WASHINGTON — The Consumer Financial Protection Bureau on Monday warned that it would go after companies that automatically withdraw funds from bank accounts without a consumer's consent.
The bulletin was partly meant to remind merchants and financial institutions that they must "clearly describe" the terms of an automatic withdrawal and get pre-authorization from the consumer before deducting payments. The bulletin also gives further clarification on when companies should send disclosures and that they can get a consumer's consent either in writing or by phone. In connection to the bulletin, the CFPB also issued so-called "action letters" for consumers to use when they want to revoke a previous authorization of automatic debits.
"Millions of consumers authorize companies to automatically deduct payments from their deposit accounts for recurring expenses such as subscriptions, memberships, a mortgage, credit card, or other monthly bills," the CFPB said in a press release. "To ensure that payments are timely, companies often seek out consumer permission for these preauthorized charges. Companies, however, must obtain required consumer authorization before debiting an account."
The agency's warning follows a lawsuit that the CFPB filed Wednesday against the online payday lender Integrity Advance, partly on grounds that it continued to automatically deduct funds from consumers' bank accounts after they stopped authorizing such withdrawals.
The agency said Monday that its supervisory process found that "one or more companies" did not provide the consumer with "critical information" about automatic debits in its disclosures, such as the amount and timing of the payments.
"If consumers are not given clear information on the terms of auto debits, they may not be able to manage payments or ensure their account balance is large enough to avoid being hit with overdraft or non-sufficient fund fees," the CFPB said. "In some cases, consumers have also reported companies not obtaining proper authorization to auto debit an account."
The bulletin also reiterates that companies have to keep "clear records" on what the consumer authorized and provide that consumer a copy of the terms.
"This information can include the amount the consumer agreed to, the recurring nature of the debits, and the timing of the payments," the CFPB said. "To help ensure that consumers are informed, the CFPB encourages companies to provide a copy of these terms prior to initiating the first auto debit, when practical."