AGENDA - SHAZAM · This presentation and the information contained herein are classified as confidential and shall not be divulged, copied or ... Information is of general applicability

SHAZAM onTopic: Comparing Regulation E to Visa® and Mastercard® Rules June 2019

This presentation and the information contained herein are classified as confidential and shall not be divulged, copied or distributed without the express prior written consent of SHAZAM. This presentation is based on industry and financial information available at the time of its creation; this information may be subject to change at any time.

Proprietary & Confidential.© 2019 SHAZAM, Inc. All rights reserved. Information is of general applicability and current as of date of presentation.

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AGENDA

Definitions, scope and enforcement

Error resolution

Cardholder liability

Frequently asked questions and best practices

Diana Kern, AAP, Senior Trainer

[email protected]

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DUAL-MESSAGE TRANSACTIONS

Formerly known as signature-based or credit

Authorization messageAt the time cardholder engages in the transactionRequesting approval from the issuerTransaction date known to cardholderMay contain a PIN

Advice messageWhen merchant submits batch of transactions to Mastercard® or Visa®

Settlement date and posting occursControls account posting date


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mailto:[email protected]




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SINGLE-MESSAGE TRANSACTIONS

Formerly known as PIN-based or debit

Authorization and posting data included in one transaction message At the time cardholder engages in the transaction

Transaction date known to cardholder

Controls account posting date

May contain a PIN

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GOVERNANCE: REG. E

Financial institution obligation to consumer accountholdersFI = card issuer

Accountholder = cardholder

205.2, Definitions

205.6, Liability of consumer for unauthorized transfers

205.11, Procedures for resolving errors

Supplement 1, Official staff interpretations

Enforcement through state and federal compliance exams

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GOVERNANCE

Mastercard operating rules (public)Contract law, brand agreement

Cardholder zero liability

Visa operating rules (public)Contract law, brand agreement

Cardholder liability

Provisional credit

Enforcement through Mastercard or Visa fines, loss of brand rights or legal action/civil suit

Apply only to Mastercard and Visa branded transactions11

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REG. E: ERROR

1. Unauthorized EFT

2. Incorrect EFT to or from consumer’s account

3. Omission of an EFT from statement

4. An EFT computational or bookkeeping error made by the financial institution relating to an EFT

5. Receipt of incorrect amount of money at an ATM or other cash dispensing terminal

6. EFT not properly identified; consumer does not recognize the transaction

7. Consumer request for clarification/other information, or documentation to determine whether an error was made

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“

”

REG. E: UNAUTHORIZED

Initiated by person other than the consumer

Doesn’t have authority to initiate transfer

Consumer receives no benefit

…means an electronic fund transfer from a consumer's account initiated by a person other than the consumer without actual authority to initiate the transfer and from which the consumer receives no benefit.

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REG. E: UNAUTHORIZED

“

”

…doesn’t include an electronic fund transfer initiated:

(i) By a person who was furnished the access device to the consumer's account by the consumer, unless the consumer has notified the financial institution that transfers by that person are no longer authorized

(ii) With fraudulent intent by the consumer or any person acting in concert with the consumer

Doesn’t include transactions initiated by:

A person who was given the payment device by the owner

The owner acting with fraudulent intent

Or, the owner acting in concert with another person with fraudulent intent

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YOUR INITIAL ANALYSIS SHOULD DETERMINE

Is the account consumer-owned?

Does the claim meet one of the seven Reg. E error definitions?

Is the accountholder claiming unauthorized?

Which rules apply?


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REG. E: NOTICE OF AN ERROR

“

”

…received by the institution no later than 60 days after the institution sends the periodic statement…on which the alleged error is first reflected;

(i) Enables the institution to identify the consumer's name and account number; and

(ii) Indicates why the consumer believes an error exists and includes to the extent possible the type, date, and amount of the error…

Received within 60 days after the error is first reflected

Identify the consumer’s name and account #

Indicate why the consumer believes an error exists

Include error details (type, date, amount)

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REG. E: INVESTIGATION

Determine if error occurred within 10 days of receiving notice

Report results to consumer within three business days

Correct the error within one business day

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”

…shall investigate promptly and…shall determine whether an error occurred within 10 business days of receiving a notice of error…report the results to the consumer within three business days after completing its investigation…correct the error within one business day after determining that an error occurred.

