We do not believe you are required to follow the E-Sign Act or related Illinois laws when providing electronic written notices confirming consumers’ oral authorizations for Single Entry TEL Entries (in lieu of making audio recordings of the oral authorizations). We believe that the E-Sign Act applies only to statutes, regulations, and other rules of law, and the Nacha rules are promulgated by a private organization, not by a branch of government.
Consumer authorizations of Single Entry TEL Entries are governed by Section 2.3 of the Nacha Operating Rules, which will be revised and replaced in its entirety, effective September 17, 2021. Revised Subsection 2.3.2.4 allows you to obtain a consumer’s oral authorization for a debit entry, provided the oral authorization meets the minimum standards for a debit authorization. For Single Entries authorized by a consumer orally, Subsection 2.3.2.4 provides that the Originator must make an audio recording of the oral authorization or provide written notice confirming the oral authorization, and there is no requirement to obtain a Receiver’s written authorization in addition to their oral authorization.
The Nacha Operating Guidelines provide that “state and federal laws may require Receiver consent before using electronic notices/disclosures” for TEL Entry authorizations. However, we do not believe the E-Sign Act’s consent requirements apply to Single Entry TEL Entry authorizations. The E-Sign Act’s consent requirements apply only to “statute[s], regulation[s], and other rule[s] of law” requiring that certain information be provided or made available to a consumer in writing. Since the Nacha Operating Rules are promulgated by a not-for-profit association rather than a government entity, we do not believe they would qualify as statutes, regulations, or rules of law. Likewise, the Illinois Financial Institutions Electronic Documents and Digital Signature Act, which imposes consent and disclosure requirements similar to the E-Sign Act, also applies only to statutes, regulations, or other rules of law. As a result, we do not believe it is applicable to the Nacha Operating Rules.
Regarding Recurring Entries, Regulation E requires that consumers be provided with a copy of their authorization for any preauthorized (i.e., recurring) electronic fund transfers, as noted in the Nacha Operating Rules. Since Single Entry TEL Entries are not recurring, Regulation E’s requirements for preauthorized electronic fund transfers are inapplicable.
Additionally, we note that Revised Section 2.3 adds a provision for Standing Authorizations, which will allow consumers to provide advance authorization for future debits from their accounts at various intervals, with further consumer action required for subsequent payments. The Standing Authorizations may be obtained in writing or orally, and when obtained orally, you must make an audio recording of the oral authorization or provide written notice confirming the oral authorization, as with Single Entries. Other revisions to the Nacha Operating Rules effective September 17, 2021, include the addition of the definition for “oral authorizations,” which includes remote oral authorizations beyond telephone calls, including those made via the internet or wireless networks.
For resources related to our guidance, please see:
- Nacha Operating Rules (2021), Subsection 2.3.2.4, Oral Authorization for Debit Entries to Consumer Accounts [effective September 17, 2021] (“An Originator may obtain a Consumer Receiver’s Oral Authorization for a debit Entry, provided that the Oral Authorization meets the minimum standards for a debit authorization in Subsection 2.3.2.2 (Debit Entries to Consumer Accounts), . . .
For a Single Entry authorized by the Receiver orally, the Originator must (a) make an audio recording of the Oral Authorization or provide the Receiver with written notice confirming the Oral Authorization prior to the settlement of the Entry
- Nacha Operating Guidelines (2021), Chapter 47 — Telephone-Initiated Entries, Other Considerations for TEL Entry Authorizations (“Any written notice or disclosure required by the Nacha Operating Rules, including those for TEL entries, may be provided in electronic form (e.g., e-mail and SMS text message to a smartphone or mobile device). However, state and federal laws may require Receiver consent before using electronic notices/disclosures.”)
- E-Sign Act, 15 USC 7001(c)(1) (“(1) Consent to electronic records. Notwithstanding subsection (a), if a statute, regulation, or other rule of law requires that information relating to a transaction or transactions in or affecting interstate or foreign commerce be provided or made available to a consumer in writing, the use of an electronic record to provide or make available (whichever is required) such information satisfies the requirement that such information be in writing if . . .”)
- FRB Services, Rules and Regulations Resources, (“FedACH Services are governed in part by the operating rules and guidelines of the National Automated Clearing House Association (NACHA), a not-for-profit association. NACHA provides the legal foundation for the Automated Clearing House (ACH) Network through the development and enforcement of NACHA Operating Rules.”)
