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Why Regulation E and Electronic Signatures are Suddenly in the Spotlight
Regulation E has been in existence since 1978, when it was passed by Congress and signed by Jimmy Carter. It established the rights and liabilities of consumers as well as businesses involved in Electronic Funds Transfer activities. So why, 38 years after it was signed, has it become such an important and frequently discussed regulation?
The recent involvement of the Consumer Federal Protection Bureau (CFPB) has brought Regulation E and the EFTA or Electronic Funds Transfer Act back into the spotlight–specifically when it launched its Regulation E tool in 2013, breaking down the regulation and making it easier for consumers to understand.
Most recently, the CFPB also issued a Compliance Bulletin in November of 2015, which outlines the requirements for consumer authorizations and how electronic signatures can be used to obtain those authorizations.
Why Did the CFPB Release this Compliance Bulletin?
- To remind those that process electronic transactions, like financial institutions and businesses, of their obligations under the EFTA's Regulation E while obtaining payment authorizations from consumers.
- The CFPB observed that many institutions and businesses were not compliant with these regulations and may be uncertain of their obligations. The bureau wanted to provide clarity and explain the overlap between Regulation E and the Electronic Signatures in Global and National Commerce Act (E-Sign Act).
- To summarize the current law, highlight relevant findings, and clearly define the CFPB's expectations for obtaining consumer authorizations.
EFTA or Electronic Funds Transfer Act Explained
- EFTA was put in place to protect consumers who make payments via an Electronic Transfer.
- EFT's are any transfer of funds processed via these means:
- Electronic Terminal
- Magnetic Tape for the purpose of authorizing a debit or credit from their account.
- Regulation E is part of the EFTA.
- The CFPB is authorized to enforce the EFTA's Regulation E.
Definition of Pre Authorized Electronic Funds
Preauthorized EFTs are:
- Electronic Fund Transfers
- Authorized in Advance
- That are Recurring or Repeated
- At Regular Intervals
Requirements for Pre Authorized Payments from a Consumer Account
- Must be authorized by signature or similarly authenticated by the consumer.
- Must provide a copy of the authorization to the consumer.
- Can be paper form or an electronic signature. Either way, to comply with Regulation E the authorization must be identifiable as the consumer, and provide evidence of the consumer's identity and their consent to authorize.
- The preauthorized EFT must be clear and easily understandable to the consumer.
- Must provide a copy of the authorization to the consumer which includes the terms of the payment schedule. For instance: what dates the payments will be processed from the consumer's account and the amount of each of those payments.
Does a Verbal Authorization Comply with Regulation E and the EFTA?
According to the CFPB November 2015 Compliance Bulletin, a verbal authorization taken over the phone does comply with Regulation E if it can meet certain criteria that is considered an Electronic Signature:
- It is an electronic sound, symbol or process that is attached or associated with a contract.
- Is executed by a person with the intent to sign the contract.
- The contract is created, generated, sent, communicated, received or stored by electronic means.
In short, the ability to enter and record a code entered on the telephone keypad could satisfy Regulation E and be considered an electronic signature.
PDCflow Offers Regulation E Compliant Electronic Signatures
PDCflow's FLOW + Payments offers an easy, efficient, and compliant option to obtain your customers' electronic signatures. With dual authentication and geo location tracking, FLOW + Payments provides evidence of the consumer's identity along with the signature which is completed on a touch device or via a mouse on a desktop.
PDCflow's FLOW + Payments also provides the ability to send documents. For example, you may send a consumer the terms of a recurring payment schedule with the proper authorization language. They may then sign the schedule, return it to you in minutes, and have a copy sent to them for future reference.