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Regulation E: Beyond compliance, a powerful competitive differentiator for banks

Banking Compliance Payments
Regulation E (Reg E) is about more than compliance. By championing an approach that extends beyond compliance, financial institutions (FIs) can protect consumers from unauthorized transactions, reducing liability costs and the risk of customer attrition.

It also means that FIs can maintain the trust of their business customers by reducing the likelihood of fraud — and losses that business could incur — when they transact, affording them a powerful competitive advantage.

Let’s dive into how this regulation affects FIs and their customers.

What is Reg E and who does it apply to?

Reg E protects consumers from unauthorized digital banking transactions when they conduct electronic transfers. Established under the Electronic Fund Transfer Act (EFTA), the regulation applies to transactions such as:

  • Automated Clearing House (ACH) transfers
  • Debit card transactions
  • Peer-to-peer (P2P) payments

The regulation applies directly in retail banking where FIs are liable for unauthorized transactions, unless they can prove that a transaction was authorized. Reg E outlines the bank’s obligations to clearly disclose terms, resolve errors, and it limits consumer liability for unauthorized transactions to a maximum of $50 — if consumers report the incident within two business days. The regulation requires banks to investigate disputes promptly, issue provisional credits, and resolve most claims within 10 to 45 business days.

If retail banks fail to comply, the cost can include:
  • Compliance fines
  • Risk of legal action
  • Disruptions to operations
  • Reputational damage
What’s more, the costs for the FI can extend beyond just reimbursing customers. The bank often needs to close and reopen accounts, reissue cards, and manually reinstate bill payments and other pending transactions. This consumes a lot of internal resources. And, even after following all the processes and procedures, there’s still a risk the customer may leave, resulting in unnecessary customer churn.

Business and commercial accounts are exempt from Reg E. Essentially, if fraud hits a business account, the business has to absorb the loss, unless the bank chooses to cover it voluntarily. While that does add financial pressure on that business customer, there is something they can do to reduce these fraud-related losses. Businesses should choose a bank that offers strong fraud prevention measures that protect all their transactions from unauthorized access.
"Beyond compliance, the adoption of strong fraud tools (like Entersekt’s) can become a business acquisition strategy. If FIs can prove they offer better protection, especially for business clients, they can position it as a competitive edge."
Entersekt helps FIs simplify compliance, like Reg E, and build strong protection against evolving fraud threats so customers can transact when they want and how they want with confidence.

Why legacy systems can complicate Reg E compliance

For many FIs, outdated or siloed systems can make regulatory compliance a heavy lift. When it comes to Reg E and other fraud-related regulations, legacy infrastructure often leads to:

  • Siloed or disconnected systems that cut off vital customer and transaction data
  • Lengthy verification processes
  • Delays that increase the risk of missed regulatory deadlines
  • Inefficient, manual dispute resolution processes
  • Greater exposure to liability and customer frustration

Modern digital banking platforms, like Q2, can ease this burden by connecting FIs with specialized, proven fraud prevention tools that:

  • Simplify critical Reg E and compliance-related workflows
  • Detect and respond to unauthorized transactions faster
  • Centralize case data for quicker investigations
  • Reduce liability exposure while improving customer trust
  • Make compliance less reactive — and more strategic

The right solution doesn’t just support Reg E compliance — it can help streamline operations and provide the visibility that FIs need to act fast, minimize fraud losses, and maintain operational resilience.

Beyond Reg E compliance: Reducing disputes and costs

Banks can prevent Reg E from becoming a liability by partnering with an established fraud prevention provider. Strong fraud prevention measures can reduce Reg E disputes, lowering operational costs and the bank’s potential financial exposure.

Entersekt provides strong, provable authentication through measures, such as device identity, endpoint signals, and biometric step-up authentication to create audit-ready proof of consent. That way, FIs can stand behind every transaction with confidence, while providing robust security for their customers. And, in the case of business customers — fraud-resilience that builds trust.
Learn more about simplifying compliance and strengthening fraud prevention with Entersekt’s modern authentication solutions for Q2: Click here.