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REG. E: INVESTIGATION

Give provisional credit if investigation will extend beyond10 business days

20 business days, new account (opened within 30 days)

May withhold if required, don’t receive written confirmation

Maximum length of investigation45 days

90 days when foreign (non-U.S.), debit card POS or new account (30 days)

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EXAMPLE CARDHOLDER QUESTIONS

Which transaction(s) are you disputing?

Do you have the card in your possession?

Do you recognize either the amount or the merchant name?

Did you permit another person to use your card for any reason?

When did you cancel the transaction(s)?

Did you authorize the transaction(s) or receive any goods

or benefits?

Did you attempt to contact the merchant?

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INVESTIGATION STEPS Review account history, at

least 30 days

Question seemingly related previous transactions

Perform internet search for merchant data

Visit site of e-commerce transactions

Contact the merchant


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MASTERCARD & VISA

Provisional creditMastercard — Silent

Visa — Within five business days of notification of an unauthorized transaction unless you determine additional investigation is warranted and allowed by law


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REG. E OFFICIAL STAFF INTERPRETATION

“If a billing error occurred, whether as alleged or in a different amount or manner, the financial institution may not impose a charge related to any aspect of the error-resolution process (including charges for documentation or investigation).

“Since the act grants the consumer error-resolution rights, the institution should avoid any chilling effect on the good-faith assertion of errors that might result if charges are assessed when no billing error has occurred.”

CHARGES FOR ERROR RESOLUTION

Source: Electronic Code of Federal Regulations

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EventTiming of consumer notice to financial

institutionMaximum liability

Loss or theft of access device Within two business days after learning of loss or theft Lesser of $50, OR total amount of unauthorized

transfers

Loss or theft of access device More than two business days after learning of loss or

theft; up to 60 calendar days after transmittal of

statement showing first unauthorized transfer made

with access device

Lesser of $500, OR the sum of:

(a) $50 or the total amount of unauthorized transfers

occurring in the first two business days, whichever is

less, AND

(b) the amount of unauthorized transfers occurring

after two business days and before notice to the

financial institution

Loss or theft of access device More than 60 calendar days after transmittal of

statement showing first unauthorized transfer made

with access device

For transfers occurring within the 60-day period, the

lesser of $500, OR the sum of:

(a) lesser of $50 or the amount of unauthorized

transfers in the first two business days, AND

(b) the amount of unauthorized transfers occurring

after two business days

For transfers occurring after the 60-day period,

unlimited liability (until the financial institution is

notified)

Unauthorized transfer(s) not

involving loss or theft of an

access device

Within 60 calendar days after transmittal of the

periodic statement on which the unauthorized

transfer first appears

No liability

Unauthorized transfer(s) not

involving loss or theft of an

access device

More than 60 calendar days after transmittal of

periodic statement on which the unauthorized

transfer first appears

Unlimited liability for unauthorized

transfers occurring 60 calendar

days after the periodic statement

and before notice to the financial institution 26

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REG. E: LOSS OR THEFT OF ACCESS DEVICE

Consumer notifies within two business days after learning of loss or theft; lesser of:$50, or

Amount before issuer notified

Consumers fails to notify within two business days; lesser of:$500, or

Amount calculated from unauthorized EFTs that occurred

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“

”

REG. E: PERIODIC STATEMENT

Timely notice60 days from statement

transmittal

Zero liability for consumer

Failure to give timely noticeBeyond 60 days from

statement transmittal

Consumer liable for unauthorized activity after the close of the 60 days and before notice

…would not have

occurred had the

consumer notified

the institution within

the 60-day period

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REG. E OFFICIAL STAFF INTERPRETATION

“Negligence by the consumer cannot be used as the

basis for imposing greater liability than is permissible

under Regulation E.”

“Thus, consumer behavior that may constitute negligence

under state law, such as writing the PIN on a debit card

or on a piece of paper kept with the card, does not affect

the consumer's liability for unauthorized transfers.”

CONSUMER NEGLIGENCE

Source: Electronic Code of Federal Regulations

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MASTERCARD & VISA

ZERO CARDHOLDER LIABILITY

Mastercard If cardholder exercised reasonable care in safeguarding card

from loss or theft,

And promptly reported when became aware of loss or theft

VisaUpon notification

May increase liability if substantial evidence cardholder was fraudulent or negligent

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Proprietary & Confidential. © 2019 SHAZAM, Inc. Information is of general applicability and current as of date of presentation.

