How to Remedy Recurring EFTA Problems: What Debt Collectors Need to Understand About Preauthorized Electronic Funds Transfers

Preauthorized electronic funds transfers can be a little bit confusing even for industry experts, especially when it comes to recurring Electronic Funds Transfer Act (EFTA) problems. But what is it that makes this so complex? It’s all about consent.

In this article, you’ll learn what qualifies as an electronic funds transfer and which parts of the EFTA regulations to pay special attention to.

EFTA Qualifications

The only means of electronic payment that counts as electronic funds transfers are those initiated through electronic terminals, computers, or telephones that credit or debit a customer’s savings or checking account. This means that checks, drafts, or any other paper instruments as well as credit card transactions are not electronic funds transfers.

The EFTA highly regulates electronic funds transfers, and in order to follow these regulations, you need to know what you’re dealing with.

The EFTA defines a preauthorized electronic funds transfer as an electronic transfer of funds that’s preauthorized to reoccur at substantially regular intervals, according to John Bedard from Bedard Law Group.

EFTA and Your Business

The EFTA has one huge stipulation that completely changes the way you collect funds from your customers using preauthorized electronic funds transfers: It requires written consent. Specifically, it states that it must be authorized “only by a writing signed or similarly authenticated by the customer.” For your business, this means that collecting banking information over the phone may not be enough. The customer must give written authorization that’s signed or similarly authenticated. In addition, the recipient of the authorization must provide a copy of it to the customer.

A common practice used by major organizations is to send by mail two copies of a written authorization form in which the customer signs one copy and returns the other. However, this method is both inefficient and costly.

The better alternative is to use an online methodology that’s more cost effective, fulfills the written requirement, and streamlines paperwork for both your organization and your customer. Electronic authorization is possible through email, an online form, and text message.

Ensuring Compliance

As with all compliance issues, the most important part of dealing with difficult regulations is to ensure proper bookkeeping and internal auditing as you go. The key is continuity, whether you decide to go the old fashioned way of using paper forms, which will then need to be input into your client files manually and filed electronically, or you decide to use a more technologically advanced method.

Ensuring that you have a good process and procedures along the way is the key to maintaining compliance.

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