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Consumer Banking and Payments Law: 5.1.5.3.2 Exclusion for certain automatic bank transfers
Regulation E excludes from the definition of “electronic fund transfer” certain automatic transfers by an account-holding institution. The exclusion covers any transfer “under an agreement between a consumer and a financial institution which provides that the institution will initiate individual transfers without a specific request from the consumer” in one of three situations:
Consumer Banking and Payments Law: 5.1.5.3.3.1 Overview
The EFTA’s definition of an “electronic fund transfer” excludes “a transaction originated by check, draft, or similar paper instrument.”142 A consumer’s payment that originates with a check is generally covered by the checking laws analyzed in Chapter 2, supra, even if the payment is later converted electroni
Consumer Banking and Payments Law: 5.1.5.3.3.3 Electronic re-presentment of insufficient-funds checks
When a consumer writes a check to a merchant and it is returned to the merchant for insufficient funds in the consumer’s account, the merchant may try later to present the check again for payment. The merchant can do so by presenting the paper check or it can use that check to initiate an electronic re-presentment (called a re-presented check entry, or RCK, in NACHA terminology).
Consumer Banking and Payments Law: 5.1.5.3.3.4 Remotely created checks and payment orders processed through the check system
Remotely created checks (RCCs) and remotely created payment orders (RCPOs) are check-like devices that are not created by a bank or the consumer but are processed through the check system.169 An RCC is printed out in paper and deposited like any other paper check.
Consumer Banking and Payments Law: 5.1.5.3.4 Exclusion for Fedwire and similar wire transfer systems
The EFTA statute excludes from the definition of “electronic fund transfer” “any transfer of funds, other than those processed by automated clearinghouse,177 made by a financial institution on behalf of a consumer by means of a service that transfers funds held at either Federal Reserve banks or other depository institutions and which is not designed primarily to transfer funds on behalf of a consumer.”178
Consumer Banking and Payments Law: 5.1.5.3.5 Transfers initiated by telephone call
Telephone transfers are generally within the scope of the EFTA.204 However, the EFTA and Regulation E exclude transfers that are (i) initiated by a telephone communication between a consumer and a financial institution making the transfer; and (ii) do not take place under a telephone bill-payment or other written plan in which periodic or recurring transfers are contemplated.205
Consumer Banking and Payments Law: 5.1.5.4.1 In general
Most of the EFTA’s substantive provisions (subpart A of Regulation E) apply only to “financial institutions.”213 (The requirements of subpart B apply to remittance transfer providers.214) However, the EFTA casts liability on “any person” who fails to comply with it,215 and Regulation E applies to any “person” for purpo
Consumer Banking and Payments Law: 5.1.5.4.1a Electronic fund transfer service providers that do not hold consumer accounts; implications for account-holding institution
Separate from the definition of “financial institution,” Regulation E has special “service provider” rules stating that “a person that provides an electronic fund transfer service to a consumer but that does not hold the consumer’s account” is nonetheless subject to all of the requirements of Part A of Regulation E (with some adjustments) if two conditions are met: the service provider (1) issues
Consumer Banking and Payments Law: 5.1.5.4.2 Are digital wallet providers “financial institutions”?
The growth of digital wallets and mobile payments has presented complicated issues about whether the entities involved with these systems are “financial institutions” or are otherwise subject to the EFTA.248 This is especially important for unauthorized charges and error resolution, in particular the following questions: To whom should the consumer give notice? Which entity is liable? And who has responsibility for investigating and correcting an error?
Consumer Banking and Payments Law: 5.1.5.4.3 DELETED—Account aggregators and other service providers
[Editor’s Note: This section has been deleted.]
Consumer Banking and Payments Law: 5.1.6.1 General
The rules and operating guidelines of NACHA263 provide key standards for electronic fund transfers through the ACH System.
