Electronic Fund Transfer Act: Things to know

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In a Nutshell

The Electronic Fund Transfer Act is a federal law that offers consumer protections for electronically transferred funds. Examples include using an ATM and receiving direct deposits. The act calls on financial institutions to disclose the terms of electronic transactions like these. The EFTA also limits consumer liability if the card used in an unauthorized electronic transaction is lost or stolen.

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Implemented over 40 years ago to protect consumers transferring funds electronically, the Electronic Fund Transfer Act is still relevant today.

Today’s consumer relies on the ability to transfer money electronically. We want the ability to make purchases quickly. But living in an electronic age also presents problems for consumers. How do you know your transactions are safe?

The Electronic Fund Transfer Act was put in place at a time when electronic fund transfers were just starting. The EFTA helps keep consumers informed by requiring financial institutions to clearly spell out the amount charged to their accounts for electronic fund transfers, as well as other important information. It can also help with potentially costly issues, like billing errors.

You might hear it referred to as Regulation E, but they’re slightly different: Regulation E provides the framework to enforce the EFTA and is written into the U.S. Code of Federal Regulations.

Let’s take a look at what makes this law so important for today’s consumer.


What is the Electronic Fund Transfer Act?

The Electronic Fund Transfer Act is a federal law created in 1978. It came at a time when ATMs were becoming popular and consumers were turning to electronic banking. To help protect consumers as new technologies appeared, Congress passed the EFTA.

Electronic fund transfers include …

  • ATMs
  • Automatic clearinghouse (or ACH) systems
  • Point-of-sale transactions for debit cards
  • Remittances
  • Transfers or payments initiated through a telephone

The EFTA has been amended multiple times to adapt to new technology and offerings. For example, rules regarding overdraft fees for ATM and one-time debit card transactions were included in 2009. More recently, rules restricting fees and expiration dates on gift cards were added.

In 2010, EFTA rulemaking authority shifted from the Federal Reserve to the Consumer Financial Protection Bureau. And the CFPB did its part in evolving regulations, adding more protections for consumers, including around digital wallets.

What consumer protections do the Electronic Fund Transfer Act and Regulation E offer?

The EFTA helps consumers in a lot of different ways. Here are four ways the Electronic Fund Transfer Act could help you.

Disclosures

Financial institutions involved in electronic fund transfers are required to disclose important information to consumers before such transactions. This often includes providing information in either hard copy or downloadable form for consumers to reference.

If you’ve withdrawn money from an ATM, you may have seen an ATM fee notice on the machine. Any financial institution that charges ATM fees must disclose this information at the time of the transaction.

When it comes to debit cards, any person issued one must be informed of any fees or other regulations by the issuer. Credit card owners get similar protections in terms of disclosures through the Credit CARD Act of 2009, an amendment to the Truth in Lending Act.

Financial institutions also can’t issue you a debit card without your consent.

Here is some other information that financial institutions are required to disclose.

  • Telephone number and address for reporting a lost or stolen card
  • Liability of consumers for unauthorized electronic fund transfers
  • Their business days
  • Types of electronic fund transfers and limitations on frequency or dollar amount
  • A summary of the consumer’s right to receipts and periodic statements
  • A summary of the consumer’s right to stop payment of a preauthorized electronic fund transfer and how to place a stop payment order
  • A summary of the financial institution’s liability to the consumer
  • Situations when your account information may be shared with third parties

It’s important that financial institutions provide any and all disclosures before doing business. And it’s good practice to save any documentation you receive so that you have all this information at hand.

Unauthorized transactions

The EFTA also offers protections if your debit card is lost or stolen. Your liability will depend on when you first report the card missing or the fraudulent transaction.

If you report a lost or stolen debit card within two business days, you are only liable up to $50 for unauthorized electronic fund transfers. After two business days, but within 60 days, you’re liable for as much as $500 of fraudulent transactions.

It’s important to report a lost or stolen debit (or credit) card as soon as you notice it’s missing. This will help limit possible unauthorized activity on your card.

Event

Report timing

Maximum liability

Unauthorized transfers as a result of a lost or stolen debit card

Within two business days

Up to $50

More than two business days after learning of loss or theft, but less than 60 calendar days after statement showing first unauthorized transfer is sent to you

Up to $500, which can include the sum of …

 

(a) $50, or the total amount of unauthorized transfers occurring in the first two business days, whichever is less, AND

(b) the amount of unauthorized transfers occurring after two business days and before notice to the financial institution

More than 60 calendar days after transmittal of statement showing first unauthorized transfer

For transfers occurring within the 60-day period, up to $500, which can include the sum of …

(a) $50, or the amount of unauthorized transfers in first two business days, whichever is less, AND

(b) the amount of unauthorized transfers occurring after two business days

For transfers occurring after the 60-day period, unlimited liability (until the financial institution is notified)

Unauthorized transfer(s) not involving loss or theft of a debit card

Within 60 calendar days after transmittal of the periodic statement on which the unauthorized transfer first appears

No liability

More than 60 calendar days after transmittal of the periodic statement on which the unauthorized transfer first appears

Unlimited liability for unauthorized transfers occurring 60 calendar days after the periodic statement and before notice to the financial institution

Source: Office of the Comptroller of the Currency

Correcting transaction errors

Another protection for consumers is the ability to resolve transaction errors. Possible errors can include unauthorized electronic fund transfers and receiving the incorrect amount of funds during an ATM transaction.

If the financial institution made an error, you have the right to challenge it. Here are some other rules the company has to follow around transaction issues.

  • Companies can take no more than 10 business days to investigate the issue, and they have to report back to you no more than three days after that.
  • If an investigation ends in your favor, the company has to correct the error within one business day of completing the investigation.

Identity check

Financial institutions are required to confirm a consumer’s identity before proceeding with issuing a new ATM card. This helps protect against identity theft and unauthorized fund transfers. Even if an identity thief were to get through security measures, the financial institution bears the burden of proof that the electronic fund transfer was authorized.


Next steps

It’s important for consumers to know their rights. Take time to familiarize yourself with all of the regulations covered within the Electronic Fund Transfer Act. Any time you open a new account, make sure you receive proper notification from the financial institution. You may not need the info at that time, but it’s important to be aware of any agreement you’re entering. And while you’re at it, why not take time to read our guide on how to help protect yourself from identity theft.


About the author: Kevin Payne is a freelance writer and the family travel and budget expert behind FamilyMoneyAdventure.com. He writes regularly for Club Thrifty, FinanceBuzz, Millennial Money, PT Money a… Read more.