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ISP Charges To Closed Customer Accounts

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Question: 
I have a question regarding how far does a customer's authorization go? Our bank is experiencing several charges, identified as POS, from an Internet service provider for customer accounts, which at the time of the charges, were closed with zero balances. The bank sends the network a balance file every night to The Midwest Money Access Services (MAC). When customer account balances are zero or the account is closed, how could the charges continue to be charged to the bank? When we talk with MAC representatives, they say that the service provider has the authority toinitiate the charge based on the prior customer authorization. They say this situation is like a recurring loan payment.
Answer: 

It's very common to see ISP fees paid by recurring EFT debit. Sometimes the ISP initiates the debits via the ACH (after obtaining the customer's account number and authorization). Other times, the customer gives the ISP a "credit card" number. Often this "credit card" turns out to be a debit card.

There is no requirement in Reg Z for a credit card recurring charge to be authorized in writing or similarly authenticated by the customer. That's a Reg E requirement. Because the ISP probably thinks it's using a credit card account, it is unlikely to have a written or authenticated authorization for the recurring charge.

Under the changes made to Regulation E's Supplement I (Official Staff Interpretations), Section 205.10(b)-7, issued 3/16/2001, you will see that the ISP, when it learns of the fact that the card is a debit card, must either obtain a proper authorization, or stop debiting the account.

Since your customer's account is closed, there is a likelihood that, if you "push" the issue with the ISP, they will stop charging your bank for these fees.

First published on BankersOnline.com 5/6/02

First published on 05/06/2002

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