4.3 TEL (Telephone-Initiated Entries): Inbound vs. Outbound Rules & Recording Requirements

4.3 TEL (Telephone-Initiated Entries): Inbound vs. Outbound Rules & Recording Requirements

Core Principle: Standard Entry Class code TEL (Telephone-Initiated Entry) is used exclusively for consumer debit transactions where the consumer provides verbal authorization over the telephone. Because oral authorizations lack physical signatures or digital cryptographic certificates, Nacha Operating Rules (Subsection 2.5.15 — TEL Entries, which builds on the general oral-authorization rule at Subsection 2.3.2.4) and federal telemarketing laws establish strict structural safeguards, including mandatory audio recordings or written confirmation notices, to protect consumers against coercive telephone debiting.

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1. Inbound vs. Outbound Calls: The Regulatory Boundary

A critical distinction on the AAP examination is the legal boundary between Inbound TEL and Outbound TEL calls:

                                  TEL Call Direction Framework
         ┌──────────────────────────────────┴──────────────────────────────────┐
         ▼                                                                     ▼
     INBOUND CALLS (Consumer Calls In)                     OUTBOUND CALLS (Originator Calls Out)
  • Consumer initiates telephone call to Originator      • Originator initiates telephone call to Consumer
  • Permitted for Single TEL debits                      • STRICT PROHIBITION on cold calling / telemarketing
  • Permitted for Recurring TEL debits                   • Allowed ONLY if an Existing Relationship exists
  • No prior relationship required                       • Written agreement for goods/services, or purchase
  • Common: Utility bill pay, insurance payments           of goods/services within the past two years

Inbound TEL Entries

• Initiation: The consumer dials into the Originator's call center, billing department, or automated Interactive Voice Response (IVR) phone system.
• Scope: Permitted for both Single TEL debits (e.g., paying a one-time overdue electric bill) and Recurring TEL debits.
• Relationship Baseline: No prior relationship is required because the consumer voluntarily initiates the commercial interaction.

Outbound TEL Entries & The Existing Business Relationship (EBR) Rule

• Initiation: The Originator places an unsolicited or outbound call to the consumer.
• Existing Relationship requirement: An ACH debit resulting from an outbound telephone call may use TEL only when an Existing Relationship exists. That means either a written agreement is in place between the Originator and Receiver for goods or services, or the Receiver purchased goods or services from the Originator within the past two years. Prior written consent to receive calls is not a substitute for this TEL requirement.
• Interaction with telemarketing law: A cold outbound call without an Existing Relationship is not eligible for TEL under the Nacha Rules. Separate federal and state telemarketing restrictions may also apply to the call and payment method.

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2. Single TEL vs. Recurring TEL Rules

Nacha Operating Rules govern both single and recurring telephone-initiated debits under distinct operational protocols:

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3. Single-Entry TEL: Recording or Written Confirmation

For a Single Entry authorized orally, the Originator must use one of two evidence paths: record the Oral Authorization, or provide written notice confirming it before settlement. Recurring Oral Authorizations follow the separate rule explained below.

                    SINGLE-ENTRY ORAL AUTHORIZATION EVIDENCE OPTIONS
  ┌─────────────────────────────────────┴─────────────────────────────────────┐
  ▼                                                                           ▼
METHOD A: Audio Voice Recording                             METHOD B: Pre-Settlement Written Confirmation
• Originator records the Oral Authorization, preserving     • Originator sends a written confirmation notice
  the required terms and the consumer's assent.                     to the consumer containing all required terms.
• Retain a Single Entry record for 2 years from the          • Must be sent prior to the Settlement Date of a
  authorization date.                                          single entry.
• Provide copy to RDFI within 10 banking days.              • Can be sent via postal mail, email, or digital portal.

Method A: Audio Recording

• The Originator records the oral conversation with the consumer, capturing the consumer's explicit verbal assent to all required script elements.
• The audio record for a Single Entry must be retained for two years from the date of authorization. For recurring Oral Authorizations, retain the recording and evidence that a copy was provided for two years from termination or revocation.

Method B: Written Confirmation Notice Prior to Settlement

• If the Originator does not record the telephone conversation, it must send a written confirmation notice to the consumer prior to the Settlement Date of the entry.
• The confirmation must clearly set forth all terms agreed to during the telephone conversation.
• A recurring Oral Authorization is not an either/or case: the Originator records the Oral Authorization, provides the Receiver the copy required by Regulation E before the first debit, and retains the recording plus evidence of copy delivery for two years from termination or revocation.

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4. Mandatory Oral Script Disclosure Elements

During the telephone call, the Originator must read a structured script and obtain the consumer's unambiguous oral agreement to each of the following elements:

1. Date of Debit: The date on or after which the consumer's account will be debited.
2. Amount of Debit: The exact dollar amount of the transfer (or method of calculation for variable recurring debits).
3. Consumer Name & Account Details: Clear identification of the consumer and the specific deposit account (routing transit number and account number, or the last four digits if previously tokenized/stored).
4. Express ACH Debit Assent: Unambiguous language stating that the consumer is authorizing an ACH debit to their financial institution account.
5. Originator Customer Service Contact: A telephone number answered during normal business hours for consumer questions or cancellations.
6. Date of Oral Authorization: The calendar date on which the call occurs.
7. Revocation Terms (Recurring TEL): For recurring TEL entries, explicit instructions on how the consumer can revoke authorization, including the required notice period.