Funds Transfers

Funds Transfers in the United States

Elecronic Fund Transfers

Electronic fund transfers are defined broadly and generally include any transfer of funds initiated through an electronic terminal, telephone, computer, or magnetic tape for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit a consumer’s account (See 15 U.S.C. § 1693a(7); 12 CFR § 1005.3(b)).

Consumer Authorizations for Preauthorized Electronic Fund Transfers

Entities have legal and compliance obligations under the Electronic Fund Transfer Act (EFTA) and Regulation E when obtaining consumer authorizations for preauthorized electronic fund transfers (EFTs) from a consumer’s account. Some entities may be uncertain of their obligations under Electronic Fund Transfer Act and Regulation E, as well as the intersections between Regulation E and the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (for E-Sign Act interpretation, see 15 U.S.C. § 7001).

This section focuses on preauthorized electronic fund transfers from consumers’ accounts as governed by 12 CFR § 1005.10(b)-(d). This section does not address transfers to consumers’ accounts, which are governed by different rules.

Background

The Consumer Financial Protection Bureau (CFPB) has supervisory authority over certain covered persons, including very large depository institutions, credit unions and their affiliates (12 U.S.C. § 5515(a)); certain nonbanks (12 U.S.C. § 5514); and service providers (5 12 U.S.C. §§ 5514(e), 5515(d)).

Electronic Fund Transfer Act is intended to protect individual consumers engaging in electronic fund transfers and remittance transfers. See generally 15 U.S.C. § 1693 et seq; see also 12 CFR § 1005.1(b) (“[EFTA] . . . establishes the basic rights, liabilities, and responsibilities of consumers who use electronic fund transfer and remittance transfer services and of financial institutions or other persons that offer these services. The primary objective of [EFTA and Regulation E] is the protection of individual consumers engaging in electronic fund transfers and remittance transfers.”).

The Electronic Fund Transfer Act is implemented through Regulation E, which includes official interpretations. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) generally transferred rulemaking authority under EFTA from the Board of Governors of the Federal Reserve System (“the Board”) to the Consumer Financial Protection Bureau. Dodd-Frank Act §§ 1002(12)(C), 1061, and 1084, 12 U.S.C. §§ 5481(12)(C), 5581, and 15 U.S.C. § 1693 et seq. Section 1029 of the Dodd-Frank Act generally excludes from this transfer of authority, subject to certain exceptions, any rule making authority over a motor vehicle dealer that is predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both. The transfer of authority also did not include Section 920 of Electronic Fund Transfer Act, which concerns debit card interchange fees charged to merchants. Section 920 of Electronic Fund Transfer Act is implemented by Board regulations at 12 CFR part 235.

The Consumer Financial Protection Bureau is authorized, subject to certain exceptions, to
enforce Electronic Fund Transfer Act and Regulation E against any person subject to EFTA and Regulation E. (See EFTA § 918(a)(5), 15 U.S.C. § 1693o(a)(5); see also 12 U.S.C. §§ 5536, 556)
Consumer Authorization Requirements for Preauthorized electronic fund transfers from a Consumer’s Account.

Entities must comply with Electronic Fund Transfer Act and its implementing Regulation E when using preauthorized electronic fund transfers. Preauthorized electronic fund transfers refer to an “electronic fund transfer authorized in advance to recur at substantially regular intervals.” (See 12 CFR § 1005.2(K)). During examinations, the Consumer Financial Protection Bureau has noted that many companies – including those engaging in mortgage servicing, student loan servicing, debt collection, and short-term, small-dollar lending – solicit authorizations from consumers for payment by preauthorized electronic fund transfers.

