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
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
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).
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
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.
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
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.
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
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.
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.
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
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.
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
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.
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.
In addition to the right to order the bank to stop payment, NACHA rules also permit consumers to revoke their authorization to the payee to initiate both recurring and single-entry debits scheduled to occur in advance.
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.
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
The EFTA prohibits consumers from being compelled to make or receive payments by electronic fund transfers in three situations. Those situations involve payment of wages, government benefits, and loan payments.
The EFTA does not address when a debit may be posted to a consumer’s account. NACHA rules, however, provide that the consumer’s bank may not debit the consumer’s account prior to the settlement date of an entry.697
Unauthorized transfers from a consumer’s account can have serious consequences for the consumer. However, the EFTA places a maximum limit on the consumer’s liability.
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
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
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