From the Hotline

By Teri Henning
Pennsylvania Newspaper Association

Q: My newspaper is setting up an Easy Pay program, to allow customers to pay by credit card or debit card, on a recurring basis. What are the legal issues that we should consider in implementing our program?

A: Every “Easy Pay” program is different, and it is beyond the scope of the legal hotline for us to give a firm legal opinion regarding the legality of a particular program. For that reason, we always recommend that a newspaper review the specifics of any program with its corporate attorney. He or she is much more familiar with the operations of the newspaper and is better able to identify all of the laws that may be implicated by the specific program.

That being said, there are a number of potentially applicable laws that a newspaper should consider, including the federal and state telemarketing laws, the federal Electronic Funds Transfer Act, and the federal Fair Credit Billing Act.

Telemarketing

If your Easy Pay program is promoted or used as part of a telemarketing transaction (which could include a follow up call made by a consumer as a result of your telemarketing efforts), there are state and federal telemarketing rules that may apply.

Under Pennsylvania’s telemarketing law, you must get "express verifiable authorization" any time you are "drawing" on a customer's bank account. This term is defined below.

The FTC rules, which now apply to ALL telemarketers in Pennsylvania, require something called "express informed consent" for all billing methods (with additional requirements when you are using pre-acquired account information). The FTC rules require "express verifiable authorization" when you are accepting novel payments (e.g., phone checks, demand drafts). 

In simpler terms, there are no additional requirements under the telemarketing laws when you are accepting new payments by credit card. There are additional requirements if you are using “preacquired account information”. These are described below.

There are also additional state requirements when you accept debit cards (or any other method that draws on a customer’s bank account). With respect to debit cards, if you meet the requirements of the Electronic Funds Transfer Act (see below), you will also satisfy the requirements of the state telemarketing act. 

Finally, if you accept payment by some other “novel” method (demand draft, phone check, etc.), you will have to satisfy both the state and the FTC rules (described below).

First, the state law...

The Telemarketer Registration Act 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 the person's "express verifiable authorization." 

"Express verifiable authorization" can be accomplished by:

1) getting written authorization from the customer (e.g., a signed check);

2) tape recording the customer giving express oral authorization (the recording must include the date of draft or drafts, the amount of the draft or drafts, the name of consumer, the number of drafts authorized, a telephone number customer can call with questions, the date of the oral authorization, and a statement that the transaction is one for which the customer may receive a full refund by returning undamaged and unused consumer goods within ten days after receiving them or by sending a cancellation of service notice to the telemarketer within 5 days after the transaction and that a refund will be processed within 30 days after receiving said notice from the customer); or

3) sending written confirmation to the customer BEFORE debiting his or her bank account. Note that the customer does not have to actually receive your written confirmation prior to debiting the account - but you do have to send it prior to debiting. The written confirmation must include the information listed in 2), above. If you use this method, you must have a refund policy in place, you must provide a refund if the confirmation is inadequate or incorrect, and you must disclose to the customer how to cancel the transaction and obtain a refund.

Remember -- under state wiretapping laws, you must get a consumer's consent before recording your conversation with him or her.

The FTC Rules.... 

a. Express Informed Consent. The FTC Rules require "express informed consent" before a telemarketer can cause billing information to be submitted for payment (either directly or indirectly). In order for consent to be "express", it must be affirmatively given by the customer. In order for it to be informed, you must provide the required disclosures (including all of the specifics regarding the sale - terms, amount owed, length of subscription, etc.). The rules also contain additional requirements for obtaining "express informed consent" when you are using pre-acquired account information. 

1. When Pre-acquired Account Information is used and the offer involves a "free to pay" conversion, you must:

a. obtain from the customer the last four digits of the account number to be charged (the customer must provide this information -- you cannot read it to them and ask them to confirm);
b. obtain the customer's express agreement to be charged for the goods or services and to be charged using the account number which he or she has provided; and
c. make and maintain an audio recording of the transaction (Under state law, you must obtain consent to record someone.).

2. When Pre-acquired Account Information is used and the offer does not involve a "free to pay" conversion, you must:

a. identify the account to be charged with enough specificity for the consumer to understand; and
b. obtain the customer's express informed agreement to be charged for the goods using the account number you have identified.

b. Novel Payments. The FTC Rules require "express verifiable authorization" if you are accepting "novel payment" methods (methods other than credit cards or debit cards subject to the Electronic Funds Transfer Act). 

Under the Rules, authorization is considered to be "verifiable" if it is obtained by:
a. advance written authorization (e.g., a voided signed check);
b. an audio recording of the customer giving express oral authorization (which must include a number of specific pieces of information); or
c. written confirmation of the transaction sent to the consumer before you submit the charge for payment (again, must include specific information). This method cannot be used in transactions involving pre-acquired account information combined with a free-to-pay conversion.

Other Federal Laws

Even apart from telemarketing transactions, accepting payment by a particular method may subject you to additional federal laws. For example, the Electronic Fund Transfer Act (EFTA) governs the use of debit cards for payment. Under that Act, a merchant using preauthorized electronic fund transfers from a consumer's account must: 1) get a "writing signed or similarly authenticated" before it can debit a consumer's bank account by way of preauthorized EFTs; 2) provide a copy of the authorization to the consumer; and 3) retain records evidencing compliance with the EFT Act for at least 2 years.

Agency guidance documents provide further explanation regarding these requirements. For example, the FDIC takes the position that a merchant complies with 2), above, when it provides the consumer with two copies of a preauthorization form and asks the consumer to sign and return one and to retain the second one. It also explains that the "similarly authenticated" language permits signed, written authorizations to be provided electronically (as set forth under the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. 7001 et seq., which defines electronic records and electronic signatures). Finally, agency guidance documents state that a tape recording of a telephone conversation with a consumer who agrees to preauthorized debits does not constitute written authorization for purposes of these requirements. 

The Fair Credit Billing Act and its regulations (Regulation Z) do not require a written, signed or "similarly authenticated" authorization for recurring charges to a consumer's credit card account. That Act contains, among other things, a number of provisions relating to a consumer's right to protest unauthorized charges.


For more information regarding the above rules, please feel free to call the legal hotline at 717 703-3076, contact your newspaper’s lawyer, or you can go to www.ftc.gov.

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