Electronic Fund Transfer Act (EFTA)

What Is the Electronic Fund Transfer Act (EFTA)?

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, automated teller machines (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) protects consumers when transferring funds electronically.
  • The EFTA was enacted in 1978 as a result of the increased use of ATMs.
  • Protection under the EFTA includes transfers made 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. Electronic transfers include the use of ATMs, debit cards, direct deposits, point-of-sale (POS) transactions, transfers initiated by phone, automated clearing house (ACH) systems, and pre-authorized withdrawals from checking or savings accounts.

The EFTA outlines requirements for banking institutions and consumers to follow when errors occur. Under this act, consumers can challenge errors, have them corrected, and receive limited financial penalties. The EFTA also requires banks to provide certain information to consumers and defines how they can limit their liability in the case of a lost or stolen card.

The use of paper checks has steadily declined since the EFTA was passed, but checks continue to serve as hard evidence of payment. The explosion of electronic financial transactions created a need for new rules that would give consumers the same level of confidence as they have in the checking system. This includes the ability to challenge errors, correct them within a 60-day window, and limit liability on a lost card to $50 if it is reported as lost within two business days.

If the institution is notified within three to 59 days of a lost card, the liability could be as much as $500. And should it not be reported within 60 days, the consumer isn't protected from liability at all, meaning they could forfeit all funds in the associated account, and be responsible for paying any overdraft charges.

History of the Electronic Fund Transfer Act (EFTA)

Congress passed the EFTA in 1978 in response to the growth of ATMs and electronic banking, and the Federal Reserve Board (FRB) implemented it as Regulation E. The act established rules to protect consumers and defined the rights and responsibilities of all participants involved in transferring funds electronically.

The rule-making authority of the EFTA eventually migrated from the Federal Reserve (Fed) to the Consumer Financial Protection Bureau (CFPB) in 2011, following the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Gift cards, stored-value cards, credit cards, and prepaid phone cards are excluded from the EFTA.

Services Protected Under the Electronic Fund Transfer Act (EFTA)

Basic services that are protected under the EFTA include:

  • ATMs: The EFTA authorizes 24-hour access to ATMs.
  • Direct Deposit: Most banks offer direct deposit, which allows you to pre-authorize deposits, including payroll checks and government benefits, and recurring bill payments, such as mortgages, insurance payments, or utility bills.
  • Pay-by-Phone: You may authorize your financial institution to make payments or transfer funds via telephone. Banks are required to confirm your identity by asking account-specific questions.
  • Internet: You can access your accounts via financial institutions’ online portals to monitor activity, check balances, transfer funds, and pay bills.
  • Debit Card: Debit cards issued by financial institutions let consumers make purchases online or at a retail store or business.
  • Electronic Check Conversion: This feature enables a business to convert a paper check into an electronic payment by scanning the check and capturing the bank name, address, account number, and routing number. After the paper check is scanned into an electronic payment, it becomes null and void.

You have the right to stop preauthorized transfers at any time, regardless of any opposing contract terms.

Electronic Fund Transfer Act (EFTA) Requirements for Service Providers

The EFTA requires financial institutions and any third party involved in electronic fund transfer services to disclose the following information to consumers:

  • A summary of liability regarding unauthorized transactions and transfers
  • Contact information for the person(s) who should be notified in the event of an unauthorized transaction, along with the procedure to report and file a claim
  • The types of transfers you can make, any fees associated with them, and any limitations that might exist
  • A summary of your rights, including the right to receive periodic statements and POS purchase receipts
  • A summary of the institution’s liability to you if it fails to make or stop certain transactions
  • The circumstances under which an institution will share information with a third party concerning your account and account activities
  • A notice describing how to report an error, request more information, and the amount of time within which you must file your report

Who Does the EFTA Apply To?

EFTA applies to all persons, including offices of foreign financial institutions in the United States that offer EFT services to residents of any state. It covers any account located in the United States through which EFTs are offered to a resident of a state, no matter where a particular transfer occurs.

Does EFTA Require Withdrawal Limits?

Yes. The EFTA requires banks to limit the amount of money that can be withdrawn from your account during any given time period. Most banks set the limit at $200 or $300 each day, meaning you cannot electronically withdraw more than this amount in cash within a 24-hour period.

Does EFTA Cover Lost Cards?

Yes, but its protections are limited. EFTA limits your liability for spending on a lost or stolen card to $50 only if you notify the bank or credit union within two business days of your debit card being lost or stolen. For this and other reasons (the right to dispute undelivered purchases, for example), consumers who shop online should use a credit card.

The Bottom Line

The Electronic Fund Transfer Act (EFTA) is a federal law that was passed in 1978. It provides important protections to consumers when they transfer funds electronically, including through the use of debit cards, automated teller machines (ATMs), and automatic withdrawals from a bank account. The EFTA provides a way for transactions to be reviewed, and errors to be corrected. It also limits a bank's liability if a card is lost or stolen, as long as this is reported within 60 days.

The EFTA also imposes responsibilities on financial institutions, requiring them to disclose important information about the way that they manage accounts.

Article Sources

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  1. Consumer Financial Protection Bureau. “§ 1005.3 Coverage.”

  2. Consumer Financial Protection Bureau. “Electronic Fund Transfers (Regulation E); Amendments.”

  3. Consumer Financial Protection Bureau. “§ 1005.11 Procedures for Resolving Errors.”

  4. Consumer Financial Protection Bureau. “§ 1005.31 Disclosures.”

  5. FDIC. "Laws and Regulations: EFTA."

  6. Consumer Action. "What Is the Electronic Fund Transfer Act and How Does It Protect Me?"

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