CFPB Issues Compliance Bulletin on Preauthorized Debit Transactions Under the Electronic Fund Transfer Act and Regulation E
Written by Shereefat Balogun, Regulatory Compliance Counsel
On November 23, the CFPB 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. In the bulletin, the CFPB observed that some entities are not fully complying with the requirements imposed by the EFTA and Regulation E. The bulletin primarily focuses on two areas: (i) obtaining the member's authorization for preauthorized EFTs over the telephone; and (ii) providing a copy of the authorization to the member.
As you may know, Regulation E requires that preauthorized EFTs from a member's account be authorized only by a writing signed or similarly authenticated by the consumer. Moreover, a copy of the authorization but be provided to the member. In the bulletin, the CFPB explains that a credit union may obtain a member's authorization over the phone, provided that the requirements of the E-Sign Act are met. Specifically, the bulletin states that Regulation E may be satisfied if a member signs or similarly authenticates the authorization orally. For example, a member can authorize preauthorized EFTs by entering a code into their telephone keypad; or the credit union may record and retain the member's oral authorization. In both instances, Regulation E is satisfied, provided the member intends to sign the record as required by the E-Sign Act. Note that the E-Sign Act prohibits the use of oral recordings as electronic records, where a law or regulation requires that information be provided to a consumer in writing. However, in the bulletin, the CFPB makes clear that the E-Sign Act's restriction does not apply to Regulation E's preauthorized EFT requirements because Regulation E does not specify that entities provide a writing to consumers when obtaining the authorization.
The bulletin also discusses Regulation E's requirement for a credit union to provide a copy of an authorization for a pre-authorized EFT to the member, noting that two of the most significant terms of an authorization are timing and the amount of the recurring transfers from the member's account. The CFPB also provides an alternative to providing a copy of the authorization after its execution- a credit union can provide a confirmation form. For example, a credit union may provide a member with two copies of the authorization form, and ask the member to sign and return one and to retain the second copy.
Lastly, the CFPB makes clear that credit unions must obtain member authorizations before initiating preauthorized EFTs and provide a copy of that authorization to members. The CFPB encourages credit unions to provide a copy of the authorization to the member before the first preauthorized EFT is initiated.