without your permission using information 

from your check. Telephoning is the best way of keeping your possible losses down. You could 

lose all the money in your account (plus your maximum overdraft line of credit). If you tell us 

within 2 business days after you learn of the loss or theft of your [card] [code], you can lose no 

more than $50 if someone used your [card][code] without your permission.) 

If you do NOT tell us within 2 business days after you learn of the loss or theft of your 

[card] [code], and we can prove we could have stopped someone from using your [card] [code] 

without your permission if you had told us, you could lose as much as $500. 

 Also, if your statement shows transfers that you did not make, including those made by 

card, code or other means, tell us at once. If you do not tell us within 60 days after the statement 

was mailed to you, you may not get back any money you lost after the 60 days if we can prove 

that we could have stopped someone from taking the money if you had told us in time. If a good 

reason (such as a long trip or a hospital stay) kept you from telling us, we will extend the time 

periods. 

(b) Contact in event of unauthorized transfer (§ 205.7(b)(2)). If you believe your [card] [code] 

has been lost or stolen, call: 

[Telephone number] 

or write: 

[Name of person or office to be notified] 

[Address] 

You should also call the number or write to the address listed above if you believe a transfer has 

been made using the information from your check without your permission.

* * * * * 

(d) Transfer types and limitations (§ 205.7(b)(4))—(1) Account access. You may use your 

[card][code] to: 

(i) Withdraw cash from your [checking] [or] [savings] account. 

(ii) Make deposits to your [checking] [or] [savings] account. 

(iii) Transfer funds between your checking and savings accounts whenever you request. 
50

(iv) Pay for purchases at places that have agreed to accept the [card] [code]. 

(v) Pay bills directly [by telephone] from your [checking] [or] [savings] account in the amounts 

and on the days you request. 

Some of these services may not be available at all terminals. 

(2) Electronic check conversion. You may authorize a merchant or other payee to make a onetime electronic payment from your checking account using information from your check to: 

(i) Pay for purchases. 

(ii) Pay bills. 

(3) Limitations on frequency of transfers—(i) You may make only [insert number, e.g., 3] cash 

withdrawals from our terminals each [insert time period, e.g., week]. 

(ii) You can use your telephone bill-payment service to pay [insert number] bills each [insert 

time period] [telephone call]. 

(iii) You can use our point-of-sale transfer service for [insert number] transactions each [insert 

time period]. 

(iv) For security reasons, there are limits on the number of transfers you can make using our 

[terminals] [telephone bill-payment service] [point-of-sale transfer service]. 

(4) Limitations on dollar amounts of transfers—(i) You may withdraw up to [insert dollar 

amount] from our terminals each [insert time period] time you use the [card] [code]. 

(ii) You may buy up to [insert dollar amount] worth of goods or services each [insert time 

period] time you use the [card] [code] in our point-of-sale transfer service. 

* * * * * 

A-3 MODEL FORMS FOR ERROR RESOLUTION NOTICE (§§ 205.7(b)(10) and 

205.8(b)) 

(a) Initial and annual error resolution notice (§§ 205.7(b)(10) and 205.8(b)). 

In Case of Errors or Questions About Your Electronic Transfers 

Telephone us at [insert telephone number], or 

Write us at [insert address] 

[or 

E-mail us at [insert electronic mail address]] 
51

as soon as you can, if you think your statement or receipt is wrong or if you need more 

information about a transfer listed on the statement or receipt. We must hear from you no later 

than 60 days after we sent the FIRST statement on which the problem or error appeared. 

(1) Tell us your name and account number (if any). 

(2) Describe the error or the transfer you are unsure about, and explain as clearly as 

you can why you believe it is an error or why you need more information. 

(3) Tell us the dollar amount of the suspected error. 

If you tell us orally, we may require that you send us your complaint or question in 

writing within 10 business days. 

We will determine whether an error occurred within 10 business days after we hear from 

you and will correct any error promptly. If we need more time, however, we may take up to 45 

days to investigate your complaint or question. If we decide to do this, we will credit your 

account within 10 business days for the amount you think is in error, so that you will have the 

use of the money during the time it takes us to complete our investigation. If we ask you to put 

your complaint or question in writing and we do not receive it within 10 business days, we may 

not credit your account. 

