Standing Authorization

A Standing Authorization allows a merchant to obtain an advanced authorization for future transactions.

In this article, you will learn:

Standing Authorization vs. Recurring Authorization

What must be included in a Standing Authorization?

What SEC code should be used for Standing Authorizations?

Sample Standing Authorization form

What to do after collecting Standing Authorizations?

Standing Authorization vs. Recurring Authorization

A Standing Authorization is different than a Recurring Authorization. A Standing Authorization allows a customer to initiate payments intermittently and via various channels (phone, online, mobile app, text, virtual assistant technology, etc.) 

• Recurring Authorization – A customer authorizes you to pull funds from their account automatically at regular intervals on a prearranged schedule. The recurring payments can be a fixed or a variable amount. Examples: A subscription to Netflix or a gym membership may be a fixed recurring amount; a monthly utility bill could be a variable amount depending on the amount of water or electricity used.
• Standing Authorization – An advance authorization by a customer for future payments (aka Subsequent Payment) at various intervals. Future payments must be initiated by the customer through some further action. You can think of this as a "triggering" event. This is different from a recurring payment which requires no further action and occurs at regular intervals.

What must be included in a Standing Authorization?

For a Standing Authorization, the following minimum requirements must be met; however, these requirements can be met through a combination of the Standing Authorization and the customer's affirmative action to initiate each subsequent transaction.

• Language clearly stating whether the authorization is for a one-time payment, a recurring payment, or for one or more subsequent payments initiated under the terms of a standing authorization.
• Clearly specify the action(s) that the customer can take to initiate a subsequent entry. These actions can include, but are not limited to, a telephone call, an internet interaction, or a text message.
• Amount of transaction(s) or a reference to the method of determining the amount of the transaction(s)
• Timing of the transactions, including the start date, number of payments, and frequency of transactions
• Customer's name
• Bank account to be debited, including type of account (i.e., checking, savings, etc.)
• Date of the customer's authorization
• Language that instructs the customer on how to revoke the authorization directly with the merchant. This should include the time and manner the customer must communicate the revocation to the merchant. For a one-time payment, the right of the customer to revoke authorization must give the merchant a reasonable opportunity to act on the revocation prior to initiating the transaction.

What SEC code should be used for Standing Authorizations?

In most cases, you can select the SEC code you feel is appropriate to use for the subsequent transactions based on either

1. the manner in which the Standing Authorization was obtained from the customer, or,
2. the manner in which the customer's action to initiate the subsequent transaction was communicated to you.

An exception to this is when a you receive the customer's Standing Authorization either as an oral authorization via a telephone call (TEL) or via the internet or wireless network (WEB). The Rules do not allow a merchant that obtains the customer's Standing Authorization using the SEC codes WEB or TEL to identify subsequent transactions using the SEC code PPD.

Examples

• You obtain a Standing Authorization from a customer in paper form with a wet signature. The terms of the authorization specify that the customer can initiate a subsequent transaction either by an internet communication to you or by a telephone call. You can choose to identify the subsequent transaction as either PPD (to match the Standing Authorization) or as WEB or TEL (to match the action to initiate the subsequent transaction).
• You obtain a Standing Authorization from a customer orally over a telephone call. The terms of the authorization specify that the customer can initiate a subsequent transaction by instructions provided via the internet. In this case, you can choose to identify the subsequent transaction as either a TEL (to match the Standing Authorization) or as a WEB (to match the action to initiate the subsequent transaction).

Sample Standing Authorization form

You can modify the following template to suit your business needs:

Sample ACH Authorization Form

What to do after collecting Standing Authorizations?

You are required to keep a copy of the authorization you receive and be able to provide it in a timely manner if proof of the authorization is requested by the bank. If asked for proof of authorization, you will need to provide both of the following:

• Standing Authorization - You must retain a copy of the Standing Authorization for 2 years from the last payment date (termination) or from the date the customer cancelled the authorization (revocation of authorization).

• Subsequent Transaction - You must also retain proof that the customer affirmatively initiated each subsequent payment in accordance with terms specified in the Standing Authorization for 2 years from the settlement date of the transaction.