Preauthorized Now Unauthorized Debit
Answer by John Burnett, BOL Guru Guru Bio
Question: Our customer provided his debit card number to a debt collection agency, which is a law firm. At least two payments were successfully processed via the debit card and withdrawn from his account. Today, a pre-authorization from the same company has hit the account. The customer called us to state that he contacted the company this morning and told them not to take the payment, and the payment was processed despite his request. I have my doubts about the sequence of events, i.e. whether he contacted the company prior to the posting of the preauthorization. My phone calls to the company to verify the transactions have not been returned. In these circumstances, is the bank required to give credit based on Reg E?
Answer: It's likely that the customer's call was too late to stop the law firm from tapping the account; however, you can avoid the issue. The definition of "unauthorized electronic fund transfer" is the key: "Unauthorized electronic fund transfer means an electronic fund transfer from a consumer's account initiated by a person other than the consumer without actual authority to initiate the transfer and from which the consumer receives no benefit."
The transfer is credited to the consumer's account with the collection firm, so the consumer receives the benefit of the transfer. On a going forward basis, determine whether your customer intends that no further transfers be made by the law firm. If that is the case, tell your customer that you will block further debits by the law firm, but that he must notify the law firm in writing of his revocation of his prior authorization, and provide you a copy of that written revocation within 14 days for you to make the block permanent (see the Official Staff Interpretations to Reg. E section 205.10(c)). Both MasterCard and Visa have procedures you can use to block the payments.
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