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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.
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.