Providing EFT Disclosure at Loan Closing

Issue/Inquiry

If the Bank provided the Electronic Funds Transfer (“EFT”) disclosure when the consumer opened the deposit account, should the disclosure be provided again at a loan closing, when direct payments are made from the borrower’s account?

Response Summary

Direct loan payments are considered EFT under Regulation E. When a financial institution holds the account from which direct payments will be made, the EFT disclosures must be made in close proximity to the loan closing. If any time has elapsed between the loan closing and when the EFT disclosures were originally made, we recommend that the disclosures be made again at the loan closing.

Response Detail

A direct loan payment from a consumer’s deposit account would be considered EFT under Regulation E, since it involves a direct withdrawal from the account. 12 CFR §1005.3(b)(1)(iii).

Generally, the EFT disclosures must be provided at the time a consumer contracts for an EFT service or before the first EFT is made involving the consumer’s account. Disclosures provided by a financial institution earlier than the regulation requires, such as when the consumer opens a checking account, need not be repeated when the consumer later enters into an agreement with a third party to initiate preauthorized transfers to or from the consumer's account, unless the terms and conditions differ from those that the institution previously disclosed. However, if an agreement for EFT services to be provided by an account-holding institution is directly between the consumer and the account-holding institution, disclosures must be provided in close proximity to the event requiring disclosure, for example, when the consumer contracts for a new service. 12 CFR §1005.7(a); Official Interpretations, ¶1005.7(a)-1.

In this case, the Bank is going to make a loan to a consumer and have direct loan payments made from the consumer’s account. This means that the EFT disclosures must be provided in close proximity to the EFT services requiring disclosure, which would be the agreement obtained at closing for direct loan payments. The term “close proximity” is not defined by the regulation or its official commentary. For that reason, if any time has elapsed between the loan closing and when the EFT disclosures were originally provided, the better policy is to provide the EFT disclosures again at closing, in order to avoid the risk that the disclosures were not made in a timely manner.

This entry was posted on Monday, April 18th, 2016 at 3:00 pm.