Scenario...

A consumer gets a payday loan. When the first payment to repay the loan comes through, the consumer contacts the bank stating that the payment is unauthorized. We see where the loan proceeds have been credited to the consumers account. They have obviously made a repayment arrangement with the company. Is it ok to ask for a copy of the documentation they received from the payday loan company to confirm if there was an ACH or Debit Card repayment arrangement? Is it ok ask for documentation/evidence that they contacted the company to revoke authorization or proof the loan has been paid off?

Let's say we ask for those things and the consumer conveniently remembers they did authorize the transaction, should some type of documentation be kept of the conversations/interactions? Must a notice of no error be sent to the consumer since this all initially began with a notice of unauthorized transaction?

Thanks in advance!

I have a better idea. Return the ACH as unauthorized after you get the signed affidavit from the customer and then close the account.

what happens when you ask the customer for the documentation and they say they don't have anything? don't overthink it. if they say it is unauthorized and provide the written statement of unauthorized debit, take it at face value and move on. perhaps they made other arrangements, perhaps they didn't. you really don't want to get into a process where you review transactions and legal agreements prior to returning or not returning transactions. and, if you do it for one, you better do it for everyone moving forward, or you open the bank to liability and risk.

Well some time between the last audit and this audit, they suddenly started asking for documentation or proof from customers and if they don't provide anything then they are not returning it. Basically the customers are just backing out of the dispute. No paper trail, nothing. I'm hearing about this from interviews with staff. I was looking into things because we've only had 16 ACH disputes logged for 2021, significantly down from previous years. Was a red flag.

So are other FIs not "investigating" to try to determine if the transaction was authorized? Just getting the affidavit signed and returning the item?

Apparently someone has failed to informed them of the huge CMPs and restitution orders issued for these exact actions. You cannot shift the burden of proof to the consumer. Why all the hand ringing on ACH? You ask them sign the Written Statement of Unauthorized Debit, you return the ACH and move on. If they will not sign the statement, then you need to continue your investigation and come up with a decision regardless of whether the consumer provides you another scrap of information.

I agree with Randy that you may have a mess on your hands at this point. Take a look at the 2019 USAA consent order where USAA got hit with huge fines for Reg E deficiencies, some which related to making customer jump through extra hoops in regards to payday loans. https://files.consumerfinance.gov/f/documents/bcfp_usaa-federal-savings-bank_consent-order.pdf

In short, this type of action - where a bank requires steps that go above and beyond Regulation E and ultimately "discourage" customers from continuing a dispute - has been shown time and time again to be worthy of enforcement actions and CMPs. Unfortunately, its quite a long topic of conversation, so I will also PM you a link to a video I recorded a few years back where I summarize the USAA consent order and break down what went wrong.