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What is the Electronic Funds Transfer Act?

The Electronic Funds Transfer Act (EFTA) is a U.S. law that protects consumers when they transfer funds electronically, including ATM withdrawals, debit card transactions, and direct deposits. It ensures users' rights, outlines responsibilities of financial institutions, and sets procedures for resolving errors. Wondering how it impacts your digital transactions? Discover the safeguards EFTA establishes for your financial security.
Mary Elizabeth
Mary Elizabeth
Mary Elizabeth
Mary Elizabeth

The Electronic Funds Transfer Act, also known as the EFT Act or Regulation E, is a piece of 1978 United States legislation aimed at clarifying the rights and liabilities of those involved in the transfer of electronic funds, including consumers. It was passed by Congress with the expressed purpose of clarifying rights and liabilities that were determined to be unclear under the consumer protection legislation that was in force at the time. Thus, although the rights and liabilities of all who transfer electronic funds are touched on, protection of the rights of individual consumers was the focus of the Electronic Funds Transfer Act.

Within the EFT Act, transactions that are originated with a check, a draft, or any other type of paper instrument are not considered. Instead, the focus is on transactions that originate through a telephonic device, an electronic terminal, or a computer or magnetic tape; for example, an automated teller machine (ATM) transaction, a point-of-sale transfer, a telephone transfer, or a direct deposit or withdrawal. The type of transaction considered is one that authorizes, instructs, or orders a financial institution to credit or debit an account.

Man with hands on his hips
Man with hands on his hips

Some of the mandates of the Electronic Funds Transfer Act are of clear benefit to the consumer. For example, the notice requirements state that any fees associated with a transaction must be prominently and conspicuously displayed on or by an automated teller machine prior to the moment at which the consumer makes an irrevocable commitment to completing the transaction. Any fees not disclosed in this manner are prohibited.

For electronic fund transfers in which a consumer’s account is involved, the EFT Act states that the terms and conditions must be disclosed to the consumer when the service is contracted. In addition, the disclosures must be written in comprehensible language and include information such as contact information in the event of an unauthorized fund transfer, the right to stop payment on a preauthorized electronic fund transfer and how to do this, and charges for electronic fund transfer services. Any change in terms by the consumer’s financial institution must be conveyed to the consumer in writing a minimum of 21 days prior to the effective date of the change. Financial institutions are also required to document electronic fund transfers for consumers with periodic statements. The statements must include fees and consumer’s balances at the beginning and end of the period in question.

Preauthorization of electronic fund transfers from a consumer’s account may only be authorized by a consumer in writing, according to the Electronic Funds Transfer Act. The consumer may stop payment on a preauthorized electronic fund transfer either orally or in writing. The limitation is that notification of a stop must be provided at least three business days prior to the date on which the transfer is scheduled. The financial institution may require a confirming written authorization following upon an oral notification, in which case it must inform the consumer of the requirement and where to send the written notification in order to comply with it.

The Electronic Funds Transfer Act also provides a protocol for error resolution and limits the liability of consumers for unauthorized transfers. It clarifies the liability of financial institutions in the case in which they fail to make properly set-up electron funds transfers without an extenuating reason or through failure to credit a deposit, or failure to stop payment when properly requested to do so. It also details situations, such as acts of God, in which the financial institution is not liable.

Frequently Asked Questions

What is the Electronic Funds Transfer Act (EFTA)?

The Electronic Funds Transfer Act, established in 1978, is a federal law that protects consumers when they transfer funds electronically, including ATM withdrawals, direct deposits, and debit card transactions. It provides guidelines for transaction processing and outlines the rights and responsibilities of both parties involved in electronic transfers. The EFTA ensures consumers have recourse in case of errors, unauthorized transactions, or other issues related to electronic fund transfers.

How does the EFTA protect consumers?

The EFTA offers several protections to consumers. It requires financial institutions to provide certain disclosures about fees and the consumer's rights and responsibilities. In the event of unauthorized transactions, the EFTA limits consumer liability to $50 if the financial institution is notified within two business days. Additionally, it mandates a resolution process for transaction errors and provides consumers the right to receive periodic statements for their accounts involving electronic fund transfers.

What should I do if I notice an unauthorized electronic fund transfer?

