proper processes and procedures aren’t in place and followed.
Deposit systems play a role, too, in an FI’s ability to process
claims from different channels—especially for larger regional
FIs with multiple core deposit systems, bringing in a variety
of types of information. A claim that comes in through a call
center could move through one system, while a claim regarding
electronic banking or the wire department goes through another. All of these claims might undergo inconsistent processes
before they are pushed into the error resolution department.
They can reach the department sooner or later in the investigation time frame, in a variety of formats, and with different
information. These circumstances obviously pose a greater
risk than that experienced by a community bank that uses
a single core deposit system. However, smaller FIs may also
be concerned about using different departments/channels for
processing as well.
FIs can mitigate most of the potential pitfalls when it comes to
Regulation E compliance with an effective queue management
system that allows for regular monitoring of error claims. The
system must provide for active monitoring of disputes in process
to see that timing requirements are satisfied. Companies also
should review their notification letters for compliance with the
FIs should implement an ongoing detective control by reporting on closed claims to validate that the claims were closed in
compliance with regulatory time frames. Where problems are
apparent, an FI should institute appropriate measures to prevent
errors infurther outstanding and future claims.
Bear in mind that outsourcing error resolution processing is no
guarantee of compliance. Proper oversight of third-party service
providers is essential. Third-party service providers should be
subject to ongoing monitoring, including reviews of their system
reports, periodic transaction testing, and any complaints they
Responding to Regulators
When a regulator comes to an FI regarding a Regulation E issue, the company must determine when the issue began. Did
it begin around the time that the FI changed service providers?
Or implemented new banking channels, or made an acquisition? This could signal that a lack of oversight is to blame. Of
course, it’s possible that the company has been falling down
on the “Regulation E job” due to a misinterpretation of the
requirements (for example, thinking the customer’s 60-day
notice period runs from the transaction date). System flaws,
poor training, and similar factors also might lie at the root of
When an FI identifies errors that could prompt a long look
back and restitution, it should involve appropriate counsel as early
as possible. Counsel can proactively assist in identifying a look
The Mitigation Plan
To establish a plan that will mitigate the risk of future violations
and meet regulatory expectations, an FI must develop a greater
understanding of the Regulation E requirements, the processes
related to each, and the controls related to the processes. Regulation E contains numerous nuances—the possibility of ending
up in a reimbursement situation is not the only risk. Relatively
small errors can create widespread noncompliance, so appropriate
procedures and policies are critical.
The compliance department should be involved in verifying
compliance with procedures and policies. Compliance should
review notification letters for language and timeliness, and run
quality control reviews with diverse samples to assess how different types of claims are handled. New systems should be tested
to confirm they are fulfilling their roles in the process. Line
of business management should also have front-line testing of
data as well.
Forewarned Is Forearmed
Any area of banking that affects customers brings with it a certain degree of risk, even those seemingly simple deposit-related
regulations that have historically flown under the radar. Errors
related to transactions involving only small dollar amounts can
balloon into substantial and costly issues. With the growing
number of consumer complaints leading to intensified regulator scrutiny, FIs cannot afford to put Regulation E compliance
on the back burner. ■
ABOUT THE AUTHORS
EMILY MORRISSEY, is a manager with Crowe Horwath and can be
reached at (630) 706-2089 or firstname.lastname@example.org.
PAUL OSBORNE is a partner with Crowe Horwath and can be
reached at (317) 706-2601 email@example.com.
NIALL T WOMEY is a principal with Crowe Horwath and can be
reached at (630) 574-1806 or firstname.lastname@example.org.
To establish a plan that will
mitigate the risk of future violations
and meet regulatory expectations,
an FI must develop a greater
understanding of the Regulation E
requirements, the processes
related to each, and
the controls related to the processes.