Disputing ACH Debits on a Pay Day Loan

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Question:

Pay day loan companies are illegal in NC and a customer gets loans from six different companies then finds out it is illegal. He or she is then advised that they don't have to pay them back because they have no recourse against her in NC, so he or she wants to dispute the ACH debits as unauthorized transactions under Reg E and have all the money put back in his or her account. Wouldn't they have to return the credits as well? Also, does the bank have to return any NSF fees involved?

Answer:

This question, I think, involves a lot more than Reg E. Whether your customer gave authorization to the loan companies could be a matter of state law (if the loans aren't legal, can the authorizations be binding?), too. Presumably, if the authorizations never legally took place, the transactions are unauthorized and should be returned under Reg E. That sounds like the position your customer is being encouraged to take.

If your bank subscribes to that theory and agrees with the customer's claim of invalid authorizations, you'll need to refund any fees you've imposed that were triggered by those unauthorized transactions.

If the bank wants guidance on whether it should consider the authorizations (which clearly were given) invalid, it should discuss the matter with its attorney.

First published on BankersOnline.com 9/24/07