Consumer Authorizations in Compliance with Electronic Fund Transfer Act and Regulation E

Electronic Fund Transfer Act and Regulation E establish requirements for entities that obtain consumer authorizations for preauthorized electronic fund transfers (See 15 U.S.C. § 1693e; 12 CFR § 1005.10(b) and (d)). These requirements include specific rules related to consumer authorizations. Regulation E requires that preauthorized electronic fund transfers
from a consumer’s account be authorized “only by a writing signed or similarly
authenticated by the consumer.” (See 12 CFR § 1005.10(b)) A copy of the authorization must also be provided to the consumer (See 12 CFR § 1005.10(b)).

Under the Electronic Fund Transfer Act and Regulation E, companies can obtain the required consumer authorizations for preauthorized electronic fund transfers in several ways. Consumer authorizations can be provided in paper form or electronically.

The commentary to Regulation E explains that the rule “permits signed, written authorizations to be provided electronically,” and specifies that the “writing and signature requirements . . . are
satisfied by complying with the [E-Sign Act] which defines electronic records and electronic signatures” (15 12 CFR part 1005, Supp. I, comment 10(b)-5). The E-Sign Act establishes that electronic signatures and electronic records are valid and enforceable if they meet certain criteria. See 15 U.S.C. § 7001(a)(1). An electronic signature is “an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.” 15 U.S.C. § 7006(5).

An electronic record is “a contract or other record created, generated, sent, communicated, received, or stored by electronic means.” Id. § 7006(4). Regulation E does not prohibit companies from obtaining signed, written authorizations from consumers over the phone if the E-Sign Act requirements for electronic records and signatures are met. In 2006, the Board explained that if certain types of tape-recorded authorizations constituted a written and signed (or similarly authenticated) authorization under the E-Sign Act, then the authorization would satisfy Regulation E requirements as well. 71 Fed. Reg. 1638, 1650 (Jan. 10, 2006).

The E-Sign Act establishes that electronic signatures and electronic records are valid and
enforceable if they meet certain criteria (See 15 U.S.C. § 7001(a)(1)). An electronic signature is “an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record” (15 U.S.C. § 7006(5)). An electronic record is “a contract or other record created, generated, sent, communicated, received, or stored by electronic means.”(15 U.S.C. § 7006(4)

In at least one examination, Supervision has concluded that one or more entities did
not violate Electronic Fund Transfer Act or Regulation E merely because they obtained by telephone consumer authorizations that were signed or similarly authenticated by the consumer orally. While Section 7001(c)(1) of the E-Sign Act restricts the use of oral recordings as electronic records “where a statute, regulation or other rule of law requires that information . . . be provided or made available to a consumer in writing,” that rule does not apply when obtaining a consumer’s authorization for preauthorized EFTs because Regulation E does not specify that entities must provide a writing to consumers when obtaining the authorization. See 12 CFR § 1005.10(b).

Regulation E may be satisfied if a consumer authorizes preauthorized electronic fund transfers by entering a code into their telephone keypad (12 CFR part 1005, Supp. I, comment 10(b)-5 (“Examples of electronic signatures include, but are not limited to, digital signature and security codes.”)), or, Supervision concluded, the company records and retains (Regulation E generally imposes a two-year record retention requirement on persons subject to Electronic Fund Transfer Act. See 12 CFR § 1005.13(b)) the consumer’s oral authorization, provided in both cases the consumer intends to sign the record as required by the ESign Act.

In addition, any recording of telephone conversations with consumers should be conducted in accordance with applicable State laws. Whether an authorization is provided in paper form or electronically, to comply with Regulation E, the authorization must be readily identifiable as such to the consumer and the terms of the preauthorized electronic fund transfers must be clear and readily understandable to the consumer (12 CFR part 1005, Supp. I, comment 10(b)-6).

The authorization process should evidence the consumer’s identity and assent to the
authorization (12 CFR part 1005, Supp. I, comment 10(b)-5).

Providing a Copy of the Authorization to the Consumer Regulation E requires persons that obtain authorizations for preauthorized electronic fund transfers to provide a copy of the terms of the authorization to the consumer (12 CFR § 1005.10(b); 12 CFR part 1005, Supp. I, comment 10(b)-5). The copy of the terms of the authorization must be provided in paper form or electronically (See 12 CFR part 1005, Supp. I, comment 10(b)-5).