Can I require my cardholder to file a police report before I proceed with the investigation or provide provisional credit?


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Are we required to disclose the Mastercard and Visa zero liability rules to our cardholders, or inform them in any way?


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Proprietary & Confidential.© 2019 SHAZAM, Inc. All rights reserved. Information is of general applicability and current as of date of presentation

Do the Mastercard and Visa zero cardholder liability rules apply to cards issued on my business debit BIN?


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POLICIES & PROCEDURES

In writing

Standardized processes and forms

Document everythingKeep a transcript of phone

conversations

Be consistent & apply policies universally

Follow your procedures


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POLICIES & PROCEDURES

Mastercard issuers includeDefinition of “reasonable care”

Definition of “promptly notified”

Visa issuers include Definition/examples of “substantial evidence”

Definition of “negligent”

Cardholders cannot sign away their legal rights

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Proprietary & Confidential.© 2019 SHAZAM, Inc. All rights reserved. Information is of general applicability and current as of date of presentation

DIANA’S FAVORITE SITE FOR REG. E RESEARCH

ecfr.gov


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https://www.ecfr.gov/cgi-

bin/retrieveECFR?gp=1&SID=76a5cfe9df912636

2a4eeea1c3a3ad28&ty=HTML&h=L&n=12y2.0.

1.1.6&r=PART#ap12.2.205_120.1

https://www.ecfr.gov/cgi-bin/retrieveECFR?gp=1&SID=76a5cfe9df9126362a4eeea1c3a3ad28&ty=HTML&h=L&n=12y2.0.1.1.6&r=PART#ap12.2.205_120.1




Regulation E implements the Electronic Funds Transfer Act (EFTA) of 1978, a federal consumer protection

law. It contains specific requirements you, an account-holding financial institution, must follow with respect to

electronic transactions to a consumer account. Compliance with Regulation E is not dependent on your ability

to submit a dispute or chargeback under Mastercard or Visa rules, or on the success of any such chargeback

attempt. Compliance is confirmed by federal and state examiners, and often auditors hired by you.

Mastercard® and Visa® rules are inherent provisions of a contract between Mastercard or Visa and its

members, both financial institutions and processors. When you issue a card with the Mastercard or Visa brand,

you agree to follow their rules. Compliance with the rules is not confirmed by any governing body on a regular

basis, but complaints are investigated for possible violations. Mastercard and Visa rules applicable to managing

the cardholder relationship apply to all cardholders and aren’t limited to only consumer accountholders. In

some situations you’ll have the right to submit a chargeback even though Regulation E isn’t applicable.

Cardholder notice and chargeback filing timeframes

Regulation E Visa Mastercard Error resolution procedures, Section 11, apply if cardholder notifies issuer within 60 calendar days of statement being sent

Issuer must file the Visa Claims Resolution dispute within 75 or 120 calendar days; requirements vary by condition code

Issuer must file the Mastercard dispute (chargeback) within 90 or 120 calendar days; requirements vary by reason code

Provisional credit requirements

Regulation E Visa Mastercard

Applies only if unable to complete investigation within 10 business days of notice

Extends to 20 business days if account open fewer than 30 days

May be withheld if written confirmation of error not received

Visa debit, except for ATM cash disbursements - “Within 5 business days of

notification of an unauthorized transaction unless the issuer determines that additional investigation is warranted and allowed by applicable laws or regulations”

No stated requirement or rule

Cardholder Liability Amounts

Regulation E* Visa Mastercard

Zero liability

Except “…if the issuer reasonably determines, based on substantial evidence, that the cardholder was fraudulent or negligent in the handling of the account or the card.”

Corporate and purchasing cards are exempt

“An issuer must not hold a cardholder liable for a transaction that was not authorized by the cardholder if the cardholder exercised reasonable care in safeguarding the card from risk of loss or theft and, upon becoming aware of such loss or theft, promptly reported the loss or theft to the Issuer.”

Applies to small business and consumer cards

Exception for commercial cards

*Comptroller’s Handbook, Consumer Compliance, Electronic Fund Transfer Act

http://www.occ.gov/publications/publications-by-type/comptrollers-handbook/file-pub-ch-efta.pdf

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AGENDA - SHAZAM · This presentation and the information contained herein are classified as confidential and shall not be divulged, copied or ... Information is of general applicability