Failing to Honor Consumers' EFT Stop Payment Requests
The Consumer Financial Protection Bureau (CFPB, briefly known as the Bureau of Consumer Financial Protection) recently settled an enforcement action with a federal savings association (the “association”) related to failing to stop preauthorized electronic fund transfer (EFT) orders after consumers requested stop payments and failing to implement adequate investigatory processes.
Alleged practices the association employed included requiring consumers to contact the merchant that initiated the EFT as a prerequisite to stopping the order or, at times, simply refusing to enter the stop payment requests. The CFPB alleged the association failed to implement effective error resolution investigations and lacked proper systems to be able to process stop payments for debit card transactions. The CFPB found that the association violated the Electronic Fund Transfer Act, Regulation E, and the Consumer Financial Protection Act of 2010. The Consent Order requires the association to pay a $3.5 million civil penalty and pay consumers who did not receive reasonable resolution approximately $12 million in total restitution.
It is important for financial institutions that process preauthorized EFTs to 1) ensure they process stop payment requests according to the timing requirements of the law, 2) have a timely and fair error resolution investigatory process, and 3) look in depth into stop payment requests. According to the CFPB in settling in this action, it is not enough merely to see if the consumer has ever had transaction history with the merchant and then conclude that the transaction in question is legitimate. Financial institutions must look further into consumer claims, reasons for the request, account records and history, and other relevant details.
If you would like to discuss this subject and other recent CFPB enforcement actions and trends, please contact Chastity Threadcraft.