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Compliance Junior goes on a spree with Moms debit card
WASHINGTON (10/11/11)--Kids these days. You hand them your three-and-a-quarter inch debit card and they take a mile. But can a credit union be liable for Junior’s spending binge if it is piled on top of authorized use of the card? A recent post in the Credit Union National Association’s ComplBlog tells credit unions to consider this common and familiar scenario: Mom Member gives her son, Sonny, her debit card and a list of items to pick up at the grocery store. He purchases everything on the list, but then takes a sharp turn off the path of being a good son and decides also to get some cash at the ATM, fill up his gas tank, buy pizza and beer for 20 of his closest friends, and purchase a new gaming system. Sonny dutifully returns the card to Mom. Mom checks her account online a few days later and discovers Sonny’s little shopping spree. She calls her credit union to report the “unauthorized” transactions. Is Mom entitled to get her money back? Under Regulation E, the answer is probably not. The Federal Reserve Board's Official Staff Commentary to Regulation E [Comment 205.2(m)] states the following: “If the consumer grants authority to make transfers to a person (such as a family member or co-worker) who exceeds the authority given, the consumer is fully liable for the transfers unless the consumer has notified the financial institution that transfers by that person are no longer authorized.” If Mom Member notified the credit union that transactions were no longer authorized while Sonny was still using the card, she wouldn't be liable for any additional debit card transactions after providing the notice. And, the credit union could have canceled or suspended the card to prevent any further usage. However, if Mom Member discovers Sonny’s usage after the fact, it's too late. Follow CUNA’s CompBlog for continuous compliance gems. Use the resource link below.

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