Preauthorized Withdrawals

Written authorization

The consumer must authorize any withdrawals from the consumer’s account. In the case of preauthorized EFTs from the consumer’s account, that authorization must be in the form of a written authorization that is signed “or similarly authenticated” by the consumer. [12 CFR 1005.10(b)] This requirement is not met by having the payee sign a written authorization on the consumer’s behalf after only oral authorization. [Commentary, 12 CFR 1005.10(b)-3] The authorization and signature can be in electronic form, but must comply with the Electronic Signatures in Global and National Commerce Act (E-SIGN), 15 USC 7001, and whoever obtains the authorization from the consumer must provide a copy of the terms to the consumer in either paper or electronic form. [Commentary, 12 CFR 1005.10(b)(2)-1] See our earlier section in this chapter entitled “Special rules for electronic disclosures.”

Notice of varying amounts

Regulation E requires either you or the designated payee on a preauthorized transfer out of a consumer’s account to give notice to the consumer when a transfer varies in amount from the previous transfer (made under the same authorization) or from the preauthorized amount. [12 CFR 1005.10(d)(1)] The notice must be mailed or delivered at least ten days before the scheduled transfer date. The notice must be in writing. [12 CFR 1005.10(d)(1)]

You can send this notice in electronic form— if you meet certain conditions. See our earlier section in 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]

If you or the payee inform the consumer about the right to receive this notice, the consumer can agree to receive the notice only when the transfer amount does not fall within a specified range, or only when a transfer differs from the most recent transfer by more than an agreed upon amount. [12 CFR 1005.10(d)(2)] If you specify a range, it must be acceptable and one that could be anticipated by the consumer. [Commentary, 12 CFR 1005.10(d)(2)-1] For example, if the transfer is for payment of a gas bill, an appropriate range might be based on the highest bill in winter and the lowest bill in summer.

How do you decide whether you or the designated payee will send this notice? The Regulation is unclear, but presumably, you could agree between yourselves regarding who will undertake this responsibility. The Commentary to the Regulation does say that the financial institution will not have any liability for the payee’s failure to provide this notice. [Commentary, 12 CFR 1005.10(d)(1)-1] It seems as though the designated payee is in a better position to know in advance that the payment amount is going to vary and so ought to be willing to make the notice.