For errors involving new accounts, point-of-sale, or foreign-initiated transactions, we 

may take up to 90 days to investigate your complaint or question. For new accounts, we may 

take up to 20 business days to credit your account for the amount you think is in error. 

We will tell you the results within three business days after completing our investigation. 

If we decide that there was no error, we will send you a written explanation. You may ask for 

copies of the documents that we used in our investigation. 

(b) Error resolution notice on periodic statements (§ 205.8(b)). 

In Case of Errors or Questions About Your Electronic Transfers 

Telephone us at [insert telephone number] or 

Write us at [insert address] 

as soon as you can, if you think your statement or receipt is wrong or if you need more 

information about a transfer on the statement or receipt. We must hear from you no later than 60 

days after we sent you the FIRST statement on which the error or problem appeared. 

(1) Tell us your name and account number (if any). 

(2) Describe the error or the transfer you are unsure about, and explain as clearly as you can why 

you believe it is an error or why you need more information. 

(3) Tell us the dollar amount of the suspected error. 
52

We will investigate your complaint and will correct any error promptly. If we take more 

than 10 business days to do this, we will credit your account for the amount you think is in error, 

so that you will have the use of the money during the time it takes us to complete our 

investigation. 

* * * * * 

A-6—MODEL CLAUSES FOR AUTHORIZING ONE-TIME ELECTRONIC FUND 

TRANSFERS USING INFORMATION FROM A CHECK (§ 205.3(b)(2)) 

(a) – Notice About Electronic Check Conversion

When you provide a check as payment, you authorize us either to use information from 

your check to make a one-time electronic fund transfer from your account or to process the 

payment as a check transaction. 

[You authorize us to collect a fee of $ ___ through an electronic fund transfer from your 

account if your payment is returned unpaid.] 

(b) – Alternative Notice About Electronic Check Conversion (Optional)

 When you provide a check as payment, you authorize us to use information from your 

check to make a one-time electronic fund transfer from your account. In certain circumstances, 

such as for technical or processing reasons, we may process your payment as a check transaction. 

[Specify other circumstances (at payee’s option).]

[You authorize us to collect a fee of $ ___ through an electronic fund transfer from your 

account if your payment is returned unpaid.] 

(c) – Notice For Providing Additional Information About Electronic Check Conversion

When we use information from your check to make an electronic fund transfer, funds 

may be withdrawn from your account as soon as the same day [you make] [we receive] your 

payment[, and you will not receive your check back from your financial institution]. 

7. In Supplement I to Part 205, the following amendments are made: 

 a. Under Section 205.2 – Definitions, under 2(a) Access Device, paragraph 2. is revised; 

 b. Under Section 205.3 – Coverage, under 3(b) Electronic Fund Transfer, a new heading 

“Paragraph 3(b)(1) – Definition” is added, paragraphs 1. and 2. are redesignated as paragraphs 

3(b)(1)1 and 3(b)(1)2, and paragraph 3. is removed; 

 c. Under Section 205.3 – Coverage, under 3(b) Electronic Fund Transfer, under 

Paragraph 3(b)(1) – Definition, paragraph 2.iv. is added; 
53

 d. Under Section 205.3 – Coverage, under 3(b) Electronic Fund Transfer, a new heading 

“Paragraph 3(b)(2) – Electronic Fund Transfer Using Information From a Check” is added, and 

paragraphs 1. through 5. are added; 

e. Under Section 205.3 – Coverage, under 3(b) Electronic Fund Transfer, a new heading 

“Paragraph 3(b)(3) – Collection of Service Fees via Electronic Fund Transfer” is added, and 

paragraph 1. is added; 

 f. Under Section 205.3 – Coverage, under 3(c) Exclusions from coverage, under heading 

