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Parsing the CFPB’s EFTA Bulletin

The Consumer Financial Protection Bureau issued a bulletin on Nov. 23, 2015 “intended to remind entities of their obligations under the Electronic Fund Transfer Act (EFTA) and Regulation E.” A careful read is needed, as Bulletin 2015-06 can be easily misinterpreted. A copy is available at:  Link to Bulletin 2015-06.

Electronic transfers become subject to the EFTA and Regulation E when they are made from a consumer’s “account.” Credit cards will typically not cause a transfer from a consumer’s account, but debit cards would cause a transfer from a consumer’s account. Much of the bulletin’s focus is directed at the preauthorized electronic fund transfer, referred to as an “electronic fund transfer authorized in advance to recur at substantially regular intervals.”  See 12 CFR § 1005.2(k). For brevity’s sake, I refer to these as PATs.

E-Sign and the EFTA Guidance

Bulletin 2015-06 provides favorable guidance on the interplay between the EFTA and the Electronic Signatures in Global and National Commerce Act (“E-Sign”).

EFTA and Regulation E require PATs to be in writing and “signed or similarly authenticated” by the consumer. The bulletin confirms that if an entity uses E-Sign, it can obtain a consumer’s signature by use of an oral recording of a consumer’s agreement to a PAT.

Under E-Sign, provided all E-Sign disclosures and other requirements are satisfied, recording a consumer’s statement of, for example, “I agree to the agreement . . .” would qualify as an electronic signature. The bulletin provides other examples of electronic signatures.

The problem for many is that EFTA and Regulation E require the PAT agreement to be “in writing.” As the bulletin itself notes, E-Sign draws a distinction between an “electronic record” and an “electronic signature.” In the above example, we have only obtained an “electronic signature” under E-Sign.

‘Electronic Record’ PATs Cannot Be Oral Recordings

While the oral recording of the consumer’s voice in my example could go on to include the terms of the agreement, E-Sign expressly prohibits creating an “electronic record” solely by “. . . a recording of an oral communication . . . except as otherwise provided under applicable law.”  That “under applicable law” exception does not work under the EFTA since it expressly requires a PAT to be in writing.

As noted by the bulletin, E-Sign would prohibit an oral recording of an agreement as an “electronic record” where a statute or regulation (such as the EFTA and Regulation E) requires that the agreement “be provided or made available to a consumer in writing.”  But the bulletin then goes on to say in footnote 20 that the E-Sign prohibition does not extend to a PAT “authorization,” because “Regulation E does not specify that entities must provide a writing to consumers when obtaining the authorization.”

The wording used in footnote 20 is not well versed. It could easily be misunderstood to mean that the “writing” requirement may be satisfied by an oral recording of an agreement based upon the bureau’s interpretation of Regulation E. That construction, though, is contrary to EFTA section 1693e(a), which requires the PAT agreement be made “only in writing, and a copy of such authorization shall be provided to the consumer when made.” (emphasis added).

E-Sign prohibits the creation of an electronic record by an oral recording of an agreement, which the bulletin, prior to footnote 20, does not dispute. But the wording of footnote 20 could be construed to mean an electronic record can be made by simply making a recording of the “document” during a telephone call.  Such an interpretation would, at the minimum, require rulemaking, which the bulletin does not do.

Elements of a PAT Authorization

It is likely that footnote 20 is addressing other elements of the PAT authorization. First, it is noting the distinction between “electronic records” and “electronic signatures” under E-Sign and is speaking only to the “electronic signature.” Second, it may also be speaking to the timing of the delivery of the authorization to the consumer.

On the elements necessary for an electronic signature, the bulletin correctly notes that EFTA and Regulation E require clear assent to the PAT agreement: the “authorization must be readily identifiable as such to the consumer and the terms of the preauthorized EFTs must be clear and readily understandable to the consumer. The authorization process should evidence the consumer’s identity and assent to the authorization.” That sounds more like a concern for the electronic “signature” than the electronic record.

Four elements are necessary to any complete PAT authorization: 1) that the transfers are recurring; 2) the timing of each transfer; 3) the amount of each transfer and 4) that the consumer is authorizing the PAT. The bulletin is focused on the fourth element – the consumer’s authorization or electronic signature. The first three elements would be part of the electronic record.

But following the bulletin’s guidance in this case may not be wise. Simply incorporating requirements 1 through 3 into a form may not satisfy EFTA and Regulation E. If the amounts of the transfers vary, that imposes a different set of requirements. If this will be accomplished under E-Sign, E-Sign carries with it its own set of mandatory disclosures in consumer transactions, which are detailed and may be cumbersome for some to implement.

Delivery of Written Authorization, Electronic or Paper, Can Follow Assent to Authorization

It will not be enough to make a copy of the authorization “available” to the consumer; instead a copy of the authorization must be provided to the consumer. But what has plagued many under the EFTA is the timing of the delivery of the “written agreement” authorizing the PAT. Must it be provided before the PAT begins, at the time of the “authorization,” or afterwards?

The bulletin answers the question by saying that you can obtain an E-Sign signature and then provide the writing separately, either in paper or as an E-Sign electronic record. According to bulletin footnote 20, “Regulation E does not specify that entities must provide a writing to consumers when obtaining the authorization.”

Bulletin Does Not Alter E-Sign Requirements for Electronic Records

Now, as far as the PAT written agreement is concerned, the bulletin correctly states it may be either in paper or E-Sign compliant electronic record form. The bulletin’s statement “Regulation E requires persons that obtain authorizations for preauthorized EFTs to provide a copy of the terms of the authorization to the consumer,” can be read as demonstrating that the “written agreement” requirement does not authorize the use of oral recordings to satisfy the writing requirement.

It is probably best to read the bulletin as the bureau’s attempt to clarify that E-Sign does work in EFTA PAT transactions and that PAT agreements can be provided to the consumer after the agreements become effective.

To learn more about the EFTA and Regulation E, sign up to view our webinar here.

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Donald Maurice provides counsel to the financial services industry, successfully litigating matters in the state and federal courts in individual and class actions. He has successfully argued before the Third, Fourth and Eighth Circuit U.S. Courts of Appeals, and has represented the financial services industry before several courts including as counsel for amicus curiae before the United States Supreme Court. He counsels clients in regulatory actions before the CFPB, and other federal and state regulators and in the development and testing of debt collection compliance systems. Don is peer-rated AV by Martindale-Hubbell, the worldwide guide to lawyers. In addition to being a frequent speaker and author on consumer financial services law, he serves as outside counsel to RMA International, on the governing Board of Regents of the American College of Consumer Financial Services Lawyers, and on the New York City Bar Association's Consumer Affairs Committee. From 2014 to 2017, he chaired the ABA's Bankruptcy and Debt Collection Subcommittee. For more information, see

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