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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.

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.

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