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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: 5.1.6.6 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: 5.2.3.1 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.