Preauthorized Transfers to a Consumer's Account (Direct Deposits)

A preauthorized EFT is an EFT that was authorized in advance to occur at substantially regular intervals. [12 CFR 1005.2(k)] No additional action on the part of the consumer is needed. [Commentary, 12 CFR 1005.2(k)-1] A bill-payment system is an example, if the consumer authorizes payments to a third party on a regular interval and no additional act by the consumer is necessary to initiate the EFT. If the consumer must take some action, such as entering instructions on a computer, the transfers are not preauthorized. [Commentary, 12 CFR 1005.2(k)-1]

One function of Regulation E is to make it easy for a consumer to find out whether a scheduled preauthorized transfer to his or her account (a direct deposit) has been made. The Regulation says any one of four things must happen to accommodate the consumer.

First, the payor (the person or entity initiating the payment) can give notice to the consumer that the payment has been initiated. If the payor gives this notice, you have no responsibilities in this regard. [Commentary, 12 CFR 1005.10(a)(2)] If the payor does not give this notice, then you must do one of three things. Your choices are:
  1. To notify the consumer, orally or in writing, within two business days after the transfer that the transfer occurred [12 CFR 1005.10(a)(1)(i)];
  2. To notify the consumer, orally or in writing, within two business days after the date on which the transfer was scheduled to occur that the transfer did not occur [12 CFR 1005.10(a)(1)(ii)]; or
  3. To provide a “readily available” telephone line which the consumer can use to learn whether or not a scheduled transfer has occurred. [12 CFR 1005.10(a)(1)(iii)]

You can send the notices referred to above in electronic form also. You must, however, comply with the electronic disclosure requirements we described in an earlier section of this chapter entitled “Special rules for electronic disclosures.” Remember, for deciding whether any disclosure is timely under Regulation E, a disclosure sent by e-mail is effective when sent. A disclosure made by posting on a location or web site is effective when the notice of the disclosure’s availability is sent, or when the disclosure is actually available, whichever is later. [12 CFR 1005.17(b)-4]

Again, if the payor supplies notice to the consumer that the transfer has been initiated, you have no obligations at all. Only if the payor does not provide the notice do you have to choose one of these three procedures. And, it is your choice. The consumer does not get to choose which procedure he or she would prefer. There are no content requirements for the notices involved in the first two choices other than to communicate the fact that the scheduled deposit has or has not occurred. If you choose the third option, the telephone number option, you can use the same telephone number you use for other purposes, so long as you have enough lines that the consumer can get a reasonably prompt answer to the inquiry. [Commentary, 12 CFR 1005.10(a)(1)-7] In addition, under the telephone option, you do not need to answer the inquiry immediately during the consumer’s call, although in many cases you will be able to. If the information is not immediately available, you can respond later—but you must do so in any case within two business days of the consumer’s call. [Commentary, 12 CFR 1005.10(a)(1)-5]

Incidentally, Regulation E also requires that funds received by way of a preauthorized transfer to the consumer’s account must be credited to the account as of the day the funds are received. [12 CFR 1005.10(a)(3)] However, the availability for withdrawal of those funds is determined by other regulations, including Regulation CC [12 CFR 229], Treasury regulations [31 CFR 210], and possibly state law. See our chapters in this manual relating to On-going Responsibilities for Regulation CC for details.