|April 27, 2000
Office of the Secretary
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 consumers authorization of a debit to his or her checking account. The balance of our response also addresses the FTCs request for comment on the effectiveness of industry association self-regulatory efforts demonstrating that FTC regulation of electronic payment authorization is unnecessary.
Consumer Payment Authorization
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:
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:
5. NACHAs 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.
6. We believe it is important for the FTC to recognize that the NACHA Operating Rules serve the consumer well and afford the same protections from unauthorized ACH debits that the Rule provides. We further believe that the NACHA rulemaking process is well equipped to address consumer electronic payment authorization in evolving applications that take advantage of new technologies such as the Internet for legitimate consumer economic activity.
Emerging Consumer ACH Applications
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:
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 NACHAs 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.
Ian W. Macoy