We do it everyday. We sign up for something –a cellphone, a gym membership, a magazine– and we give the company our credit card information or our bank account information. Allowing a business to automatically take money from your account or charge your credit card is a modern convenience that many consumers opt to use. For some businesses, like gyms or health clubs, there is no option – such electronic transfers are required to enter into a membership contract. There is a reason why they do this, particularly gyms and health clubs. They know that you will sign up, go to the gym for a month, stop going, realize it’s not worth it and cancel your membership. That is why they make it so difficult to cancel your membership. Many times, the initial contract term will continue on a “month-to-month” basis indefinitely, unless you cancel. And to cancel, you usually must do so in writing. If you fail to follow the cancellation policy in the contract, your account will continue to be billed. In some cases, the gym or other company will continue to bill your account even after the contract expires or is legally cancelled.
Because some gyms and health clubs are so exploitative, many states have passed specific laws governing their conduct. Also, because you the consumer are in such a vulnerable position once you provide your credit card or account information, the Electronic Funds Transfer Act, 15 U.S.C. Sec. 1693, et seq. (“EFTA”) was created by Congress to make any unauthorized electronic fund transfers illegal. The EFTA prohibits anyone from accessing your account for the purpose of initiating an electronic transfer unless you specifically apply or provide written authorization. Mortgage companies, student loan companies, debt collectors, gyms, cell phone contracts, cable contracts – all must comply with the EFTA. This means they must have “a writing signed or similarly authenticated by the consumer [you]” to access your account for a preauthorized electronic fund transfer. Amazingly, car dealers were able to get themselves exempted from this requirement (like many others) by persistent lobbying and making strategic donations to pliable politicians. Companies are permitted to obtain your authorization over the phone if they obtain your electronic signature, i.e. you authorize by hitting the “accept” button online.
Electronic transfers without such written authorization are illegal. We have a word in our lexicon for this – it is called theft. If a company has transferred funds from your account electronically without your authorization, you may have a claim under the EFTA. Your state consumer protection statutes and unfair trade practices act may also provide you with a remedy to sue companies that abuse your trust by taking funds from your accounts electronically. If a company has engaged in such illegal electronic fund transfers, contact Klaproth Law to schedule a free, confidential consultation.
