RSK.IQ Question of the Week 3/23/15

EFTA Disclosures for Business Account?


As a result of a recent Regulation E audit, the Bank is changing its current practice of providing all business customers with Regulation E disclosures at account opening.  Effective immediately, it is no longer providing these disclosures and, as such, it is no longer required to provide provisional credit in the event of a claim. The Bank’s question is whether it still needs to honor the requirements of Regulation E for those customers whose accounts were open prior to this change if they have a Regulation E claim?

Response Summary

Regulation E does not apply to business accounts, but if the Bank incorporated EFTA disclosures into the account agreement, it may be contractually obligated to provide the Regulation E protections to existing business accountholders. In such case, it would have to provide the advance notice required by the regulation in order to remove those protections.

Response Detail

Regulation E applies to the accounts of natural persons that are opened and maintained primarily for personal, family, or household purposes. 12 CFR §1005.2(b)(1),(e). A business account would not be covered.

The Bank took the proper action in removing the Regulation E provisions from the business account disclosures, going forward.

The problem, however, is that the Bank may have contractually obligated itself to provide the protections of the regulation to existing business accountholders, even though they would not otherwise apply.

If the Regulation E disclosures indicate what is and is not covered — for example, if the disclosures say that they are applicable only to consumer accounts — then the Bank may not be obligated to continue providing Regulation E protections for existing business accounts. By providing such protections in the past, however, the Bank may have at least created an opportunity for an accountholder to claim that the protections have been established through a course of dealing. In order to terminate such a course of dealing, the Bank would have to provide the accountholder with written notice that these provisions no longer apply.


This entry was posted on Monday, March 23rd, 2015 at 1:30 pm.

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