- Illinois Financial Institutions Electronic Documents and Digital Signature Act, 205 ILCS 705/10(c)(1) (“Consent to electronic records. If a statute, regulation, or other rule of law requires that information relating to a transaction or transactions in or affecting intrastate commerce in this State be provided or made available by a financial institution to a consumer in writing, the use of an electronic record to provide or make available that information satisfies the requirement that the information be in writing if . . . .”)
- Nacha Operating Rules (2021), Subsection 2.3.2.4, Oral Authorization for Debit Entries to Consumer Accounts [effective September 17, 2021] (“For a Recurring Entry authorized by the Receiver orally, the Originator must (a) comply with the requirements of Regulation E for the authorization of preauthorized transfers, including the requirement to send a copy of the authorization to the Receiver, and (b) retain for two years from the termination or revocation of the authorization (i) the original or a duplicate audio recording of the Oral Authorization, and (ii) evidence that a copy of the authorization was provided to the Receiver in compliance with Regulation E.”)
- Regulation E, 12 CFR 1005.10(b) (“Preauthorized electronic fund transfers from a consumer's account may be authorized only by a writing signed or similarly authenticated by the consumer. The person that obtains the authorization shall provide a copy to the consumer.”)
- Regulation E, 12 CFR 1005.2(k) (“‘Preauthorized electronic fund transfer’ means an electronic fund transfer authorized in advance to recur at substantially regular intervals.”)
- Nacha Operating Rules (2021), Subsection 2.3.2.2, Electronic Authorizations [effective September 17, 2021] (“An Originator may obtain a Standing Authorization from a Receiver for future Subsequent Entries to the Receiver’s Consumer Account that require further affirmative action by the Receiver to initiate. In addition to the requirements of Subsection 2.3.2.2 (Debit Entries to Consumer Accounts), an Originator that obtains a Standing Authorization from a Consumer Receiver must clearly specify the action(s) that the Receiver can take to initiate a Subsequent Entry. A Subsequent Entry may be initiated in the manner(s) permitted in the corresponding Standing Authorization.
A Standing Authorization that is also an Oral Authorization must comply with the requirements of Subsection 2.3.2.4 (Oral Authorization for Debit Entries to Consumer Accounts).
* * * * *
At its discretion, and except as otherwise prohibited in these Rules, an Originator may identify a Subsequent Entry using the Standard Entry Class Code appropriate either to (a) the manner in which the Standing Authorization was obtained from the Receiver, or (b) the manner in which the Receiver’s affirmative action to initiate the Subsequent Entry was communicated to the Originator. An Originator that obtains the Receiver’s Standing Authorization as an Oral Authorization via a telephone call, or via the Internet or a Wireless Network, may not identify a Subsequent Entry using the PPD Standard Entry Class Code.”)
- Nacha Operating Rules (2021), Subsection 2.3.2.4, Oral Authorization for Debit Entries to Consumer Accounts [effective September 17, 2021] (“For a Standing Authorization that is an Oral Authorization, the Originator must (a) make an audio recording of the Oral Authorization or provide the Receiver with written notice confirming the Oral Authorization prior to the settlement of the first Subsequent Entry; and (b) retain the original or duplicate audio recording of the Oral Authorization, or the original or copy of the written notice confirming the Oral Authorization, for two years from the termination or revocation of the Standing Authorization.”)
- Nacha Operating Rules (2021), Section 8.64, “Oral Authorization” (new section) [effective September 17, 2021] (“a remote (not in-person) oral authorization of one or more Entries to a Consumer Account. An authorization that is created by voice-to-text technology is not considered an Oral Authorization if it is either (a) visually reviewed and confirmed by the Receiver prior to delivery to the Originator, or (b) used by the Receiver without prompting by the Originator.”)
- Nacha Operating Rules (2021), Section 8.55, “Internet-Initiated/Mobile Entry” or “WEB Entry” or “WEB” [effective September 17, 2021] (“(1) a debit Entry initiated by an Originator to a Consumer Account of the Receiver based on (a) any form of authorization that is communicated from the Receiver to the Originator via the Internet or a Wireless Network, except for an Oral Authorization via a telephone call; or (b) any form of authorization if the Receiver’s instruction for the initiation of the individual debit Entry is designed by the Originator to be communicated, other than orally via a telephone call, to the Originator via a Wireless Network;
(2) at the discretion of the Originator, a debit Subsequent Entry for which the Receiver’s affirmative action for the initiation of the Subsequent Entry is communicated by the Receiver to the Originator via the Internet, regardless of the manner in which the Standing Authorization was obtained; or
(3) a credit Entry initiated by or on behalf of the holder of a Consumer Account that is intended for the Consumer Account of a Receiver, regardless of whether the authorization of such Entry is communicated via the Internet or Wireless Network.”)