Paragraph 3(c)(1) – Checks, paragraphs 1. and 2. are revised; 

 g. Under Section 205.5 – Issuance of Access Devices, under 5(a) Solicited Issuance, 

under Paragraph 5(a)(2), paragraph 1. is revised; 

h. Under Section 205.5 – Issuance of Access Devices, under 5(b) Unsolicited Issuance, 

paragraph 5. is added; 

i. Under Section 205.7 – Initial Disclosures, under 7(a) Timing of Disclosures, paragraph 

1. is revised, paragraph 4. is removed, and paragraphs 5. and 6. are redesignated as paragraphs 4. 

and 5.; 

 j. Under Section 205.7 – Initial Disclosures, under 7(b) Content of Disclosures, under 

Paragraph 7(b)(4) – Types of Transfers; Limitations, paragraph 4. is added; 

 k. Under Section 205.7 – Initial Disclosures, a new heading “7(c) Addition of Electronic 

Fund Transfer Services” is added, and paragraph 1. is added; 

l. Under Section 205.10 – Preauthorized Transfers, under 10(b) Written Authorization 

for Preauthorized Transfers from Consumer’s Account, paragraphs 3. and 7. are revised; 

 m. Under Section 205.10 – Preauthorized Transfers, under 10(c) Consumer’s Right to 

Stop Payment, paragraph 2. is revised, and paragraph 3. is added; 

 n. Under Section 205.10 – Preauthorized Transfers, under 10(d) Notice of Transfers 

Varying in Amount, under Paragraph 10(d)(2) – Range, paragraph 2. is added; 

o. Under Section 205.11 – Procedures for Resolving Errors, under 11(b) Notice of Error 

from Consumer, under Paragraph 11(b)(1) – Timing; Contents, paragraph 7. is added; 

p. Under Section 205.11 – Procedures for Resolving Errors, under 11(c) Time Limits and 

Extent of Investigation, under Paragraph 11(c)(4) – Investigation, paragraph 5. is added; and 

q. Under Section 205.16 – Disclosures at Automated Teller Machines, under 16(b) 

General, under Paragraph 16(b)(1), paragraph 1. is revised. 
54

SUPPLEMENT I TO PART 205 – OFFICIAL STAFF INTERPRETATIONS 

* * * * * 

Section 205.2 – Definitions 

 2(a) Access Device

* * * * * 

 2. Checks used to capture information. The term “access device” does not include a 

check or draft used to capture the MICR (Magnetic Ink Character Recognition) encoding to 

initiate a one-time ACH debit. For example, if a consumer authorizes a one-time ACH debit 

from the consumer’s account using a blank, partially completed, or fully completed and signed 

check for the merchant to capture the routing, account, and serial numbers to initiate the debit, 

the check is not an access device. (Although the check is not an access device under Regulation 

E, the transaction is nonetheless covered by the regulation. See comment 3(b)(1)-1.v.) 

* * * * * 

Section 205.3 – Coverage 

* * * * * 

3(b) Electronic Fund Transfer

Paragraph 3(b)(1) – Definition 

* * * * * 

 2. Fund transfers not covered. The term “electronic fund transfer” does not include – 

* * * 

 iv. Transactions arising from the electronic collection, presentment, or return of checks 

through the check collection system, such as through transmission of electronic check images. 

Paragraph 3(b)(2) – Electronic Fund Transfer Using Information From a Check 

1. Notice at POS not furnished due to inadvertent error. If the copy of the notice under 

section 205.3(b)(2)(ii) for ECK transactions is not provided to the consumer at POS because of a 

bona fide unintentional error, such as when a terminal printing mechanism jams, no violation 

results if the payee maintains procedures reasonably adapted to avoid such occurrences. 

2. Authorization to process a transaction as an EFT or as a check. In order to process a 

transaction as an EFT or alternatively as a check, the payee must obtain the consumer’s 
55

authorization to do so. A payee may, at its option, specify the circumstances under which a 

check may not be converted to an EFT. (See model clauses in Appendix A-6.) 