If you detect an unauthorized electronic fund transfer, you should immediately contact your financial institution. According to the EFTA, you have up to two business days after learning of the loss or theft to report it and limit your liability to $50. If you report the unauthorized transfer within 60 days of your statement being sent to you, your liability may be up to $500. Delayed reporting could result in unlimited loss; therefore, prompt action is crucial.

Are there any types of electronic transfers that are not covered by the EFTA?

While the EFTA covers a wide range of electronic fund transfers, there are exceptions. For example, business-to-business transactions, wire transfers processed by financial institutions that are not through regular consumer payment channels, and certain securities and commodities transfers are not covered by the EFTA. It primarily focuses on consumer transactions intended for personal, family, or household purposes.

How do I file a complaint if my financial institution violates the EFTA?

If you believe your financial institution has violated the EFTA, you can file a complaint with the Consumer Financial Protection Bureau (CFPB) by visiting their website or calling their toll-free number. The CFPB is responsible for enforcing the EFTA and can assist you in resolving issues with your financial institution. Additionally, you may have the right to sue for damages if the financial institution fails to comply with the EFTA's requirements.

Mary Elizabeth
Mary Elizabeth

Mary Elizabeth is passionate about reading, writing, and research, and has a penchant for correcting misinformation on the Internet. In addition to contributing articles to UnitedStatesNow about art, literature, and music, Mary Elizabeth is a teacher, composer, and author. She has a B.A. from the University of Chicago’s writing program and an M.A. from the University of Vermont, and she has written books, study guides, and teacher materials on language and literature, as well as music composition content for Sibelius Software.

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Mary Elizabeth
Mary Elizabeth

Mary Elizabeth is passionate about reading, writing, and research, and has a penchant for correcting misinformation on the Internet. In addition to contributing articles to UnitedStatesNow about art, literature, and music, Mary Elizabeth is a teacher, composer, and author. She has a B.A. from the University of Chicago’s writing program and an M.A. from the University of Vermont, and she has written books, study guides, and teacher materials on language and literature, as well as music composition content for Sibelius Software.

Learn more...

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Discussion Comments

CoffeeJim

The most significant impact of electronic funds transfer system has on our daily lives is the use of debit cards by credit institutions.

Most people do not realize it, but their use of a debit card is considered electronic funds transfer.

Because of this, electronic funds transfer act of 1978, covers you as an individual and dealing with banks and the debit card use that they desired their consumers have. Luckily the electronic funds transfer act of 1978 provides security and stability for consumers that are wishing to use the services of bank organizations.

FrogFriend

Both of the comments on this article have very valid points about the security of electronic funds transfers as well as the balance and restrictions that the safety we desire on these transfers causes.

I personally do not want terrorists capable of transferring money from or to the United States or any country for that matter. But that doesn't mean I want regulation so straight from my bank that I am incapable of but what about my daily financial business.

It is obvious to me that the means in which we have available to our security professionals in identifying individuals as security threats is still inadequate to protect us from the harm of terrorism.

With that thought, one must realize that we as individuals have a duty to help our nation as well.

Burlap

@youbiKan, while I agree with your analysis of the subject on safety of electronic funds transfer, I have to disagree with the increase of security measures.

At what point are we going to decide that the security we want is starting to infringe on the ability for us to be happy and exercise our freedom in this nation.

How much information is too much information to to ask when identifying an individual that is wishing to complete electronic funds transfer at a banking organization.

Other requirements so strict that it actually discourages people from making an electronic funds transfer and are we harming our economy and commerce because of the strict regulations.

youbiKan

In the day an age of terrorism and the fear that we now face in American society the regulation of electronic funds transfers is critical. while the regulations that were passed in 1978 by the United States Congress are very stringent and definitely provided some surety to customers of banks that provide electronic funds transfer, there is still in need for more regulations in the banking industry.

Some electronic funds transfers have become more difficult based on the geographical locations that they are taking place. This still means that we must identify the individuals or organizations that are wishing to transfer funds between banks by evaluating these parties and all, we are able to identify security risks that can happen.

The security of funds transfer is critical to protecting our society from the misuse of funds to purchase any type of weapon systems or harmful materials that will end up causing innocent life to be lost.

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