The Federal Trade Commission (FTC) recently entered a stipulated order against several defendants in the "IWorks" case that the FTC brought in 2010. The FTC alleged that the defendants "took more than $280 million from consumers via deceptive “trial” memberships for bogus government-grant and money-making products." The stipulated order includes a monetary judgment of over $280 million and several terms related to the requirements of the Electronic Fund Transfer Act. As I recently mentioned, when I worked for the Attorney General's Office, I frequently saw companies falling short of the requirements of the Electronic Fund Transfer Act (EFTA). The stipulated order recognizes the deficiencies I often saw. In the stipulated order, the FTC outlines what I conclude is the FTC's view of the legal requirements under the EFTA.
1) First, the stipulated order prohibits the defendants from:
"Engaging in any recurring debiting of a consumer's account without first obtaining a valid written pre-authorization for preauthorized electronic fund transfers from the consumer's account, which pre-authorization is clear and readily understandable, identifiable as a pre-authorization and, reflects the consumer's assent. . ."
The FTC's order reinforces the point that the EFTA prohibits companies from making electronic fund transfers from a consumers account with explicit authorization. Hidden or implied authorizations are not allowed. The consumer must be able to readily understand that by clicking on the website or signing an order form that the consumer is authorizing the merchant to debit his or her bank account. If the consumer does not know that they authorized a transfer, the company may be in violation of the EFTA.
2) Second, the order prohibits the defendants from:
"Engaging in any recurring debiting of a consumer's account without first providing a copy of a valid written pre-authorization to the consumer for preauthorized electronic fund transfers from the consumer's account which copy is clear and readily understandable, identifiable as a pre-authorization and, reflects the consumer's assent. . ."
As I mentioned earlier this month, companies need to provide consumers with a copy of the authorization for preauthorized transfers from the consumer's account. This needs to be in writing and can be provided by email or regular mail. A failure to provide that copy can result in a violation of the EFTA. The notice should include the timing of the preauthorized transfers and the amounts.
3) Third, the order prohibits the defendants from:
"Failing to maintain procedures reasonably adapted to avoid an unintentional failure to obtain a written authorization for preauthorized electronic fund transfers as required in Section 205.10(b)(7) of the Federal Reserve Board's Official Staff Commentary to Regulation E."
This section of the order is really fact specific. The requirement to maintain procedures to avoid errors depends greatly upon the type of procedures that the company uses in transacting with consumers. This will be different for each company, its marketing efforts, its online presence and the products or services it offers. Notably, the legal requirements and the language of the order use the word, "reasonably." This provides a little leeway for bona fide errors.
If you need assistance with ensuring that your company complies with the Electronic Fund Transfer Act, please feel free to contact Harmony Law.