Last week, the CFPB issued a Compliance Bulletin setting out the requirements for pre-authorized ACH payments.  In its press release, the CFPB said, “Millions of consumers authorize companies to automatically deduct payments from their deposit accounts for recurring expenses….  The CFPB is concerned that some companies may be failing to meet the legal requirements for obtaining authorizations from consumers for recurring auto debits.”  

Further, the CFPB is concerned that creditors are not adequately and accurately advising consumers of their rights with respect to stopping automatic debits from their accounts.

The CFPB Bulletin reminds creditors that under federal law preauthorized debits must be voluntary.  Further, creditors must comply with the requirements of the Electronic Fund Transfer Act when it seeks consumer approval for preauthorized debits.  These requirements include:

  • Authorization by a writing signed or similarly authenticated by the consumer, which can be in electronic format (although a recorded telephone authorization may serve as  authentication).
  • A copy of the authorization must also be provided to the consumer.
  • The authorization must identify both the timing and the amount of the recurring transfer authority.
  • The authorization must be revocable by the consumer.

Four sample letters are given by the CFPB that may be used by consumers to revoke permission to auto debit the account, and to notify the consumer's bank of such revocation.  

The CFPB also stated that as the Bulletin summarizes existing requirement under law, it is therefore exempt from notice and comment rulemaking requirements that many Bulletins must undergo.  Accordingly, this Bulletin now enjoys the full force and authority that the CFPB brings to its enforcement and examination authority.

So, be on guard!