CFPB Alerts Companies About Obtaining Consumer Authorization For Recurring Auto Debits

Bureau Publishes Action Letters for Consumers Seeking to Stop Auto Debits

WASHINGTON, D.C. — Today, the Consumer Financial Protection Bureau (CFPB) issued a bulletin alerting companies that they must obtain authorization before automatically debiting a consumer’s account. The bulletin also reminds companies that they are required by law to provide notifications to consumers that clearly describe the terms of preauthorized auto debits. In addition, the Bureau is publishing action letters today for consumers seeking to revoke a company’s authorization to auto debit an account.

“This bulletin makes clear that companies must get a consumer’s authorization before automatically debiting their account,” said CFPB Director Richard Cordray. “Consumers also have the right to stop these charges at any time. They can use our action letters or submit a complaint to the Bureau if they are having problems managing or stopping auto debits.”

The bulletin is available at: http://www.consumerfinance.gov/f/201511_cfpb_compliance-bulletin-2015-06-requirements-for-consumer-authorizations-for-preauthorized-electronic-fund-transfers.pdf

Millions of consumers authorize companies to automatically deduct payments from their deposit accounts for recurring expenses such as subscriptions, memberships, a mortgage, credit card, or other monthly bills. To ensure that payments are timely, companies often seek out consumer permission for these preauthorized charges. Companies, however, must obtain required consumer authorization before debiting an account.

Industry Guidance: Authorizing Auto Debits

The CFPB is concerned that some companies may be failing to meet the legal requirements for obtaining authorizations from consumers for recurring auto debits. Also, through its supervisory work, the CFPB observed that one or more companies provided consumers with a notice of the terms for preauthorized auto debits that failed to disclose critical information, such as the amount and timing of the payments the consumer agreed to. If consumers are not given clear information on the terms of auto debits, they may not be able to manage payments or ensure their account balance is large enough to avoid being hit with overdraft or non-sufficient fund fees. In some cases, consumers have also reported companies not obtaining proper authorization to auto debit an account.

The bulletin stresses that the Bureau expects all companies to get required consumer authorization before automatically debiting a consumer’s account. Companies must also keep clear records on what the consumer has authorized and provide consumers with a copy of those terms. This information can include the amount the consumer agreed to, the recurring nature of the debits, and the timing of the payments. To help ensure that consumers are informed, the CFPB encourages companies to provide a copy of these terms prior to initiating the first auto debit, when practical.

Action Letters: Stopping Auto Debits

Under federal law, consumers have the right to stop automatic debits from their account. A consumer may decide after authorizing a merchant or lender to make withdrawals from their account that they want to revoke authorization. For example, a consumer may decide to use a different payment method for future payments, or they may want to stop a single payment because they lack enough money in the account when the payment is scheduled.

In some cases, however, consumers report having trouble stopping these automatic charges. To help consumers who may be getting the runaround, today the CFPB is releasing sample letters for those seeking to revoke a company’s permission to automatically debit their accounts. Consumers can use the following sample letters to communicate with their bank, credit union, or the company charging the auto debits:

  • A sample letter to send to a company or merchant to revoke the consumer’s permission to auto debit the account
  • A sample letter to send to a bank or credit union to provide notice that the consumer revoked a company’s authorization to automatically debit the account
  • A sample stop payment order to instruct a bank or credit union to stop allowing the company to take payments from the consumer’s account
  • A sample letter to a bank or credit union providing notice of an unauthorized debit from a consumer’s account

While consumers’ circumstances vary, in general, revoking a company’s authorization should stop the auto debits. If a consumer is concerned that the company will not honor the revocation, or the company indicates that the consumer did not revoke in time to stop the next scheduled payment, the consumer may wish to notify the bank or credit union that the authorization has been revoked, or instruct them to do a stop payment order.

The four sample letters are available here: http://www.consumerfinance.gov/blog/you-have-protections-when-it-comes-to-automatic-debit-payments-from-your-account/

Tips for Consumers: Managing Auto Debits

Today, the CFPB is also publishing consumer tips about what to do before giving a company permission to make automatic withdrawals. As part of this, the CFPB stresses that it is important to be cautious about giving a company permission to make withdrawals from their account. Tips for consumers include:

  • Verify the company. Before agreeing to let a company automatically take money out of a bank account, consumers should make sure the company is legitimate and credible. Consumers should never give account or debit card information to a company that they are at all unsure about.
  • Be careful about overdraft fees. Consumers should pay close attention to their bank account balance and scheduled auto debits to make sure they will have enough money to make a scheduled payment. If an account balance is too low, a consumer could incur overdraft fees from their bank and the company initiating the auto debit could also charge a fee. Consumers should monitor account to make sure the amount and timing of the transfers are what they agreed to.
  • Be wary of a company that pressures repayment by automatic debit. A company cannot require a consumer to repay a loan by automatic debit from their checking account as a condition for giving them a loan. The exception to this is overdraft lines of credit.
  • Monitor accounts. Consumers should monitor their accounts for unauthorized payments or transfers and let their bank or credit union know right away if there is a payment that should not have been made. Federal law gives consumers the right to dispute and get money back for unauthorized transfers from their account as long as they notify the bank or credit union in time.

Consumers having a problem using or cancelling automatic payments can submit a complaint to the CFPB. To submit a complaint, consumers can:

  • Go online at consumerfinance.gov/complaint
  • Call the toll-free phone number at 1-855-411-CFPB (2372) or TTY/TDD phone number at 1-855-729-CFPB (2372)
  • Fax the CFPB at 1-855-237-2392
  • Mail a letter to: Consumer Financial Protection Bureau, P.O. Box 4503, Iowa City, Iowa 52244

Additionally, through Ask CFPB, consumers can get clear, unbiased answers to their questions about credit cards and other financial products and services at consumerfinance.gov/askcfpb

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The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.