Q: What is a financial institution under EFTA and Regulation E?
A: Regulation E section 1005.2(i) defines financial institution under EFTA and Regulation E to include banks, savings associations, credit unions, and:
- any other person that directly or indirectly holds an account belonging to a consumer, or
- any other person that issues an access device and agrees with a consumer to provide electronic fund transfer (EFT) services.
12 CFR 1005.2(i).
Financial institutions include providers of P2P payment and bill payment services, if they directly or indirectly hold an account belonging to a consumer, or if they issue an access device and agree with a consumer to provide EFT services. The term financial institution does not include those excluded from coverage under section 1029 of the Dodd Frank Act. 12 CFR 1005.2(i).
Any entity that is considered a financial institution under Regulation E has error resolution obligations in the event that a consumer notifies the financial institution of an error, with limited exceptions. 12 CFR 1005.11. See Electronic Fund Transfers Error Resolution Question 2
for more information about these error resolution obligations.
In narrow circumstances, a financial institution can also be considered a “service provider” under Regulation E. A financial institution who provides EFT services to a consumer but does not hold the consumer’s account is a service provider under Regulation E if the financial institution: (1) issues an access device that the consumer can use to access the account and (2) no agreement exists between the access device-issuing financial institution and the account-holding financial institution. 12 CFR 1005.14(a). The automated clearing house (ACH) rules alone do not generally constitute an agreement for purposes of whether a financial institution meets the definition of “service provider” under Regulation E. However, an ACH agreement combined with another agreement to process payment transfers – such as an ACH agreement under which members specifically agree to honor each other's debit cards – is an “agreement,” and thus section 1005.14 does not apply. Comment 14(a)-2.