The magic spell that makes banks give you your money back

McKenzie introduces his passion for Regulation E and shares personal experience doing informal consumer advocacy in his twenties, helping people on internet forums navigate banking disputes by ghostwriting professional letters. He explains how Reg E felt like a 'magic spell' that could force banks to refund money to vulnerable consumers who lacked the social capital to advocate for themselves.

• •Regulation E creates strict liability for banks on unauthorized electronic fund transfers, with consumer liability capped at $50-500
• •McKenzie spent years ghostwriting dispute letters for financially precarious people on internet forums, successfully resolving banking conflicts
• •The regulation mandates banks investigate claims, provide provisional credit during investigations, and produce written evidence—a gift to consumer advocates
• •Personal anecdote: discovered $100K+ in fraudulent debt on his credit report in his early twenties, learned to navigate FDCPA and FCRA to resolve it

Deep dive into the 1979 Electronic Funds Transfer Act's origins and design philosophy. Congress created Reg E to address concerns about automated banking systems, mandating paper receipts, periodic statements, and strict liability for unauthorized transactions. The regulation was designed around middle-class American household rhythms with specific timelines (2 business days to report theft, 60 days from statement to dispute).

• •Congress mandated paper receipts and USPS-delivered statements because electronic transactions might not leave records customers could dispute
• •Unauthorized use of electronic access devices (cards, key fobs) was explicitly made the financial institution's liability, not the customer's
• •Fraudulent use was treated as an 'error' as grave as banks making up transactions—both require bank correction at bank cost
• •Historical context: regulation needed because Bank of America had mass-mailed credit cards to entire cities (Fresno drop) without requests

Explains how banks created a contractual liability waterfall through card networks (Visa, Mastercard) that processes 100M+ disputes annually—20x more than the entire US criminal court system. The system operates with minimal evidence, 3-minute adjudications, and costs $15 per dispute versus $100K+ for formal legal proceedings. Banks typically favor cardholders over merchants.

• •100+ million complaints processed annually vs 5 million criminal cases in formal US legal system—costs billions but enables commerce
• •Typical adjudication: CSR clicks button after 3 minutes, entire evidence fits in a tweet, presumption favors customer
• •Liability flows: issuing bank → card processor → merchant, with processor eating losses if merchant can't pay
• •System intentionally designed with lower burden of proof than courts to encourage customer confidence in electronic payments—'if something goes wrong, the bank has your back'

Zelle, the bank-owned real-time payment system launched in 2017 to compete with Venmo, processes $600B annually but is essentially free to users. Banks face an estimated $240M+ in annual fraud losses but are attempting to avoid Reg E obligations by claiming authorized fraud (where customers are tricked into sending money) doesn't count. This represents a fundamental challenge to 50 years of consumer protection precedent.

• •Zelle does $600B volume (vs Venmo ~$255B, Cash App ~$300B) but is unmonetized unlike credit cards' $10T highly-profitable volume
• •Common fraud pattern: scammers impersonate bank employees, convince victims to 'move money to safety' via Zelle to fraudster-controlled accounts
• •Banks claim only 0.02% fraud rate but refuse to reimburse, arguing customers 'authorized' payments even when defrauded—contradicts Reg E
• •CFPB sued major banks in late 2024 for pattern of denying Zelle fraud claims, but lawsuit dropped after CFPB was gutted in early 2025

Chicago case study of tap-to-pay donation fraud where criminals charge $4,000 instead of $10 donations, then threaten victims who notice. Banks are inventing spurious rationales to deny claims (requiring physical receipts, claiming physical device surrender equals authorization), inverting Reg E's design. McKenzie argues these denials work only because victims lack sophistication to cite the regulation.

• •Fraudsters use tap-to-pay for fake charity donations, charging thousands instead of intended $10-20, with <1% arrest rate in Chicago
• •Banks denying claims by requiring physical receipts (inverting Reg E's intent) or claiming physical device surrender equals authorization
• •Designed outcome per Reg E: bank credits customer, pulls from processor, processor eats loss and improves fraud models
• •Banks often reverse denials when contacted by media or someone who can cite Reg E—system designed to work even for unsophisticated customers

Reg E was intentionally drafted to be technology-agnostic and future-proof, covering virtually all electronic payment methods regardless of underlying technology. McKenzie argues crypto's 'Schrödinger's financial infrastructure' (claiming to be the future of finance while avoiding fraud liability) is incompatible with Reg E, and any crypto product marketed as a checking account alternative would fall under its scope.

• •Reg E covers almost every payment technology that exists or will exist, with limited carve-outs (e.g., wire transfers)
• •The regulation's mantra: 'Doesn't matter. That's Reg E'—applies regardless of fraud mechanism (stolen card, phishing, malware, etc.)
• •Crypto industry claims exemption from financial regulations while marketing as Visa alternatives—creates unresolved tension
• •A functioning CFPB would conclude that products marketed as checking account alternatives fall under Reg E scope regardless of blockchain technology
• •Consumer protection isn't free and never was—it's the foundation that enables trillions in electronic commerce