Updated June 2021

No matter what business you’re in, taking payments brings more regulations you must follow. For instance, companies that use recurring payment processing need to maintain Regulation E compliance during Electronic Funds Transfers (EFTs).

How do you know when Regulation E applies to a transaction or payment schedule within your business and how can your payment software tools help?

Regulation E is the regulation within the Electronic Funds Transfer Act (EFTA) stating what EFT compliance is required according to the act. It also addresses who Regulation E applies to and at what times it must be taken into account.

Both fines and criminal liability can be consequences of failing to comply with the regulation. It is best to understand your responsibilities as a business to avoid these penalties.

Regulation E is mostly applicable to financial institutions. “However, there is also a somewhat "catch-all" provision for applicability of Regulation E to service providers other than financial institutions,” says attorney Mike Etmund. “If electronic funds transfer services are made available to consumers by a person other than a financial institution holding a consumer's account, the disclosures, protections, responsibilities and remedies shall be applicable.”

This means that any business that offers EFT payment options must follow applicable sections of Regulation E.

In an effort to protect consumers from recurring payment processing they do not consent to, companies must gain pre authorization before an EFT schedule takes place.

The definition of a preauthorized electronic funds transfer is “one authorized by the consumer in advance of a transfer that will take place on a recurring basis, at substantially regular intervals, and will require no further action by the consumer to initiate the transfer.”

• PCI compliance - your payment software should limit PCI compliance scope, whether agents work in the office or remotely.

• Chargeback prevention uses - look for reporting features that include proof of authorization, time/date stamp and other features that prove right-party authentication and can help you win chargebacks.

• Data tokenization and encryption - encryption is a common practice to keep data safe. Finding a payment tool that also offers credit card and ACH bank account tokenization decreases your risk and protects consumers from fraud.

• Flexible schedules - people may need weekly or bi monthly payments to coincide with their paychecks. Your system should be able to accommodate their needs.

• Adjustable payment terms - you need to balance consumer needs with payment schedules that make sense. Adjust schedule lengths and minimum payment amounts so schedules don’t stretch on too long and minimum payment amounts are acceptable for your business needs.

• Automatic payment reminders - Along with compliance purposes, automatic payment reminders offer convenience. Sending a reminder helps you avoid running expired cards and reminds consumers to contact an agent if they can’t make their next payment. This reduces the likelihood of failed payments.

Do you want to learn more about the EFT and Nacha requirements for payment compliance? Learn about transaction types and view sample authorization materials here: