Compliance Question of the Week: Reg E and Bookkeeping and Posting Errors

Question: If the bank identifies a bookkeeping error or a posting error prior to a commercial customer notifying the bank, does the bank still need to fill out the error resolution form and/or follow the procedures set out in Reg. E for errors? We know that we need to correct the error, of course.

Answer: Technically the bank does not need to comply with the procedures set forth in section 1005.11 of Reg. E. This is for multiple reasons, though. The first and foremost reason being that the scope of Reg. E coverage is limited to consumer accounts, as the definition of “account” is narrowed to include only consumer-type accounts. Thus, when a bank encounters an error in respect to a commercial customer, the bank is not bound by Reg. E. The second reason being that errors discovered by the bank, itself, are expressly carved out of the error resolution procedures of Reg. E. So, even if the error was in regard to a consumer account, for section 1005.11 procedures to kick in, the customer would need to notify the bank of the error.

(b)(1) “Account” means a demand deposit (checking), savings, or other consumer asset account (other than an occasional or incidental credit balance in a credit plan) held directly or indirectly by a financial institution and established primarily for personal, family, or household purposes.

12 CFR § 1005.2(b)(1):

  1. Discovery of error by institution. The error resolution procedures of this section apply when a notice of error is received from the consumer, and not when the financial institution itself discovers and corrects an error.

12 CFR § 1005.11(b)(1)-5:

However; check your disclosures to ensure the bank has not given error resolution rights to commercial customers.  If it is disclosed, we must follow our contract with the customer.

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