Office of the Secretary
Federal Trade Commission
600 Pennsylvania Avenue, NW -- Room 159
Washington, DC 20580

To whom it may concern:

1. On behalf of the NACHA – The Electronic Payment Association, I respectfully submit this response to the Federal Trade Commission ("FTC") on its request for comment on the Telemarketing Sales Rule ("the Rule"). NACHA represents more than 12,000 financial institutions through its 33 regional ACH associations, 7 councils and corporate Affiliate Membership program. A leader in the payments industry, NACHA develops and administers the operating rules for the Automated Clearing House ("ACH") Network, and for emerging electronic payment solutions in the areas of Internet commerce, bill payment and presentment, financial electronic data interchange, cross-border transactions, electronic checks, and electronic benefits transfer.

2. Our comments focus on Section 310.3(a)(3) of the Rule, which pertains to a consumer’s authorization of a debit to his or her checking account. The balance of our response also addresses the FTC’s request for comment on the effectiveness of industry association self-regulatory efforts – demonstrating that FTC regulation of electronic payment authorization is unnecessary.

3. With respect to consumer payment authorization, the Rule prohibits telemarketers from:

Obtaining or submitting for payment a check, draft, or other form of negotiable paper drawn on a person's checking, savings, share, or similar account, without that person's express verifiable authorization. Such authorization shall be deemed verifiable if any of the following means are employed:

(i) Express written authorization by the customer, which may include the customer's signature on the negotiable instrument; or

(ii) Express oral authorization which is tape recorded and made available upon request to the customer's bank and which evidences clearly both the customer's authorization of payment for the goods and services that are the subject of the sales offer and the customer's receipt of all of the following information:

The date of the draft(s);

The amount of the draft(s);

The payor's name;

The number of draft payments (if more than one);

A telephone number for customer inquiry that is answered during normal business hours; and

The date of the customer's oral authorization; or

(iii) Written confirmation of the transaction, sent to the customer prior to submission for payment of the customer's check, draft, or other form of negotiable paper, that includes:

All of the information contained in §§ 310.3(a)(3)(ii)(A)-(F); and

The procedures by which the customer can obtain a refund from the seller or telemarketer in the event the confirmation is inaccurate. 1

4. This provision in the Rule was intended to ensure that so-called "demand drafts," which resemble and are processed like paper checks, but which are created by and entered into the payment system by the telemarketer or its agent, were properly authorized by the consumer. Comparable treatment of electronic debits to consumer accounts through the ACH Network is already provided for through coverage by Regulation E and the ACH Network Operating Rules as administered by NACHA ("the NACHA Operating Rules"). 2 The relevant NACHA Operating Rule requires that:

The Receiver [consumer] has authorized the Originator [telemarketer] to initiate the entry to the receiver’s account… In the case of debit entries to a Consumer Account, the authorization must be in writing, signed or similarly Authenticated by the consumer. The term similarly authenticated includes the use of a digital signature or other code. To meet the requirement that an authorization be in writing, an electronic authorization must be able to be displayed on a computer screen or other visual display that enables the consumer to read the communication. The authorization also must be readily identifiable as an authorization, must clearly and conspicuously state its terms, and … must provide that the Receiver may revoke the authorization only by notifying the Originator in the manner specified in the authorization. 3

5. NACHA’s consumer authorization requirement accomplishes two significant goals: (1) consumers are protected against unauthorized ACH debits to their accounts; and (2) telemarketers looking to circumvent the FTC requirements by moving unwarranted payments from traditional paper payment mechanisms over to the ACH Network are prevented from doing so.

Emerging Consumer ACH Applications

Internet-Initiated Payments

7. With the growth of Internet commerce, consumers and businesses are looking for more flexible payment options. Consequently, attention has turned to the ACH Network to provide the capability to allow consumers to authorize an ACH debit through secure websites. In response to strong market interest, NACHA has created a Rules Work Group to identify necessary changes to the NACHA Operating Rules that would make Internet-initiated payments, particularly spontaneous payments, more secure without reducing the current level of consumer protections associated with consumer ACH payments.

Telephone Authorization Pilot

8. To provide consumers greater flexibility in the authorization of non-recurring ACH debits to pay for goods or services legitimately ordered over the telephone, NACHA is piloting a "Consumer Authorization for Non-Recurring ACH Debits" ("Telephone Authorization Pilot" or "Pilot") application. The Pilot is scheduled to run through September 14, 2000.

9. The objectives of the Telephone Authorization Pilot are to:

Test consumer acceptance of expanded methods for obtaining a consumer’s authorization for non-recurring ACH debits;

Determine the best method for providing notification of authorization information to the consumer;

Determine the best security procedures for Originators (e.g., telemarketers) who utilize these types of authorizations;

Determine if these authorization procedures improve customer service by facilitating consumers’ financial transactions;

Determine and measure whether there is an increase in the number of erroneous transactions initiated by Originators;

Determine the extent to which reports of fraud are filed by consumers; and

Measure the overall success of the Pilot (by volume, acceptance, complaints) and determine if an amendment to the NACHA Operating Rules with regard to authorization should be considered.

10. NACHA has advised all pilot participants to verify that their actions are in compliance with applicable federal, state and local laws. Moreover, the Pilot program guidelines specifically reference Section 310.3(a)(3) of the Rule governing how authorization is obtained from the consumer, and extend comparable requirements to ACH entries originated under the Pilot.

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11. Considering NACHA’s demonstrated abilities to administer and enforce necessary consumer protections for payments made via the ACH Network, we strongly believe that the FTC should continue to rely on the NACHA rulemaking process. NACHA will continue to ensure that consumers enjoy appropriate protection from unauthorized debits to their account, while taking advantage of the convenience and efficiencies that new payment and commercial technologies offer.

Sincerely,