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Consumer Banking and Payments Law: 5.3.6.2 NACHA Requirements

Merchants and others billing consumers impose fees when ACH debits and checks are returned; NACHA rules call these “return fees” and permit the biller to collect a return fee via the ACH Network. NACHA Rule 2.14 defines and establishes a return fee entry as a specific and separate type of ACH entry, allowing billers to obtain authorization by providing the consumer with a notice at the time that the underlying ACH debit is authorized or the underlying check is accepted that conforms to the requirements of Regulation E.628

Consumer Banking and Payments Law: 5.3.7.1 Regulation E

The Regulation E rule that governs the right to stop payment of potentially recurring, preauthorized transfers is discussed in § 5.9, infra. Regulation E does not provide a right to stop payment of single-payment electronic fund transfers (EFTs) that do not fit the definition of a preauthorized EFT.

Consumer Banking and Payments Law: 5.3.7.2.1 Overview; application of NACHA rules

Separate NACHA rules address three distinct situations: first, a consumer request to a financial institution to stop payment of an item; second, the consumer’s right to revoke the authorization provided to the payee (originator of an ACH debit) to initiate the debit; and third, the consumer’s right to ask the financial institution to re-credit an unauthorized charge. The consumer’s rights to stop payment and to revoke authorization are discussed below.

Consumer Banking and Payments Law: 5.3.8 Authorization, Revocation, and Stopping Payment of Payday Loan EFTs

Consumers who take out payday loans or installment loans may run into trouble when the lender debits their account electronically. Automatic payments can trigger overdraft or non-sufficient-funds fees. Consumers often have trouble stopping payment with the bank or getting the lender to comply when the consumer revokes the lender’s authorization to debit the account. Disputes about the validity of the consumer’s authorization can arise in a number of circumstances.

Consumer Banking and Payments Law: 5.3.9 Authorization and Procedures for Payments to Debt Collectors

The Fair Debt Collection Practices Act (FDCPA) makes it an unfair debt collection practice for a debt collector to solicit, accept, or deposit a check or other payment instrument that is post-dated by more than five days unless the debt collector notifies the consumer in writing688 at least three business days and no more than ten business days prior to depositing the check or other payment instrument.689 This provision should apply if a consumer agrees to a payment plan and authorizes payments

Consumer Banking and Payments Law: 5.5.2.1.1 Basic definition of “unauthorized electronic fund transfer”

Under the EFTA, an “unauthorized electronic fund transfer” is an electronic fund transfer, or a series of related transfers,711 from a consumer’s account “initiated by a person other than the consumer without actual authority to initiate the transfer and from which the consumer receives no benefit.”712 The EFTA provision defining an unauthorized electronic fund transfer (unauthorized EFT) does not itself set out a basis for liability; a plaintiff must allege a specific

Consumer Banking and Payments Law: 5.5.2.1.3 Transfers by person furnished with the access device

Regulation E states that the term “unauthorized electronic fund transfer” does not include an electronic fund transfer initiated by a person to whom the consumer furnished the access device,749 unless the consumer has notified the financial institution that transfers by that person are no longer authorized.750 If the consumer grants authority to a person to make transfers and the person exceeds that authority, the consumer is liable.751

Consumer Banking and Payments Law: 5.5.2.1.4 Transfers initiated by the financial institution or its employee

The term “unauthorized electronic fund transfer” does not include an electronic fund transfer initiated by the financial institution or its employee.764

However, this does not mean that the consumer is unprotected from such transfers. To the contrary, the Official Interpretations of Regulation E state that a consumer “has no liability for erroneous or fraudulent transfers initiated by an employee of a financial institution.”765

Consumer Banking and Payments Law: 5.5.3 Burden of Proof; No Consumer Liability Based on Consumer Negligence; Consumer Cannot Waive EFTA Rules

If a consumer alleges that an EFT is unauthorized, the burden of proof is on the financial institution to show that it was authorized or that the conditions for consumer liability have been met.776 If the consumer did not timely report the unauthorized transfers, the financial institution must show that timely notice would have prevented subsequent unauthorized transfers.777

Consumer Banking and Payments Law: 5.5.4.2 Maximum $50 or No Liability When Consumer Promptly Reports the Loss

If an access device is lost or stolen, the consumer’s liability for unauthorized use is limited to a maximum of $50 if the consumer reports the card as being lost or stolen within two business days after the consumer learns of the card’s loss or theft.791

The time period may be extended to four business days if the lost or stolen access device is issued by a service provider that is not the account-holding institution and that does not provide periodic statements.792

Consumer Banking and Payments Law: 5.5.4.3 Liability Up to $500 When Loss or Theft of Access Device Not Reported Within Two Business Days of Discovering Loss or Theft

The consumer’s maximum liability for unauthorized use of an access device is $500 if the consumer fails to notify the financial institution within two business days after learning of the loss or theft of the access device. The time period may be extended to four business days if the lost or stolen access device is issued by a service provider that is not the account-holding institution and that does not provide periodic statements.798

Consumer Banking and Payments Law: 5.5.5.1 When Must Unauthorized Charges Be Reported?

Contrary to popular understanding, there is no time limit in the EFTA for reporting the first unauthorized transfer. However, in order to trigger the financial institution’s error resolution requirements—and to obtain maximum liability protection if there are subsequent unauthorized transfers—the consumer generally must report an unauthorized charge within sixty days of the financial institution’s transmittal of a statement showing those charges.

Consumer Banking and Payments Law: 5.6.1.1 General

The EFTA contains a detailed procedure for consumers to use to resolve errors related to electronic fund transfers.873 These procedures apply not just to money coming out of the consumer’s account but also to money going into it. Regulation E specifically states that the error resolution procedures apply to an incorrect electronic fund transfer “to or from” the consumer’s account.874