CFPB: Oral recordings may qualify as electronic signatures

On November 23, 2015, the Consumer Financial Protection Bureau issued Compliance Bulletin 2015-06, which sought to clarify the role of oral recordings used in the process of obtaining consumer authorization for pre-authorized EFTs from consumer accounts.

The pressing need for clarification on this issue was acknowledged by the CFPB, which observed that “many companies — including those engaged in mortgage servicing, student loan servicing, debt collection, and short-term small dollar lending — solicit authorizations from consumers for payment by preauthorized EFTs.” The stated purpose for issuing the document was to provide guidance to such entities whose current authorization procedures might not be in compliance with applicable legislation, and for those entities “uncertain of their obligations under EFTA and Regulation E, as well as the intersections between Regulation E and the Electronic Signatures in Global Commerce (E-Sign) Act.”

As many entities are aware, EFTA and Regulation E establish specific requirements needed to obtain consumer authorizations for pre-authorized EFTs. Regulation E specifically requires that consumer EFTs can be authorized “only by a writing signed or similarly authenticated by the consumer.” At the same time, however, as the Bulletin notes, “Regulation E does not prohibit companies from obtaining signed, written authorizations from consumers over the phone if the E-Sign Act requirements for electronic records and signatures are met.” This apparent ambiguity has led to some confusion on the part of entities seeking to remain compliant while continuing to gather EFT consumer authorizations via telephone.

The Bulletin provides an example of a permissible consumer authorization where Rule E is satisfied “if a consumer authorizes preauthorized EFTs by entering a code into their telephone keypad, or… the company records and retains the consumer’s oral authorization, provided in both cases the consumer intends to sign the record as required by the E-Sign act.”

In addition to the CFBP’s clarifying statements on oral authorization, the Bulletin also addressed the issue of providing a copy of the authorization to the consumer (Regulation E requires that consumers be provided a copy of the terms of any pre-authorized EFT, both in paper form and electronically). Such notices must disclose all important authorization terms “such as the recurring nature of the preauthorized EFTs, or the amount and timing of all payments to which the consumer agreed.”

The Bulletin also noted that while it was acceptable to provide a consumer a copy of the authorization by providing the consumer two forms, one of which is returned to the entity and one that is retained by the consumer, entities will not, however, comply with Regulation E merely by merely making a copy available to the consumer on request.