Protecting Paperless Money: The Electronic Funds Transfer Act

Each year, technology becomes more integrated into fundamental parts of our lives. Our bank accounts and financial transactions are no exception. Today, more and more transactions are conducted electronically without a check or paper money. According to the American Banking Association, U.S. consumers handle their banking via mobile apps more often than any other method.

Consumers who make these types of transactions are protected by the Electronic Fund Transfer Act (EFTA). The EFTA is a federal law protecting consumers against fraud and account errors. If your bank account is compromised, talk to a local consumer protection lawyer.

Understanding the Electronic Funds Act

Congress approved the Electronic Funds Transfer Act in 1978. It was introduced as a response to the shift from physical checks to electronic checks and electronic payments.

The federal law regulates online banking and electronic transactions. Consumer protection law sets liability limits for unauthorized transactions. It gives you the right to dispute transactions. The EFTA also requires that financial institutions provide you with a summary of your rights. It provides guidelines on overdraft protection and prohibits financial institutions from charging an overdraft fee without permission.

An electronic funds transfer (EFT) moves money from one account to another over a computerized network using a computer, cellphone, or tablet. EFT transactions are also known as electronic banking.

The EFTA is implemented through the Federal Reserve Bank’s Regulation E, but the Consumer Financial Protection Bureau (CFPB) handles rule-making authority under the EFTA.

State laws on electronic banking may provide stronger consumer rights than those found in the EFTA.

Transactions Covered by the EFTA

There are many types of EFT transactions. The law covers most electronic funds transfers, including:

• Automated teller machine (ATM) transactions
• Debit card transactions
• Electronic checks
• Regularly scheduled preauthorized transfers, such as automatic bill payments
• Direct deposits and withdrawals
• Point of sale (POS) transactions

It excludes:

• Prepaid cards
• Wire transfers
• Credit card transactions (which are regulated by the Fair Credit Billing Act)
• Paper checks

Consumer Rights Under the EFTA

The Electronic Funds Transfer Act provides several essential consumer rights, as described below.

Limitations on Liability for Unauthorized Transfers

One of the most noteworthy consumer protections under the EFTA is that it limits your liability for unauthorized electronic transfers. However, this protection depends on how quickly you notify your financial institution about the theft. If you notify the financial institution:

• Within two business days of learning of the theft, your liability is limited to $50.
• After two business days but within 60 days, you could lose up to $500 for unauthorized transactions.

You could be responsible for all the money taken from your account if you fail to report the transaction within 60 days of receiving a statement that shows an unauthorized transaction.

Right to Error Resolution

You have the right to correct account mistakes. However, you must notify the financial institution within 60 days of receiving your account statement showing the error. Financial institutions must provide a telephone number and address for reporting theft, loss, or unauthorized transactions.

Importantly, you should make your claim in writing and provide all of the relevant details. The financial institution will have approximately 45-90 days to resolve the error. If they find an error, it must be corrected. If they don’t find a mistake, they must provide you with a detailed written explanation of their conclusion.

Right to Clear Information

Financial institutions must provide you with clear, accurate information about your electronic transactions. When you set up an electronic funds service, your bank must provide you with information on the terms and conditions, including:

• Fees
• Your liability in case of unauthorized transfers
• How to report errors

Right to a Receipt for Transactions

Each time you complete an electronic transaction such as an ATM withdrawal or debit card purchase, you should receive a receipt. The receipt must show the amount, date, and location of the transaction. This information must also show up on your regular bank statement.

Right to Periodic Statements

Banks have to provide you with regular statements for accounts with electronic funds activity. These statements must include the details of each transaction so that you can review the activity in your account for errors, fraud, and unauthorized transactions.

Right To Refuse To Pay a Creditor With Electronic Funds

The law is explicit that a consumer can’t be required to pay a loan or other credit obligation with electronic funds. However, it’s important to note that employers and government agencies can require you to receive payroll and government benefits through electronic funds. The person receiving the funds has the right to determine which account and financial institution will be used for direct deposit.

Unauthorized Transactions

An unauthorized transaction is when there’s a transfer of funds from your account without your permission. This can happen through fraud, coercion, or mistake. Examples of unauthorized transactions include:

• Your debit card is stolen and used by the thief
• You are forced to make an ATM withdrawal
• Your financial institution makes a bookkeeping error affecting your account

Steps To Take if an Unauthorized Transaction Occurs

The convenience of electronic banking makes managing money easier. However, it also comes with risks, such as unauthorized transactions and errors. Here are some steps you can take to mitigate your risks:

1. Check your account balances on a regular basis. Report unauthorized transactions as soon as you discover them. Review your checking account, savings account, and other accounts often for suspicious withdrawals.
2. If you see an unauthorized transaction, call your bank or credit union to report it. The financial institution has 10 days to begin an investigation. It must provide the result to you within 10 days of the end of the investigation. The bank might temporarily credit you with the disputed funds during the investigation.
3. If your bank or credit union doesn’t follow these rules, you can file a complaint with the CFPB.

Also, remember to safeguard account information such as your account number, routing number, passwords, and PINs to minimize the risk of theft.

Get Help From a Lawyer

America does business in the 21st century via online banking, debit cards, and electronic fund transfers. Protecting your consumer account is important. If you don’t understand your account agreement, think your service provider has made a mistake, or notice an unauthorized transaction, an experienced consumer protection lawyer can help.