Two of the most significant terms of an authorization are the timing and amount of the
recurring transfers from the consumer’s account. Cf. 12 CFR § 1005.2(k) (“‘Preauthorized electronic fund transfer’ means an electronic fund transfer authorized in advance to recur at substantially regular intervals.”); 12 CFR part 1005.10(d) (“When a preauthorized electronic fund transfer from the consumer’s account will vary in amount from the previous transfer under the
same authorization or from the preauthorized amount, the designated payee or the financial institution shall send the consumer written notice of the amount and date of the transfer at least 10 days before the scheduled date of transfer.”).

A notice of terms for preauthorized electronic fund transfers from a consumer’s
account may do not satisfy Regulation E when the notices does not disclose important authorization terms such as the recurring nature of the preauthorized EFTs, or the amount and timing of all the payments to which the consumer agreed.

As an alternative to providing a copy of the authorization after its execution, a company can comply with the Regulation E requirement to provide the consumer a copy of the authorization by using a confirmation form. For instance, a company may provide a consumer with two copies of a preauthorization form, and ask the consumer to sign and return one and to retain the second copy (See 12 CFR part 1005). However, a company does not satisfy Regulation E by only making a copy of the authorization available upon request in lieu of providing the copy. See 12 CFR § 1005.10(b) (“The person that obtains the authorization shall provide a copy to the consumer.”)

Funds Transfers and the State Laws

Select from the list of U.S. States below for state-specific information on Funds Transfers:

Funds Transfers (Commercial Law)

This section introduces, discusses and describes the basics of funds transfers. Then, cross references and a brief overview about Commercial Lawin relation to funds transfers is provided. Note that a list of bibliography resources and other aids appears at the end of this entry.

Resources

Further Reading

Funds Transfers: Open and Free Legal Research of US Law

Federal Primary Materials

The U.S. federal government system consists of executive, legislative, and judicial branches, each of which creates information that can be the subject of legal research about Funds Transfers. This part provides references, in relation to Funds Transfers, to the legislative process, the federal judiciary, and the primary sources of federal law (cases, statutes, and regulations).

Federal primary materials about Funds Transfers by content types:

Laws and Regulations

US Constitution
Federal Statutory Codes and Legislation

Federal Case Law and Court Materials

U.S. Courts of Appeals
United States courts of appeals, inclouding bankruptcy courts and bankcruptcy appellate panels:

Federal Administrative Materials and Resources

Presidential Materials

Materials that emanate from the President’s lawmaking function include executive orders for officers in departments and agencies and proclamations for announcing ceremonial or commemorative policies. Presidential materials available include:

Executive Materials

Federal Legislative History Materials

Legislative history traces the legislative process of a particular bill (about Funds Transfers and other subjects) for the main purpose of determining the legislators’ intent behind the enactment of a law to explain or clarify ambiguities in the language or the perceived meaning of that law (about Funds Transfers or other topics), or locating the current status of a bill and monitoring its progress.

State Administrative Materials and Resources

State regulations are rules and procedures promulgated by state agencies (which may apply to Funds Transfers and other topics); they are a binding source of law. In addition to promulgating regulations, state administrative boards and agencies often have judicial or quasi-judicial authority and may issue administrative decisions affecting Funds Transfers. Finding these decisions can be challenging. In many cases, researchers about Funds Transfers should check state agency web sites for their regulations, decisions, forms, and other information of interest.

State rules and regulations are found in codes of regulations and administrative codes (official compilation of all rules and regulations, organized by subject matter). Search here:

State opinions of the Attorney General (official written advisory opinions on issues of state law related to Funds Transfers when formerly requested by a designated government officer):

Tools and Forms

Law in Other Regions

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