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Consumer Banking and Payments Law: 5.2.3.3 When Initial Disclosures Must Be Made
The Prepaid Accounts Rule, effective April 1, 2019, contains detailed disclosure rules—including pre-acquisition disclosures, initial disclosures when the access device is provided, and disclosures regarding the access device itself—for prepaid accounts.391
Consumer Banking and Payments Law: 5.2.3.4 Content of Initial Disclosures
Financial institutions must 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. In addition, the Prepaid Accounts Rule, effective April 1, 2019, contains detailed disclosure rules for disclosures for prepaid accounts.399
The initial disclosures must contain the following:400
Consumer Banking and Payments Law: 5.2.4.1 Change in Terms
Financial institutions must make certain disclosures when they change a term or condition required to be disclosed in the initial disclosures and if the change would result in:
Consumer Banking and Payments Law: 5.2.4.3 Disclosures Regarding Recurring Direct Deposits
When an electronic fund transfer is initiated into the consumer’s account at least once every sixty days, such as direct deposit of wages or government benefits, the financial institution which holds the consumer’s account must provide notice to the consumer430 unless the payor (that is, the employer or government agency) gives the consumer positive notice that the transfer has been initiated.431 The institution can provide notice in one of three ways:
Consumer Banking and Payments Law: 5.2.5 Periodic Statements
Periodic statements are required by the EFTA and Regulation E if the consumer has engaged in any electronic fund transfers during any monthly cycle.434 Banks also have an incentive under Regulation E to provide monthly statements because the consumer’s deadline for contesting unauthorized charges or errors is tied to provision of the statement.435 A number of Regulation E provisions are tied to information that is or may be reported on the periodic statement.
Consumer Banking and Payments Law: 5.2.6 When EFTA Disclosures and Other Writings May Be Provided Electronically
Financial institutions are permitted to provide required disclosures electronically as long as they comply with the requirements of the E-Sign Act, including the consumer consent requirements.444 The Electronic Signatures and National Commerce Act (E-Sign Act)445 authorizes the use of electronic disclosures, electronic records, and electronic signatures.
Consumer Banking and Payments Law: 5.3.1.1 Regulation E Authorization Requirements
With two exceptions, Regulation E does not contain specific authorization requirements for electronic fund transfers (EFTs). Instead, it limits consumer liability for unauthorized transfers, as discussed in § 5.5, infra.
Consumer Banking and Payments Law: 5.3.1.2 NACHA Authorization Requirements for ACH Transactions
In general, NACHA rules require that an originator of an ACH credit or debit entry to a consumer’s account obtain an authorization from the consumer.457 For ACH credits to a consumer’s account, no particular form of authorization is required; it may be oral or by other non-written means.458 Authorization is waived for person-to-person credits.459
Consumer Banking and Payments Law: 5.3.1.3.1 Overview
When an electronic payment is initiated against a consumer’s account—such as through an ACH debit or debit card transaction from a bank account, or a charge against a credit card account—two financial institutions are involved: (1) the institution that originates the debit or credit card charge (typically the bank of the merchant or payment processor), and (2) the consumer’s financial institution, which receives the instruction to charge the consumer’s account.
Consumer Banking and Payments Law: 5.3.1.3.2 NACHA and regulatory requirements for originating and receiving depository financial institutions processing debits against consumer accounts
When a utility company, payday lender, scammer, or other merchant takes a payment from a consumer’s account using the ACH system, the bank of the merchant or of the payment processor that “initiates” the debit “entry” is known as the originating depository financial institutions (ODFI).
Consumer Banking and Payments Law: 5.3.1.3.3 Rules governing ACH debits processed through payment processors
The general obligations of payment processors and the financial institutions that have processor clients are discussed in § 1.5.5, supra. This section discusses bank regulator and NACHA rules that apply to the origination of ACH debits through payment processors (called “third-party senders” in the ACH system) for merchants (called “originators” in the ACH syste
Consumer Banking and Payments Law: 5.3.1.3.4 Authorizations for credit and debit card payments and the role of the acquiring bank
As in other payment systems,517 debit and credit card payments involve a second bank (or credit union) in addition to the consumer’s bank. The second bank has similar responsibilities to the ODFI in the ACH system,518 and to the depository bank with regard to remotely created checks,519 to ensure the integrity of the payments.
