EDITOR’S NOTE: The following was written by Hannah Huerta, Marketing Specialist, PDCflow
Compliance with regulations is part of everyday life in the accounts receivable industry. There are endless rules about how to interact with consumers and the language you are able to use. And once payment is agreed upon, you must worry about complying with the Electronic Funds Transfer Act (EFTA) and Regulation E.
To help ARM professionals understand how to comply while handling electronic funds transfers, PDCflow spoke with two legal experts well-versed in Regulation E, and will be sharing a series of articles based on their knowledge.
Here, Mike Etmund, attorney at Moss & Barnett, P.A. and Scott E. Wortman, partner at Blank Rome LLP explain why businesses should understand Regulation E, and what the consequences may be if they don’t.
From a legal perspective, why should a business be concerned about following Regulation E?
Because Regulation E is a federal framework, it should be taken seriously. Any business that accepts electronic funds transfers (EFTs) are legally required to follow this rule.
“In November 2015, the Consumer Financial Protection Bureau (CFPB) released a Compliance Bulletin titled “Requirements for Consumer Authorizations for Preauthorized Electronic Fund Transfers,”” says Etmund. “Thus, indicating a relatively recent interest in this compliance issue arising from Regulation E.”
The future intentions of this regulating body (especially in regards to accountability), are unknown. Keep in mind, though, that until a formal statement from the bureau, or further explanation of its priorities from Acting Director of the CFPB (Bureau of Consumer Financial Protection), Mick Mulvaney, it remains important to follow all existing frameworks.
What could the damages be?
“Individual actions may result in statutory damages between $100 and $1,000, while a successful class action may result in statutory damages in the amount of the lesser of $500,000 or 1 per centum of the net worth of the defendant,” says Wortman. “In the case of a successful EFTA action, the defendant may also be liable for plaintiff’s attorney’s fees and court costs.”
Etmund notes that there are other possible penalties as well. For noncompliance with Regulation E, those who may purposefully or knowingly give inaccurate or false information, or do not comply in some other way may be criminally liable.
Have there been specific cases related to Regulation E?
Etmund says “Regulation E compliance has been the subject of private litigation claims, putative class actions and regulatory proceedings.” Additionally, Wortman warns that consumer attorneys may be incentivised to pursue Regulation E violations for their own economic gain. He specifically recalls a case last year against Cashcall, which led to $601,336.74 in plaintiffs’ attorney’s fees alone.
With these penalties, it’s safe to say every responsible agency should be concerned with following payment regulations. Watch for the next installment, which discusses who is required to follow Regulation E.
