Payments Law Tool Kit

Venable / 34 33 / Venable consumer. Payment-Specific Laws and Regulations To the extent that members (or the public) can submit payment by credit card, debit card, or an electronic fund transfer from a checking account, each of these payment mechanisms is subject to specific requirements that govern preauthorized, recurring payments. The Electronic Fund Transfer Act (EFTA) (15 U.S.C. § 1693 et seq.) and the Consumer Financial Protection Bureau’s (CFPB) implementing Regulation E (12 C.F.R. Part 1005) are the primary legal authorities governing electronic fund transfers (EFTs). In addition, NACHA (a not-for-profit association, previously known as the National Automated Clearing House Association) manages the ACH Network, a system for the electronic movement of money and data. Together, Regulation E and NACHA set forth the steps that a website must take to obtain authorization from a consumer to initiate recurring debits from the consumer’s debit card (Regulation E) or checking account (NACHA and Regulation E) (although not addressed in this article, Regulation E also applies to telephone sales, with a few unique challenges when it comes to obtaining consumer authorization). Similar to the requirements of Regulation E and ROSCA, the credit card brands (e.g., Visa and MasterCard) have established their own regulations governing merchant transactions. The Visa rules, for example, require merchants to obtain a consumer’s authorization to set up a recurring payment plan and provide an online cancellation procedure. Recurring and Subscription Payments Setting up systems to facilitate recurring payments has clear benefits for payments companies and merchants, but it can be challenging to structure these programs to comply with applicable federal and state consumer protection laws. Understanding the nuances of these requirements is critical for providing services to customers without triggering consumer complaints and significant risks of non- compliance. Negative Option, Automatic Renewal, and Continuity Plans Merchants and payments companies that allow consumers to purchase goods or services on a membership, subscription, or other recurring basis should review their websites and other online payment portals for compliance with the federal Restore Online Shoppers Confidence Act (ROSCA). For online transactions with a negative option feature, whether in the form of trial offers, automatic subscription renewals, or continuity plans, ROSCA (15 U.S.C. § 8403) requires the seller to disclose to the consumer the material terms of the offer before the consumer enters payment information or completes the order. To comply with ROSCA, a website must: • Clearly and conspicuously disclose the material terms of the transaction before obtaining billing information • Obtain the consumer’s express informed consent before charging the consumer • Provide a simple mechanism for the consumer to stop recurring charges In addition to ROSCA, a number of states have laws that govern online sales with recurring payments. California’s continuity law, for example, is similar to ROSCA but includes the additional requirement that a website must send the purchaser an acknowledgment – “in a manner that is capable of being retained by the consumer” – that includes the sale terms, the cancellation policy, and how to cancel. A standard email confirmation and/or physical welcome letter with the required information should suffice, because both items can be retained by the