Consumer Banking and Payments Law: 5.3.2.1 Introduction
When a consumer authorizes a transfer from an account through a telephone call, the transfer may or may not be governed by the EFTA and Regulation E, depending on the circumstances.528
Consumer Banking and Payments Law: 5.3.2.2 NACHA Authorization Requirements for Telephone Transfers
NACHA rules for electronic entries generally require that merchants obtain the consumer’s written or electronic signed authorization for even a one-time transfer. But NACHA makes two exceptions for transfers for which the consumer’s authorization is obtained over the telephone (called TEL transfers).
Consumer Banking and Payments Law: 5.3.2.3.1 Introduction
The FTC Telemarketing Sales Rule has extensive authorization requirements concerning telephone-initiated electronic fund transfers.539 The rules prohibit telemarketers from using certain payment methods.540 If a creditor that engages in telemarketing only offers the choice of recurring EFTs or an illegal payment method, then it may violate the EFTA’s ban on compulsory use of EFTs.541
Consumer Banking and Payments Law: 5.3.2.3.2 Scope of the FTC rule
The FTC Telemarketing Sales Rule applies to a plan, program, or campaign conducted to induce the purchase of goods or services or a charitable contribution,544 donation, gift of money, or any other thing of value by use of one or more telephones and involving more than one interstate telephone call.545 The rule covers both seller-initiated calls and calls initiated by the customer in response to certain advertisements, direct mail solicitations, and email solicitations.
Consumer Banking and Payments Law: 5.3.2.3.3 Authorization requirements
The FTC Telemarketing Sales Rule requires the merchant to obtain the consumer’s “express verifiable authorization.”554 “Express verifiable authorization” can occur in any of three ways: (1) express written authorization by the customer, including signature; (2) express oral authorization that is tape-recorded along with numerous disclosures555 and made available upon request to the customer’s bank; or (3) written confirmation of the transaction, clearly and conspicuously labeled as such on the e
Consumer Banking and Payments Law: 5.3.2.3.4 Remedies for rule violations
The FTC Telemarketing Sales Rule is promulgated pursuant to the Telemarketing and Consumer Fraud and Abuse Prevention Act,572 which specifies remedies for rule violations.
Consumer Banking and Payments Law: 5.3.3 NACHA Authorization Rules for Online- and Mobile-Based (WEB) Transfers
NACHA has specific rules governing ACH transactions that are authorized online or a mobile device. NACHA calls these transactions “Internet-Initiated/Mobile Entry,” “WEB Entry” or “WEB.”578
Consumer Banking and Payments Law: 5.3.4.1 Regulation E Requirements
When a consumer’s check is not deposited, but instead is used as a source document to initiate a one-time electronic fund transfer from the consumer’s account, Regulation E imposes authorization and notice requirements on the merchant.588 Authorization is found when the merchant provides notice to the consumer,589 and the consumer goes forward with the transaction.590 The merchant is not required to obtain the consumer’s written consent.
Consumer Banking and Payments Law: 5.3.4.2 NACHA Authorization Requirements for Electronic Check Conversions
When a consumer pays a merchant or bill by check, but the payee does an electronic check conversation (ECC) changing the check to an electronic fund transfer, NACHA has rules governing how the merchant obtains the consumer’s authorization. Those rules are discussed in this section.
Consumer Banking and Payments Law: 5.3.5 Authorization to Electronically Re-Present Insufficient Funds Checks and Returned ACHs
NACHA rules address authorization requirements when a merchant electronically re-presents a check with insufficient funds (called a re-presented check entry, or RCK).611 The merchant need not first obtain the consumer’s authorization in writing or through an electronic record. All that is required is that notice be provided to the consumer prior to the debit entry. This notice must clearly and conspicuously state the terms of the business’s check return policy.612
Consumer Banking and Payments Law: 5.3.6.1 Regulation E Requirements
If the merchant is unable to collect funds from the consumer’s account, the consumer’s bank returns the “bounced” check or rejected electronic transfer from the consumer’s account. The merchant may not only seek repayment of that amount but also seek to assess a fee for the returned check or rejected electronic transfer.