The Electronic Fund Transfer Act (EFTA) is a federal law that protects consumers when they transfer funds electronically, including through the use of debit cards, ATMs, and automatic withdrawals from a bank account. Among other protections, the EFTA provides a way to correct transaction errors and limits the liability resulting from a lost or stolen card.
Key Takeaways
- The Electronic Fund Transfer Act (EFTA) safeguards consumers during electronic fund transfers.
- Enacted in 1978 due to the rise in ATM usage, EFTA ensures multiple protections.
- Protected transfers include those via ATMs, debit cards, direct deposits, point-of-sale, and phone.
Understanding the Electronic Fund Transfer Act (EFTA)
Electronic fund transfers are transactions that use computers, phones, or magnetic strips to authorize a financial institution to credit or debit a customer’s account. Such transfers include the use of ATMs, debit cards, direct deposits, point-of-sale transactions, transfers initiated by phone, automated clearing house (ACH) systems, and pre-authorized withdrawals from checking or savings accounts.
The EFTA outlines critical requirements for banking institutions and consumers when handling errors. The act permits consumers to challenge and correct transaction errors, also limiting financial penalties. Furthermore, the EFTA mandates banks to provide certain information and specifies ways to limit liability in cases of lost or stolen cards.
The decline of paper checks emphasizes the necessity for EFTA. The act provides consumers with the confidence that their electronic transfers are secure, allowing them a process to correct errors within 60 days and limit liability on lost cards to $50 if reported within two business days.
- Reporting a lost card within 3 to 59 days could result in liability up to $500.
- If unreported within 60 days, consumers could lose all associated funds and incur overdraft charges.
History of the Electronic Fund Transfer Act (EFTA)
Congress passed the EFTA in 1978, driven by the proliferation of ATMs and electronic banking. Initially overseen by the Federal Reserve Board as Regulation E, control shifted in 2011 to the Consumer Financial Protection Bureau (CFPB) due to the Dodd-Frank Wall Street Reform and Consumer Protection Act’s enactment. Notably, the EFTA excludes gift cards, stored-value cards, credit cards, and prepaid phone cards.
Services Protected Under the Electronic Fund Transfer Act (EFTA)
EFTA guards the following essential services:
- ATMs: EFTA ensures 24-hour ATM access.
- Direct Deposit: Authorize recurring deposits and payments for services like payroll, government benefits, mortgages, insurance, and utilities.
- Pay-by-Phone: Authorize payments or transfers via telephone, with banks confirming identities via account-specific questions.
- Internet: Monitor account activities, transfer funds, and pay bills through online portals.
- Debit Card: Conduct purchases online or at retail outlets with confidence utilizing debit cards issued by financial institutions.
- Electronic Check Conversion: Convert paper checks to electronic payments by scanning checks, which then become void.
Consumers retain the right to halt preauthorized transfers at any time, irrespective of contract provisions.
EFTA Requirements for Service Providers
EFTA compels financial institutions and third-party providers to disclose the following:
- Summary of liability for unauthorized transactions.
- Contact details for reporting unauthorized transactions and filing claims.
- Types, fees, and limitations of transfers.
- Consumer rights to receive periodic statements and point-of-sale receipts.
- Liability summary if the institution fails to make or halt certain transactions.
- Conditions under which the institution may share personal account information with third parties.
- Procedures for reporting errors, requesting information, and the time frames for doing so.
Who Does the EFTA Apply To?
EFTA applies to all U.S-based financial entities, including foreign institutions serving U.S. residents, covering any account through which electronic fund transfers are offered, irrespective of transfer location.
Does EFTA Require Withdrawal Limits?
Yes, EFTA mandates banks to set limits on account withdrawals within a set period, typically constrained to $200-300 per day to maintain financial security.
Does EFTA Cover Lost Cards?
EFTA partially covers lost or stolen cards, capping liability at $50 if the institution is notified within two business days. For greater financial safeguards, especially for online shopping, credit card usage is advised.
The Bottom Line
The Electronic Fund Transfer Act (EFTA), enacted in 1978, imparts vital protections to consumers during electronic fund transfers, encompassing usage of debit cards, ATMs, and automated bank account withdrawals. The EFTA allows transaction audits, correcting errors with liability limits if reported timely. Additionally, EFTA mandates transparency and responsibility within financial institutions concerning account management.
By enhancing understanding and ensuring compliance with these regulations, consumers can securely navigate the electronic banking landscape, armed with the knowledge and protections afforded by the EFTA.
Related Terms: debit card, ATM, automated clearing house, liability, overdraft.
References
- Consumer Financial Protection Bureau. "§ 1005.3 Coverage".
- Consumer Financial Protection Bureau. “Electronic Fund Transfers (Regulation E); Amendments”.
- Consumer Financial Protection Bureau. "§ 1005.11 Procedures for Resolving Errors".
- Consumer Financial Protection Bureau. "§ 1005.31 Disclosures".
- FDIC. “Laws and Regulations: EFTA.”
- Consumer Action. “What Is the Electronic Fund Transfer Act and How Does It Protect Me?”
