The Consumer Financial Protection Bureau (CFPB) issued a Bulletin clarifying its expectations for entities under the Electronic Fund Transfer Act (EFTA) and Regulation E when they are obtaining consumer authorizations for preauthorized electronic fund transfers (EFTs) from a consumer's account, including electronic authorization under the Electronic Signatures in Global and National Commerce Act (E-Sign Act). Preauthorized EFT refers to an "electronic fund transfer authorized in advance to recur at substantially regular intervals."
Compliance with EFTA and Regulation E has been the focus of supervisory examinations and enforcement actions brought by the CFPB, as well as at least one nonpublic supervisory appeal in which findings by examination staff were overturned because of a misapplication of the rules by examiners.
EFTA and Regulation E establish requirements for entities that obtain consumer authorizations for preauthorized EFTs. Regulation E requires that preauthorized EFTs from a consumer's account be authorized "only by a writing signed or similarly authenticated by the consumer." In addition, a copy of the authorization must be provided to the consumer. The CFPB is authorized, subject to certain exceptions, to enforce EFTA and Regulation E against any person subject to their requirements. It's also important to note that EFTA includes a private right of action with a one-year statute of limitations for aggrieved consumers.
The CFPB outlined several expectations for compliance with EFTA and Regulation E in the Bulletin, including the following:
- Oral recordings obtained over the phone may authorize preauthorized EFTs under Regulation E if these recordings also comply with the E-Sign Act.
- In at least one examination, Supervision concluded that one or more entities did not violate EFTA or Regulation E merely because they obtained consumer authorizations by telephone.
- Regulation E may be satisfied if a consumer authorizes preauthorized EFTs by entering a code into his or her phone keypad or the company records and retains the consumer's oral authorization.
- Recordings of phone conversations with consumers "should be conducted in accordance with applicable State laws." This appears to be a reference to certain state two-party consent laws for telephone recordings.
- The copy of the authorization must include all terms of authorization, as set forth in the rules.
- "When practical," the copy of the authorization should be sent to the consumer before the first preauthorized EFT.
By issuing the Bulletin the CFPB provides important guidance to industry and its own staff on how Regulation E may be satisfied. The Bulletin also cites to commentary from the Federal Reserve Board, which had general rulemaking authority under EFTA until Dodd-Frank transferred that authority to the CFPB. In particular, the Official Staff Commentary explains that "it is the third-party payee" that violates the rule if it "fails to obtain the authorization in writing or fails to give a copy to the consumer . . ."
The CFPB recommends that entities take steps to comply with the requirements immediately. The CFPB monitors complaints from consumers and conducts investigations of providers of consumer financial products and services on an ongoing basis. The CFPB plans to use its supervisory and enforcement authority where necessary. The Bulletin is available on the CFPB website.