The CFPB has issued a compliance bulletin (Bulletin 2015-06) concerning the Electronic Fund Transfer Act (EFTA) and Regulation E requirements for obtaining a consumer’s authorization for preauthorized electronic fund transfers (EFT) and the CFPB’s compliance expectations. The bulletin was accompanied by the CFPB’s publication of sample letters a consumer can use in connection with preauthorized EFTs, including to revoke his or her authorization.
In the bulletin, the CFPB observes that under the EFTA and Regulation E, a company can obtain the required consumer authorization for preauthorized EFTs in paper form or electronically. The CFPB notes that Regulation E requires a company using electronic authorizations to comply with E-Sign Act requirements for electronic records and signatures. The CFPB confirms that the EFTA and Regulation E allow a company to use oral recordings obtained over the phone to authorize preauthorized EFTs if the recordings comply with such E-Sign Act requirements. It states that “[i]n at least one examination, Supervision has concluded that one or more entities did not violate EFTA or Regulation E merely because they obtained by telephone consumer authorizations that were signed or similarly authenticated by the consumer orally.” According to the CFPB, a company can satisfy Regulation E if a customer authorizes preauthorized EFTs by entering a code into a telephone keypad or it “records and retains the consumer’s oral authorization, provided in both cases the consumer intends to sign the record as required by the E-Sign Act.”
The CFPB also discusses the Regulation E requirement for a company to provide a copy of an authorization for preauthorized EFTs to the consumer, commenting that “two of the most significant terms of an authorization are the timing and amount of the recurring transfers from the consumer’s account.” It states that as an alternative to providing a copy of the authorization after its execution, a company can comply with Regulation E by using a confirmation form, such as by providing a consumer with two copies of an authorization form and asking the consumer to sign and return one copy and retain the second copy. The CFPB cautions that a company does not comply with Regulation E by making a copy of the authorization available only upon request.
The CFPB notes that it expects “all entities obtaining consumer authorizations for preauthorized EFTs “to know and comply with” the Regulation E requirements to obtain the authorization before initiating preauthorized EFTs and provide a copy of the authorization to the consumer. It states that “when practical” companies are encouraged to provide a copy of the authorization to the consumer before the first EFT is initiated.
Although the bulletin does not mention the Regulation E prohibition on conditioning on conditioning a loan on the borrower’s repayment through recurring preauthorized EFTs, several CFPB enforcement actions have involved alleged violations of that prohibition as well as the requirement for obtaining authorization for preauthorized EFTs. In addition, various compliance issues relating to preauthorized EFTs have been noted by CFPB examiners.
To assist consumers “who may be getting the runaround” when seeking to stop preauthorized EFTs, the CFPB published four sample letters for consumers to use that address the following scenarios:
- Revoking authorization given to a company or merchant for preauthorized EFTs
- Providing notice to a bank or credit union that the consumer has revoked a company’s or merchant’s authorization for preauthorized EFTs
- Issuing a “stop payment order” to a bank or credit union to stop payment of one or more preauthorized EFTs
- Notifying a bank or credit union of an unauthorized debit from a consumer’s account
The CFPB also published a series of “consumer tips” about using preauthorized EFTs. Such tips include that a consumer should verify that the company to which he or she is providing authorization is legitimate and credible, be “wary” of a company that “pressures repayment” by automatic payments, and monitor accounts for unauthorized payments or transfers.
On October 7, 2015, Ballard Spahr attorneys conducted a webinar “The Next EFTA Class Action Wave Has Started,” that focused on the wave of new class actions being filed in which companies are alleged to have failed to comply with the EFTA and Regulation E requirements for preauthorized EFTs.