Recurring bill payments improve cash flow and streamline payments, but businesses are required to provide consumers with key information before billing them automatically.
Having consumers read and agree to required disclosures for recurring payments keeps consumers informed and ensures your business is compliant.
Recurring payments are automatic charges applied to a consumer’s credit card or bank account for ongoing services or products. Examples include monthly utility bills, streaming service subscriptions, and gym memberships. While these arrangements offer convenience and predictability, they also necessitate clear communication between businesses and consumers.
Recurring Payment Disclosures Overview
Key laws and payment network rules govern recurring payments and outline disclosure requirements.
- Regulation E, implements the Electronic Funds Transfer Act (EFTA) and oversees electronic fund transfers, including recurring payments from bank accounts.1
- Regulation F: provides guidelines guidelines on third-party debt collection practices including post-dated payments debt collectors regarding post-dated payments.2
- Credit Card Networks: create guidelines for merchants who process transactions from consumers using their card brands.
Disclosures can be provided in various ways, but they must always be clear and conspicuous. Whether in print, online, or through other electronic means, the language should be straightforward and easy to understand. Electronic disclosures, in particular, require consumer consent, as stipulated by the E-Sign Act.
Businesses should maintain records of consumer consent and disclosures to demonstrate compliance.
Required Disclosures Under Regulation E
To protect consumers from unauthorized recurring payments, businesses are required to get authorization and provide consumers with certain disclosures.
Authorization & Terms
Make sure the consumer receives the terms and conditions of the recurring payment. This includes:
- the frequency of the charges
- the amount of the charges
- the duration or end date
- any fees charged
To set up a recurring payment, you’re required to get authorization from the consumer to regularly debit their bank account based on the terms. The authorization can be written, oral, or electronic and you must provide the consumer with a copy.
Right to Cancel
Under Regulation E, consumers can cancel recurring payments orally or in writing at least three business days before the scheduled date. Your terms should include instructions for how consumers can cancel their recurring payment, for instance by calling your customer service number.
If accept phone cancellations and require the consumer to follow up in writing, include those details in your cancellation instructions.
Notice of Payment Amount Changes
If an upcoming payment varies from the previous transaction in the recurring payment, the consumer should receive a notice at least 10 days before the transaction is processed.
You can give the consumer the option to receive a notice when the amount is outside a certain range or varies by a certain amount.
Error Resolution Process
While they’re rare, mistakes can happen even in electronic payment processing. Provide instructions for how the consumer should handle errors when they occur. A clear error handling process is key to avoiding payment reversals.
How to Contact You
Provide your contact information, including your hours and days of operation.
Disclosures Required By Credit Card Networks
While Regulation E doesn’t apply to credit card transactions, American Express and Visa both have published disclosure requirements for recurring payments.
Fortunately, these rules have a lot of overlap with Regulation E, so implementing them doesn’t require much additional work. With the right technical set up, you can even streamline disclosures and avoid creating separate disclosures for bank and credit card recurring payments.
If you allow consumers to set up recurring payments using a credit card, ask your payment processor or check the latest merchant rules to find out what disclosures you have to make.
Visa
Visa requires businesses to obtain consent for recurring payments from a cardholder, particularly when you will store Visa credit card information for the payment. The consent agreement should be separate from general terms and conditions and should include:
- the cardholder’s credit card information
- contact information for your business
- terms and conditions related to the stored payment method and future transactions
- authorization to charge the cardholder’s card
- cancellation instructions
- dates or intervals of recurring payments3
American Express
Under Amex rules, businesses should show cardholders the recurring payment terms and get written consent first.
The terms should allow the consumer to opt-in to receive updated card information and provide the recurring payment cancellation policy.
In addition, businesses should also:
- Provide confirmation after the first recurring charge
- Notify cardholders of any change in terms and get written consent to the changes
- Notify cardholders in advance if the recurring amount changes
- Offer cardholders the option to receiver a notification of the amount and ate of each recurring payment. 4
Recurring Payment Disclosures In Collections
Certain industries have additional disclosure requirements. Collections firms, for instance, are required to follow Regulation F, which implements the Fair Debt Collection Practices Act.
Under Reg F, firms must notify consumers in advance of a payments that’s post-dated by more than five days. The notification window is 3 to 10 days before the payment date, excluding weekends and holidays.
Conclusion
While we’ve worked to ensure the information provided is accurate, consulting with your attorney is always a good idea to learn which disclosures and authorizations are required for your business.
HealPay offers a reliable and comprehensive disclosure and authorization process that considers both legal regulations and card network requirements. We securely store proof of authorization and automatically send required notices before a recurring payment.
Contact us to learn how our Recurring Payments and Reminders features can streamline your payments and record keeping..
References
1. Consumer Financial Protection Bureau. “12 CFR Part 1005 – Electronic Fund Transfers (Regulation E). Accessed June 6, 2023.
2. Consumer Financial Protection Bureau. 12 CFR Part 1006 – Fair Debt Collection Practices Act (Regulation F). Accessed June 7, 2023.
3. Visa. “Visa Core Rules and Visa Product and Service Rules.” Pages 453-456. Accessed June 6, 2023.
4. American Express. American Express Merchant Reference Guide. Page 13. Accessed June 7, 2023.
