Confusion After Clarity: The CFPB's November Bulletin on Consumer Authorizations for Preauthorized Electronic Fund Transfers

In late November of last year, the CFPB issued a bulletin covering “Requirements for Consumer Authorizations for Preauthorized Electronic Fund Tranfsers” (or CFPB Compliance Bulletin 2015-06 if you’re short on time).

During its time of conducting investigations and meeting with consumer groups, the CFPB had noticed “that some entities may not fully comply with the requirements imposed by EFTA and Regulation E,” and that “others may be uncertain of their obligations under EFTA and Regulation E, as well as the intersections between Regulation E and the…[E-Sign Act].”

Bulletins from the CFPB often function as rule-making, even though bulletins aren’t technically the way the CFPB conducts rule-making. Both bulletins and consent orders, though, should be viewed by all in the industry as the “writing on the wall,” so to speak. They show the agency’s current line of thinking, and give those companies in the debt industry a map of compliance.

One question, raised fairly frequently of late, is whether or not oral authorizations on a recorded line count as “pre-authorizations.” In fact, in a recent webinar directly focused on Regulation E and EFTA, produced by insideARM and generously sponsored by BillingTree, the idea of oral authorizations was discussed by panelists Rozanne Andersen of Ontario Systems and John Bedard of Bedard Law Group.

First off, in its 28 November Bulletin, the CFPB wrote, “This Compliance Bulletin explains that oral recordings obtained over the phone may authorize preauthorized EFTs under Regulation E provided that these recordings also comply with the E-Sign Act.”

The Bureau goes on to say, “Regulation E may be satisfied if a consumer authorizes preauthorized EFTs by entering a code into their telephone keypad, or…the company records and retains the consumer’s oral authorization, provided in both cases the consumer intends to sign the record as required by the ESign Act.”

Bedard, in the webinar, also suggested oral authorizations — complete with systems in place for telephone keypad entry (sophisticated enough to know that the consumer has actually entered the asked-for digits, and not just mashed buttons on his phone) and recordings — were further along the “acceptable” continuum than naught.

However, many in the industry remain wary — primarily because no suit has been filed specifically calling out a collection agency for this practice. And the CFPB’s language itself is cagy: “oral recordings obtained over the phone MAY authorize preauthorized EFTs.” That’s not as solid as “WILL authorize preauthorized EFTs.”

Confusion also blooms because the E-Sign Act itself isn’t as explicit in its prescriptions. In a footnote, the CFPB reminds readers that, “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).”

Throughout January and February, and with the sponsorship of BillingTree underwriting our efforts, insideARM will provide additional tools and guidance around payments. Coming up: Key Learnings from our Reg E/EFTA webinar; an authorizations checklist for EFTs; and a Policy & Procedure workshop specifically covering Reg E.