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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

Consumer Banking and Payments Law: 5.2.3.2 Form of Disclosures

EFTA disclosures must be “clear and readily understandable, in writing, and in a form the consumer may keep.”378 A disclosure may not be clear and readily understandable, even if a model disclosure is used, if it is ambiguous in describing an institution’s services.379

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: 5.2.4.3 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: 5.3.1.3.1 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: 5.3.2.3.1 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: 5.3.4.1 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.