On November 23rd, 2015 the Consumer Financial Protection Bureau ("CFPB") released Compliance Bulletin 2015-06 (the "Bulletin"), which clarifies requirements under the federal Electronic Fund Transfer Act ("EFTA") and Regulation E for obtaining consumer authorizations for preauthorized electronic fund transfers ("EFTs"). The new guidance touches upon two issues: (1) obtaining oral authorizations for EFTs over the phone; and (2) obligations to provide a copy of EFT authorizations to consumers.
In the Bulletin, the CFPB points out that under the EFTA and Regulation E, entities sending preauthorized EFTs for consumers must obtain appropriate consumer authorizations and provide a copy of such authorizations to the consumers. The authorization can only be obtained "by a writing signed or similarly authenticated by the consumer." When practical, the CFPB also states that a copy of such authorization should be provided to the consumer before the first preauthorized EFT.
The CFPB acknowledges that companies can obtain authorizations from consumers over the phone if the E-Sign Act requirements are met. For example, a consumer may authorize preauthorized or the company may record and retain the consumer's oral authorization so long as, in each case, the consumer intends to "sign" the record as required by the E-Sign Act.
Regarding the requirement that the company provide a copy of the authorization to the consumer, the Bulletin indicates that the timing and amount of the recurring transfers are the most significant terms of the authorization. The Bulletin references examination findings that the notice of terms for preauthorized EFTs from consumers' accounts that some companies are obtaining do not comply with Regulation E. Specifically, the notices did not disclose "important authorization terms such as the recurring nature of the preauthorized EFTs, or the amount and timing of all the payments to which the consumer agreed." In lieu of providing a copy of the authorization after its execution, a company can provide the consumer a copy of the authorization using a confirmation form, such as by providing the consumer with two copies of a preauthorization form, and asking the consumer to sign and return one copy and retain the second copy.
In conjunction with the bulletin, the CFPB also published four sample letters consumers can use in connection with preauthorized EFTs to:
- Revoke an authorization for preauthorized EFTs given to a company or merchant;
- Provide notice to a financial institution that the consumer has revoked a company's or merchant's authorization for preauthorized EFTs;
- Issue a "stop payment order" to a financial institution to stop payment under preauthorized EFTs; and
- Notify a financial institution of an unauthorized debt from a consumer's account.
What This Means for You
Regulators, and especially the CFPB, are closely scrutinizing preauthorized EFTs. There has also been a recent increase in class actions against companies for failing to properly comply with the provisions regarding preauthorized EFTs under the EFTA and Regulation E. Given the heightened regulatory focus, financial institutions and companies who conduct preauthorized EFTs should review their authorizations and procedures for conducting such transactions to ensure they are compliant with the EFTA, Regulation E, and this new Bulletin.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
