An important change to the rules governing the Automated Clearing House (ACH) Network that becomes effective on September 16, 2011, will allow lenders, sellers, and other companies to obtain oral authorization from a consumer over the telephone for recurring ACH payments. At the same time, another significant change will make it easier for companies to obtain authorization to electronically debit a consumer’s account for return-item (NSF) fees but also impose new identification requirements for such debits.
Recurring Payments. The new rule will permit companies to obtain authorization for recurring ACH payments from the account of a new customer or a customer with whom it has an existing relationship. However, care must be taken to ensure compliance with applicable ACH, E-SIGN Act, and Electronic Fund Transfer Act rules. Legal guidance from qualified counsel is absolutely essential.
According to the guidance on the new rule provided by the National Automated Clearing House Association (NACHA), the consumer’s oral authorization must be recorded and the consumer must receive either a recording of the oral authorization or a written copy of the authorization terms before the first payment from the consumer’s account using the authorization. This means that if the consumer’s account is to be debited immediately, in addition to the authorization for recurring payments, the company must obtain a single-payment authorization (for which a written copy of the authorization terms can be sent after the account is debited).
The guidance further states that an oral authorization must (1) be readily identifiable as an authorization of recurring ACH debits to the consumer’s account, (2) state the terms of the recurring debit clearly and in understandable terms, (3) evidence the consumer’s identity, and (4) evidence the consumer’s assent to the authorization. To satisfy these requirements, the recorded authorization must include certain information, including a telephone number for consumer inquiries that is answered during normal business hours and the date of the oral authorization.
To take advantage of the new rule, companies must be sure that an oral authorization for recurring ACH debits also satisfies the writing and signature requirements of Regulation E for preauthorized transfers. (In its summary of the new rule, NACHA notes that its guidance is not legal advice regarding compliance with Regulation E and the ESIGN Act.) Regulation E permits the requirement for a signed, written authorization to be satisfied by obtaining the consumer’s electronic signature in compliance with the ESIGN Act and providing a copy of the authorization terms to the consumer electronically or in paper form.
Because an oral communication or a recording of an oral communication generally does not qualify as an “electronic record” under the ESIGN Act, a company will need to do something more than just record the consumer’s oral authorization to obtain a compliant electronic signature. Processes for obtaining a compliant electronic signature might include instructing the consumer to provide his or her signature by pressing a specific sequence of numbers on his or her telephone and electronically capturing those button presses.
Return Item Fees. The new rule applies to ACH debits to or checks drawn on a consumer’s account that are returned for insufficient or uncollected funds. Companies will be required to follow the new rule when collecting NSF fees through the ACH Network and, in contrast to existing practice, will need to specifically identify the nature of the fee. The new rule establishes a “Return Fee Entry” as a specific type of ACH entry and makes such entries subject to the following requirements:
- A company can obtain authorization for a Return Fee Entry at the time the underlying ACH debit is authorized or the underlying check is accepted by providing a notice that conforms with the requirements of Reg. E for collecting NSF fees via an electronic debit. This represents a change from the current rule, which requires companies to obtain the consumer’s express authorization to collect an NSF fee by ACH debit. The notice permitted by the new rule, which must contain certain prescribed language, can be provided with the customer’s authorization for one-time or recurring ACH payments. A company will be allowed to originate only one Return Fee Entry per returned transaction, regardless of the number of times the transaction is returned unpaid.
- When submitting a Return Entry Fee, a company must (1) identify the Return Fee Entry in the ACH Batch Header Record in a prescribed manner; (2) identify itself in the Company Name field using the identical name that was used in the underlying ACH debit or, if the underlying transaction was a check, the name by which the company is known and readily recognized by the consumer; and (3) if a Return Fee Entry relates to an underlying check transaction or an ACH debit that carries a check serial number, include the check serial number in the Individual Identification Number field.