Regulation E and Business Accounts

Inquiry/Issue

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, the Bank is no longer providing such disclosures and, as such, 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 the disclosures into the account agreement, it may be contractually obligated to provide the Regulation E protections to existing business account holders. 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). Therefore, a business account would not be covered by its requirements.

The problem is that even though Regulation E does not apply to business accounts, the Bank may be contractually obligated to provide the protections of the regulation to existing business account holders.

If the Regulation E disclosures indicate what is and is not covered — for example, if the disclosures state that such are applicable only to consumer accounts — then the Bank may not be obligated to continue providing Regulation E protections for existing business accounts. However, if the Bank has provided such protections in the past, it may have created an opportunity for an account holder 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 account holder with written notice that such provisions no longer apply.

If there is no language in the Regulation E disclosures excluding business accounts, or if the account agreement includes the Regulation E disclosures among the terms and conditions of the business account, then disclosures of the regulation will be incorporated into the terms and conditions of the account agreement and can be enforced by the account holder.

The account agreement should allow the Bank to change its terms and conditions upon providing proper notice in advance. If the Regulation E protections are incorporated contractually in the account agreement, the advance notice will be that required by the regulation, which means that it must be given at least 21 days prior to the effective date of the change 12 CFR §1005.8(a).

In making the change, the Bank can avoid confusion by providing revised account provisions that do not incorporate the Regulation E provisions. This would be better than simply saying that “Regulation E provisions no longer apply.”

For existing business accounts incorporating the Regulation E protections, such protections will continue until the terms of the account are changed.

 

This entry was posted on Monday, November 16th, 2015 at 2:00 pm.