3. Notice for each transfer. Generally, a notice to authorize an electronic check 

conversion transaction must be provided for each transaction. For example, a consumer must 

receive a notice that the transaction will be processed as an EFT for each transaction at POS or 

each time a consumer mails a check in an accounts receivable (ARC) transaction to pay a bill, 

such as a utility bill, if the payee intends to convert a check received as payment. Similarly, the 

consumer must receive notice if the payee intends to collect a service fee for insufficient or 

uncollected funds via an EFT for each transaction whether at POS or if the consumer mails a 

check to pay a bill. The notice about when funds may be debited from a consumer’s account and 

the non-return of consumer checks by the consumer’s financial institution must also be provided 

for each transaction. However, if in an ARC transaction, a payee provides a coupon book to a 

consumer, for example, for mortgage loan payments, and the payment dates and amounts are set 

out in the coupon book, the payee may provide a single notice on the coupon book stating all of 

the required disclosures under paragraph (b)(2) of this section in order to obtain authorization for 

each conversion of a check and any debits via EFT to the consumer’s account to collect any 

service fees imposed by the payee for insufficient or uncollected funds in the consumer’s 

account. The notice must be placed on a conspicuous location of the coupon book that a 

consumer can retain – for example, on the first page, or inside the front cover. 

4. Multiple payments/multiple consumers. If a merchant or other payee will use 

information from a consumer’s check to initiate an EFT from the consumer’s account, notice to a 

consumer listed on the billing account that a check provided as payment during a single billing 

cycle or after receiving an invoice or statement will be processed as a one-time EFT or as a 

check transaction constitutes notice for all checks provided in payment for the billing cycle or 

the invoice for which notice has been provided, whether the check(s) is submitted by the 

consumer or someone else. The notice applies to all checks provided in payment for the billing 

cycle or invoice until the provision of notice on or with the next invoice or statement. Thus, if a 

merchant or other payee receives a check as payment for the consumer listed on the billing 

account after providing notice that the check will be processed as a one-time EFT, the 

authorization from that consumer constitutes authorization to convert any other checks provided 

for that invoice or statement. Other notices required under this paragraph (b)(2) (for example, to 

collect a service fee for insufficient or uncollected funds via an EFT) provided to the consumer 

listed on the billing account also constitutes notice to any other consumer who may provide a 

check for the billing cycle or invoice. 

5. Additional disclosures about ECK transactions at POS. When a payee initiates an 

EFT at POS using information from the consumer’s check, and returns the check to the consumer 

at POS, the payee need not provide a notice to the consumer that the check will not be returned 

by the consumer’s financial institution. 

 Paragraph 3(b)(3) – Collection of Service Fees via Electronic Fund Transfer 

 1. Fees imposed by account-holding institution. The requirement to obtain a consumer’s 

authorization at POS to collect a fee via EFT for the return of an EFT or check unpaid due to 
56

insufficient or uncollected funds in the consumer’s account does not apply to fees assessed 

against the consumer’s account by the consumer’s account-holding institution for the return of an 

EFT or a check unpaid or for paying overdrafts. 

* * * * * 

3(c) Exclusions from Coverage

Paragraph 3(c)(1) – Checks 

1. Re-presented checks. The electronic re-presentment of a returned check is not 

covered by Regulation E because the transaction originated by check. Regulation E does apply, 

however, to any fee debited via an EFT from a consumer’s account by the payee because the 

check was returned for insufficient or uncollected funds. The person debiting the fee 

electronically must obtain the consumer’s authorization. 

2. Check used to capture information for a one-time EFT. See comment 3(b)(1)-1.v. 

* * * * * 

Section 205.5 – Issuance of Access Devices 

* * * * * 

5(a) Solicited Issuance

* * * * * 

Paragraph 5(a)(2) 

1. One-for-one rule. In issuing a renewal or substitute access device, only one renewal 

or substitute device may replace a previously issued device. For example, only one new card and 

PIN may replace a card and PIN previously issued. A financial institution may provide 

additional devices at the time it issues the renewal or substitute access device, however, provided 

the institution complies with § 205.5(b). (See comment 5(b)-5.) If the replacement device or the 

additional device permits either fewer or additional types of electronic fund transfer services, a 

change-in-terms notice or new disclosures are required. 

