Author: LegalEase Solutions

QUESTION PRESENTED

Whether and how the Electronic Fund Transfer Act (EFTA) applies to any potential notice requirement for a change in an agreement that governs “preauthorized electronic fund transfer” between the “consumer” and a third party or other person, as those terms are defined by the act?

SHORT ANSWER

The electronic transfer of funds is governed by the Electronic Fund Transfer Act (EFTA), codified as 15 U.S.C. § 1693. The Act applies only to financial institutions holding an account belonging to a consumer. ANA does not appear to be a financial institution under the EFTA, the notice requirements provided therein likely do not apply to ANA.

RESEARCH FINDINGS

Definitions

Financial institution is defined per EFTA as: “The term ‘financial institution’ means a State or National bank, a State or Federal savings and loan association, a mutual savings bank, a State or Federal credit union, or any other person who, directly or indirectly, holds an account belonging to a consumer.” 15 U.S.C. § 1693a (9).

12 C.F.R. §205, which carries out the purposes of the EFTA, defines “financial institution” as: “Financial institution means a bank, savings association, credit union, or any other person that directly or indirectly holds an account belonging to a consumer, or that issues an access device and agrees with a consumer to provide electronic fund transfer services.” 12 C.F.R. § 205.2 (i).

The term ‘account’ means a demand deposit, savings deposit, or other asset account (other than an occasional or incidental credit balance in an open end credit plan as defined in section 103(i) of this Act), as described in regulations of the Bureau, established primarily for personal, family, or household purposes, but such term does not include an account held by a financial institution pursuant to a bona fide trust agreement.

15 U.S.C. § 1693a (2).

12 C.F.R. §205 confirm this definition: “Account means a demand deposit (checking), savings, or other consumer asset account (other than an occasional or incidental credit balance in a credit plan) held directly or indirectly by a financial institution and established primarily for personal, family, or household purposes.” 12 C.F.R. § 205.2 (b)(1).

U.S.C. § 1693 defines consumer as: “a natural person.” 15 U.S.C. § 1693a(6). The definition is reiterated in 12 C.F.R. § 205.2 – “Consumer means a natural person.” 12 C.F.R. § 205.2(e).

Preauthorized transfers

“[T]he term ‘preauthorized electronic fund transfer’ means an electronic fund transfer authorized in advance to recur at substantially regular intervals.” 15 U.S.C.§ 1693a(10).

A preauthorized electronic fund transfer from a consumer’s account may be authorized by the consumer only in writing, and a copy of such authorization shall be provided to the consumer when made. A consumer may stop payment of a preauthorized electronic fund transfer by notifying the financial institution orally or in writing at any time up to three business days preceding the scheduled date of such transfer. The financial institution may require written confirmation to be provided to it within fourteen days of an oral notification if, when the oral notification is made, the consumer is advised of such requirement and the address to which such confirmation should be sent.

15 U.S.C. § 1693e(a).

12 C.F.R. § 205.10 provides for notice requirements to be satisfied by financial institutions for preauthorized transfers.

(1) Notice by financial institution. When a person initiates preauthorized electronic fund transfers to a consumer’s account at least once every 60 days, the account-holding financial institution shall provide notice to the consumer by:

(i) Positive notice. Providing oral or written notice of the transfer within two business days after the transfer occurs; or

(ii) Negative notice. Providing oral or written notice, within two business days after the date on which the transfer was scheduled to occur, that the transfer did not occur

Persons other than financial institutions are required to comply with disclosures, protections, responsibilities, and remedies per 15 U.S.C. § 1693b(d). “If electronic fund transfer services are made available to consumers by a person other than a financial institution holding a consumer’s account, the Bureau shall by regulation assure that the disclosures, protections, responsibilities, and remedies created by this subchapter are made applicable to such persons and services.” Id.

However, it appears that the bureau has made rules that only apply to financial institutions or similar entities in foreign countries.

The terms and conditions of electronic fund transfers involving a consumer’s account shall be disclosed at the time the consumer contracts for an electronic fund transfer service, in accordance with regulations of the Bureau. Such disclosures shall be in readily understandable language and shall include, to the extent applicable–

(1) the consumer’s liability for unauthorized electronic fund transfers and, at the financial institution’s option, notice of the advisability of prompt reporting of any loss, theft, or unauthorized use of a card, code, or other means of access;

…

U.S.C. § 1693c(a).

12 C.F.R. § 205.3 provides for a notice requirement by a person using one-time electronic fund transfers. The person initiating an electronic transfer using a consumer’s check must provide the consumer a notice that the transaction may be processed EFT, and obtain consumer’s authorization for each transfer.

12 C.F.R. § 205.3(a)(2)(ii).

12 C.F.R. 1005.10 covers preauthorized transfers, but lays the onus of notice generally on financial institutions. However, f the payor provides the consumer with notice, the financial institution is relieved of its burden. Further, 2 C.F.R. 1005.8 deals with changes in terms, but as with the corresponding 15 U.S.C. § 1693 provision, lays the burden of notice on the financial institution and only concerns itself with changes that would result in increased fees of liability, or fewer funds available.  Id.; 15 U.S.C. § 1693e.

CONCLUSION

Based on the foregoing, it would appear that only financial institutions or other, similar entities have been regulated under the EFTA.  It would, therefore, appear that the EFTA does not apply to ANCC here.