On November 23, 2015, the Consumer Financial Protection Bureau (CFPB) issued CFPB Compliance Bulletin 2015-06 to provide companies with guidance related to their obligations under the Electronic Fund Transfer Act (EFTA) and Regulation E, when obtaining consumer authorizations for preauthorized electronic fund transfers (EFTs) from a consumer’s account.
The purpose of the EFTA is to protect consumers engaging in EFTAs, defined broadly to include any transfer of funds initiated through an electronic terminal, telephone, computer, or magnetic tape for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit a consumer’s account. The CFPB is authorized by the Dodd-Frank Wall Street Reform and Consumer Protection Act to enforce the EFTA and Regulation E.
Consumer Authorization for Preauthorized EFTs
The EFTA and Regulation E require entities to obtain consumer authorization for preauthorized EFTs. Preauthorized EFTs refers to an “electronic fund transfer authorized in advance to recur at substantially regular intervals.” Regulation E requires that preauthorized EFTs from a consumer’s account be authorized “only by a writing signed or similarly authenticated by the consumer.” The consumer authorization can be obtained in paper form or electronically. Further, the “writing and signature requirements . . . are satisfied by complying with the [E-Sign Act] which defines electronic records and electronic signatures.” In addition, companies can obtain signed, written authorization from consumers over the phone if the E-Sign Act requirement for electronic records and signatures are met.
The company must also provide a copy of the authorization to the consumer. Specifically, the terms of the authorization must be provided in paper form or electronically. The bulletin emphasizes that two of the most important terms of an authorization are the timing and amount of the recurring transfers from the consumer’s account. In fact, the bulletin points out that in at least one CFPB examination, the examiners discovered that consumer notices the company provided were not sufficient, because the notices failed to disclose key terms including the recurring nature of the preauthorized EFTs and the amount and timing of all the payments to which the consumer agreed.
You can view the CFPB Compliance Bulletin 2015-06 here: http://files.consumerfinance.gov/f/201511_cfpb_compliance-bulletin-2015-06-requirements-for-consumer-authorizations-for-preauthorized-electronic-fund-transfers.pdf.
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Zane Gilmer is a member of the firm’s litigation practice group. His practice focuses on business litigation and compliance and he is a member of the firm’s CFPB taskforce. Zane works out of the firm’s Denver office and he can be reached at email@example.com or 303.376.8416.
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