* * * * * 

5(b) Unsolicited Issuance

* * * * * 

 5. Additional access devices in a renewal or substitution. A financial institution may 

issue more than one access device in connection with the renewal or substitution of a previously 
57

issued accepted access device, provided that any additional access device (beyond the device 

replacing the accepted access device) is not validated at the time it is issued, and the institution 

complies with the other requirements of § 205.5(b). The institution may, if it chooses, set up the 

validation procedure such that both the device replacing the previously issued device and the 

additional device are not validated at the time they are issued, and validation will apply to both 

devices. If the institution sets up the validation procedure in this way, the institution should 

provide a clear and readily understandable disclosure to the consumer that both devices are 

unvalidated and that validation will apply to both devices. 

* * * * * 

Section 205.7 – Initial Disclosures 

7(a) Timing of Disclosures

 1. Early disclosures. Disclosures given by a financial institution earlier than the 

regulation requires (for example, when the consumer opens a checking account) need not be 

repeated when the consumer later enters into an agreement with a third party to initiate 

preauthorized transfers to or from the consumer’s account, unless the terms and conditions differ 

from those that the institution previously disclosed. This interpretation also applies to any notice 

provided about one-time EFTs from a consumer’s account initiated using information from the 

consumer’s check. On the other hand, if an agreement for EFT services to be provided by an 

account-holding institution is directly between the consumer and the account-holding institution, 

disclosures must be given in close proximity to the event requiring disclosure, for example, when 

the consumer contracts for a new service. 

* * * * * 

 7(b) Content of Disclosures

* * * * * 

Paragraph 7(b)(4) – Types of Transfers; Limitations 

* * * * * 

4. One-time EFTs initiated using information from a check. Financial institutions must 

disclose the fact that one-time EFTs initiated using information from a consumer’s check are 

among the types of transfers that a consumer can make. (See Appendix A-2.) 

* * * * * 

7(c) Addition of Electronic Fund Transfer Services
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1. Addition of electronic check conversion services. One-time EFTs initiated using 

information from a consumer’s check are a new type of transfer requiring new disclosures, as 

applicable. (See Appendix A-2.) 

* * * * * 

Section 205.10 – Preauthorized Transfers 

* * * * * 

 10(b) Written Authorization for Preauthorized Transfers from Consumer’s Account

* * * * * 

 3. Written authorization for preauthorized transfers. The requirement that preauthorized 

EFTs be authorized by the consumer “only by a writing” cannot be met by a payee’s signing a 

written authorization on the consumer’s behalf with only an oral authorization from the 

consumer. 

* * * * * 

 7. Bona fide error. Consumers sometimes authorize third-party payees, by telephone or 

on-line, to submit recurring charges against a credit card account. If the consumer indicates use 

of a credit card account when in fact a debit card is being used, the payee does not violate the 

requirement to obtain a written authorization if the failure to obtain written authorization was not 

intentional and resulted from a bona fide error, and if the payee maintains procedures reasonably 

adapted to avoid any such error. Procedures reasonably adapted to avoid error will depend upon 

the circumstances. Generally, requesting the consumer to specify whether the card to be used for 

the authorization is a debit (or check) card or a credit card is a reasonable procedure. Where the 

consumer has indicated that the card is a credit card (or that the card is not a debit or check card), 

the payee may rely on the consumer’s statement without seeking further information about the 

type of card. If the payee believes, at the time of the authorization, that a credit card is involved, 

and later finds that the card used is a debit card (for example, because the consumer later brings 

the matter to the payee’s attention), the payee must obtain a written and signed or (where 

appropriate) a similarly authenticated authorization as soon as reasonably possible, or cease 

debiting the consumer’s account. 

10(c) Consumer’s Right to Stop Payment

* * * * * 

 2. Revocation of authorization. Once a financial institution has been notified that the 

consumer’s authorization is no longer valid, it must block all future payments for the particular 

debit transmitted by the designated payee-originator. (However, see comment 10(c)-3.) The 

institution may not wait for the payee-originator to terminate the automatic debits. The 

institution may confirm that the consumer has informed the payee-originator of the revocation 
59

(for example, by requiring a copy of the consumer’s revocation as written confirmation to be 

provided within 14 days of an oral notification). If the institution does not receive the required 

written confirmation within the 14-day period, it may honor subsequent debits to the account. 

