What Can We Learn from the USAA Regulation E Case?
On January 2, 2019, Kathleen Kraninger of the CFPB entered her first Consent Order with USAA Federal Savings Bank, an $80 billion institution based in San Antonio, TX. USAA had Regulation E violations related to:
- Failing to properly stop preauthorized EFTs
- Failing to initiate and conduct adequate error resolution investigations
- Engaging in unfair acts or practices by reopening closed consumer deposit accounts without providing timely notice.
Under the EFTA (Regulation E), consumers can place stop payments on future preauthorized payments {1005.10(c)} and dispute incorrect or unauthorized past EFTs {1005.11}. Examiners found that USAA’s practices required consumers to contact merchants who initiated the EFTs as a prerequisite to implementing stop payment orders or disputes. In both instances, the Bank is put on notice upon oral or written notice and must begin its investigation process immediately. It cannot delay action contingent on a merchant’s response. The Bank may ask, but not require that the cardholder assist in the investigation by reaching out to the merchant. And the Bank may not deny either a stop payment request or a dispute based on refusal to contact the merchant.
In the USAA situation, they did not consistently honor oral stop payments or notice of error. And when it came to investigating errors or disputes, they required the error be on a “Written Statement of Unauthorized Debit (WSUD) and would not begin until the WSUD was received, which could have delayed the start of investigation up to 10 days after the oral notice. The Bank also had some system limitations in stopping payments processed via a debit card and failed to block thousands of preauthorized EFTs for which consumers had requested stop payment.
They had a separate procedure for payday lenders. They refused to investigate errors! Consumers were instructed to go back to the lender. At the same time, representatives were instructed to tell them their USAA membership was at risk, that they may be ineligible to purchase additional products, and that accounts may be closed. They would only send WSUD forms to those who wanted to proceed after hearing the warning. They also required having the WSUD notarized or they would not conduct the investigation.
The third issue had to do with reopening closed deposit accounts. When they reopened accounts to process debits, balances became negative and subject to various fees (OD and NSF Fees). If they reopened to process a credit, creditors had opportunity to initiate debits and draw down funds. USAAs practice of reopening accounts without notice to consumers caused considerable harm to consumers.
This was no small matter. As a result, they were required to adopt compliant procedures (details in the consent order) and to honor stop payment requests for EFTS free of charge for two years. They also paid $12 million in CMPs ($182 to 66,000 consumers) and $270,521 in restitution to consumers.
Perhaps now would be a good time for you to review your institution’s practices.
For additional information, contact the author at edehmey@fosaudit.com.
Evelyn I. Dehmey | What Can We Learn from the USAA Regulation E Case?