As 2016 gets underway, companies should be mindful that regulators are paying close attention to automatic recurring debit transactions. If reviewing your recurring debit transaction consent procedures was not already one of your New Year’s resolutions, it may be worth making it a late addition.
The Consumer Financial Protection Bureau (CFPB) signaled in a compliance bulletin late last year that it is scrutinizing automatic recurring debit transactions to ensure that companies are obtaining proper consent from consumers. Such transactions are regulated by the Electronic Fund Transfer Act (EFTA) and its implementing regulation, Regulation E.
EFTA and Reg. E
Under EFTA and Regulation E, electronic fund transfers such as automatic recurring debit transactions can only be authorized “by a writing signed or similarly authenticated by the consumer.” That’s not as scary as it sounds – authorization can be obtained electronically or even over the phone so long as it is recorded and kept on record – but the regulations are fairly specific and authorization procedures should be carefully reviewed to ensure compliance.
Another thing to keep in mind: companies must provide a copy of the authorization to consumers, whether electronically or on paper, and the CFPB suggests that the copy should be provided before the first debit transaction is processed.
What’s the Bottom Line?
For now, the CFPB is just reminding companies of their obligations under EFTA and Regulation E. It notes that during a recent review, the CFPB found that many companies are not fully compliant with the regulations. The CFPB singled out companies engaging in mortgage servicing, student loan servicing, debt collection, and short-term, small-dollar lending, in particular. Now that it’s reminded companies of their obligations, it’s a good bet that the CFPB will be cracking down on non-compliant companies in the not too distant future.
Companies looking to get 2016 off on the right foot are advised to take a close look at their own procedures if they want to avoid regulatory scrutiny. For more information about electronic fund transfers, EFTA and Regulation E, please contact Anthony Lupo, Matthew Mills, Eva Pulliam, or Dan Jasnow.