Consumer Banking and Payments Law: 5.1.6.2 How the ACH System Operates, Parties Involved
The ACH Network is one of the largest payment systems in the United States. Despite this, ACH is also one of the least well understood by consumers, in part because it lacks a uniform retail front.
Consumer Banking and Payments Law: 5.1.6.3 Types of ACH Entries
There are two kinds of ACH funds movement. In an ACH debit transfer, the consumer’s bank, the RDFI, receives instructions to transfer funds from the consumer’s account to the merchant’s account. In ACH parlance, the money is “pulled” from the consumer’s account.
Consumer Banking and Payments Law: 5.1.6.4 NACHA Distinctions Among Types of Electronic Check Conversions
NACHA rules distinguish different types of ECCs: ARCs, POPs (described in § 5.12.2, infra) and BOCs (described in § 5.12.2.2, infra).
Consumer Banking and Payments Law: 5.1.6.5 Re-Presented Check Entries (RCK)
As described in § 5.1.5.3.3.3, supra, an electronic re-presented check entry is not within the scope of the EFTA. Nevertheless, NACHA rules apply to such transfers and, as an ACH transaction, it will be examined in this chapter.
Consumer Banking and Payments Law: 5.1.6.6 Electronic Signatures and Records
Not surprisingly, NACHA rules encourage electronic transactions by providing that agreements, authorizations, written statements, and other records required by the rules may be created, generated, sent, communicated, received, or stored by electronic means.307 Businesses are allowed to retain copies of ACH records in electronic form as long as they are accurate and capable of being accurately reproduced for later reference.308
Consumer Banking and Payments Law: 5.2.1.1 Access Devices in General
In order to make an electronic fund transfer to or from an account, a consumer needs a means to access the account. In some cases, transfers are made using an “access device,” such as a debit card. Use of an access device is not necessary for a transfer to fall within the scope of the EFTA. However, several provisions of Regulation E specifically relate to access devices, including:
Consumer Banking and Payments Law: 5.2.1.2 Checks As Source Documents for ECC Are Not Access Devices
An electronic check conversion (ECC) takes information from a consumer’s check to initiate an electronic fund transfer. Even though the check is used as a source document, the transaction does not involve an access device, as the term “access device” is defined in Regulation E. The Official Interpretations of Regulation E state that “[t]he term ‘access device’ does not include a check or draft used to capture the MICR . . . encoding to initiate a one-time ACH debit.”326
Consumer Banking and Payments Law: 5.2.2.2 Access Devices Requested by the Consumer
A financial institution may issue an access device338 in response to an oral or written request for the device.339 Because Regulation E permits an oral request,340 the institution may solicit the card by telephone.341 If a joint account is involved and the cardholder specifically requests that the other person named in the account be issued an access device, the institution may issue the device to eac
Consumer Banking and Payments Law: 5.2.2.3 Compulsory Use of a Particular Account for Employment, Government Benefits, or College Financial Aid
Under the EFTA and Regulation E, financial institutions and other persons cannot require a consumer to establish an account for receipt of electronic fund transfers with a particular financial institution as a condition of employment or as a condition of receiving a government benefit.349 Neither the statute nor Regulation E defines “employment” or “government benefit.” But Regulation E does define “government benefit account.”
Consumer Banking and Payments Law: 5.2.2.4 Replacement Access Devices and Access to Account Pending Replacement
Sometimes consumers lose or damage the access device to their accounts. Or, if there has been a data breach, the issuer may cancel the debit or ATM card. Cancelation of an access device is specifically exempt from the Regulation E provision requiring prior notice before changes in terms of an account.371
Consumer Banking and Payments Law: 5.2.3.1 Entities That Must Make Disclosures
In general, Regulation E requires “financial institutions” to make initial disclosures at the time a consumer contracts for an electronic fund transfer service or before the first electronic fund transfer is made involving the consumer’s account.373 However, the term “financial institution” is defined broadly to encompass entities other than banks and credit unions that offer accounts within the scope of the EFTA or that issue access devices and agree to provide electronic fund transfer services.374