Alert January 25, 2011

NACHA Rules Amended to Allow Telephone Authorization of Recurring Consumer Transactions

On September 16, 2011, an amendment to the NACHA Operating Rules will become effective that will allow originators to obtain oral authorization from a consumer over the telephone for a recurring-entry ACH transaction. Currently, the NACHA Rules only allow originators to obtain telephone authorization for a single-entry ACH transaction in accordance with a prior version of the FRB’s Regulation E Commentary. Prior to 2006, the Commentary explicitly stated that an audio recording of a consumer’s oral authorization taken over the telephone did not constitute authorization for recurring transactions. This prohibition was removed from the Commentary in 2006 and, according to NACHA, this amendment to its rules is intended to align the NACHA Rules with Regulation E. Originators obtaining oral authorizations for reoccurring transactions will have to ensure that the oral authorizations comply with Regulation E’s writing and signature requirements for preauthorized transfers. With respect to the question of what constitutes a “writing” that is “signed or similarly authenticated” by the consumer under Regulation E, the Commentary provides that Regulation E’s writing and signature requirements for preauthorized transfers can be satisfied by compliance with the Electronic Signatures in Global and National Commerce Act, which provides for legal equivalence of electronic records and electronic signatures with their physical counterparts. As a result, originators obtaining oral authorizations for reoccurring transactions will have to ensure that authorizations, including, for example, the use of a recorded telephone conversation, are in compliance with the E-Sign Act. Click here for the amendment to the NACHA Rules.