Beginning on Sept. 16, 2011, an originator may obtain a consumer’s oral authorization for recurring TEL transactions.
NACHA (the National Automated Clearing House Association) recently amended its Operating Rules to expand the scope of the Telephone-Initiated Entry (TEL) application to permit its use for recurring consumer transactions. A TEL entry allows merchants or creditors (Originators) to debit a consumer’s bank account in response to a consumer’s oral authorization via telephone.
The amendment to the Operating Rules becomes effective on Sept. 16, 2011. Under the existing Operating Rules, the TEL application can only be used to authorize a single entry or one-time debit. This restriction was in keeping with the Federal Reserve Board’s Commentary on Regulation E, which up until 2006, stated an audio recording of a consumer’s oral authorization taken over the telephone did not constitute authorization for recurring ACH transactions. This restriction was removed from the FRB’s commentary in 2006, prompting NACHA to amend its Operating Rules.
Once the new Operating Rules become effective, an Originator may obtain a consumer’s oral authorization for recurring TEL transactions. The following information must be included as part of the authorization for a recurring TEL entry:
- The amount of the recurring transactions, or a reference to the method of determining the amount of recurring transactions;
- The timing (including the start date), number, and/or frequency of the electronic fund transfers, or other similar reference, to the consumer’s account;
- The consumer’s name or identity;
- The account to be debited;
- A telephone number for consumer inquiries that is answered during normal business hours; and
- The date of the consumer’s oral authorization.
Originators obtaining an oral authorization for recurring TEL transactions will still have to ensure the oral authorization complies with Regulation E’s writing and signature requirements for preauthorized transfers. The FRB’s commentary on Regulation E indicates this writing requirement can be met by compliance with the Electronic Signatures in Global and National Commerce (E-SIGN) Act, which provides for legal equivalence of electronic records and signatures with their physical counterparts. Thus, an Originator using recurring TEL will need to ensure that its authorizations, including the use of recorded conversations, are in compliance with the E-SIGN Act. Unfortunately, neither Regulation E nor its accompanying Commentary elaborates on how compliance with the E-SIGN Act can be achieved via a recorded authorization.
Until the FRB provides further guidance on this issue, merchants and creditors using recurring TEL may want to consult with an attorney to determine a method for simultaneous compliance with NACHA Operating Rules, Regulation E and the E-SIGN Act.
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