3. Alternative procedure for processing a stop-payment request. If an institution does 

not have the capability to block a preauthorized debit from being posted to the consumer’s 

account – as in the case of a preauthorized debit made through a debit card network or other 

system, for example – the institution may instead comply with the stop-payment requirements by 

using a third party to block the transfer(s), as long as the consumer’s account is not debited for 

the payment. 

10(d) Notice of Transfers Varying in Amount

* * * * * 

Paragraph 10(d)(2) – Range 

* * * * * 

2. Transfers to an account of the consumer held at another institution. A financial 

institution need not provide a consumer the option of receiving notice with each varying transfer, 

and may instead provide notice only when a debit to an account of the consumer falls outside a 

specified range or differs by more than a specified amount from the most recent transfer, if the 

funds are transferred and credited to an account of the consumer held at another financial 

institution. The specified range or amount, however, must be one that reasonably could be 

anticipated by the consumer, and the institution must notify the consumer of the range or amount 

at the time the consumer provides authorization for the preauthorized transfers. For example, if 

the transfer is for payment of interest for a fixed-rate certificate of deposit account, an 

appropriate range might be based on a month containing 28 days and a month containing 31 

days. 

* * * * * 

Section 205.11 – Procedures for Resolving Errors 

* * * * * 

 11(b) Notice of Error from Consumer

Paragraph 11(b)(1) – Timing; Contents 

* * * * * 

7. Effect of late notice. An institution is not required to comply with the requirements of 

this section for any notice of error from the consumer that is received by the institution later than 

60 days from the date on which the periodic statement first reflecting the error is sent. Where the 
60

consumer’s assertion of error involves an unauthorized EFT, however, the institution must 

comply with § 205.6 before it may impose any liability on the consumer. 

* * * * * 

11(c) Time Limits and Extent of Investigation

* * * * * 

Paragraph 11(c)(4) – Investigation 

* * * * * 

5. No EFT agreement. When there is no agreement between the institution and the third 

party for the type of EFT involved, the financial institution must review any relevant information 

within the institution’s own records for the particular account to resolve the consumer’s claim. 

The extent of the investigation required may vary depending on the facts and circumstances. 

However, a financial institution may not limit its investigation solely to the payment instructions 

where additional information within its own records pertaining to the particular account in 

question could help to resolve a consumer’s claim. 

Information that may be reviewed as part of an investigation might include: 

i. The ACH transaction records for the transfer; 

ii. The transaction history of the particular account for a reasonable period of time 

immediately preceding the allegation of error; 

iii. Whether the check number of the transaction in question is notably out-of-sequence; 

iv. The location of either the transaction or the payee in question relative to the 

consumer’s place of residence and habitual transaction area; 

v. Information relative to the account in question within the control of the institution’s 

third-party service providers if the financial institution reasonably believes that it may have 

records or other information that could be dispositive; or 

vi. Any other information appropriate to resolve the claim. 

* * * * * 

Section 205.16 – Disclosures on Automated Teller Machines 

 16(b) – General

 Paragraph 16(b)(1) 
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1. Specific notices. An ATM operator that imposes a fee for a specific type of 

transaction – such as for a cash withdrawal, but not for a balance inquiry, or for some cash 

withdrawals, but not for others (such as where the card was issued by a foreign bank or by a card 

issuer that has entered into a special contractual relationship with the ATM operator regarding 

surcharges) – may provide a notice on or at the ATM that a fee will be imposed or a notice that a 

fee may be imposed for providing EFT services or may specify the type of EFT for which a fee 

is imposed. If, however, a fee will be imposed in all instances, the notice must state that a fee 

will be imposed. 

By order of the Board of Governors of the Federal Reserve System, December 30, 2005. 

Jennifer J. Johnson (signed)

Jennifer J. Johnson, 

Secretary of the Board.