We discussed this issue with a representative from the FDIC Chicago region, who told us that there is no law or regulation expressly governing the rejection of payments that are authorized through an online bill payment service. You may rely on your bill payment service agreement with your customer to define what types of payments will be automatically rejected by the service (which may be referred to as “exception” or “prohibited” or by using other terminology).

But the FDIC also emphasized that even if your account agreement reserves the right to reject certain transactions, the failure to provide notice to the customer that a payment has been rejected could be viewed as an unfair or deceptive practice. For example, some bill payment services reserve the right to reject child support or property tax payments. In some cases, after a customer authorizes a payment and receives an initial confirmation that the payment was successful, the bill payment service will later reject the transaction. In such cases, the FDIC recommends notifying customers that a particular payment has been rejected, which will alert the customer that he or she needs to find an alternative payment method in order to avoid the consequences of nonpayment. Following this reasoning, we also recommend notifying customers when a payment has been rejected due to insufficient funds.

The FDIC also confirmed that no particular form or wording of the notice of a rejected transaction is required. The FDIC does recommend reviewing your account agreements and following the contractual notice requirements contained in those agreements, if any.