Electronic Funds Transfer Act: How Your Money is Protected
Last Updated: December 26, 2017
As much as electronic funds transfers have simplified your ability to pay bills and receive money, they lack an essential built-in benefit of paper checks — documentation. Thus, the importance of the Electronic Funds Transfer Act, a 1978 law that requires not only individual receipts for each transfer made, but also periodic statements and disclosures. Errors can be costly – not only to your bank account, but also your credit — so make sure you know your rights.
Electronic funds transfer, defined
It’s pretty much exactly what it sounds like. An electronic funds transfer is the electronic movement of money (i.e., data as opposed to paper). These types of money transfers come with consumer protections covered by the Electronic Funds Transfer Act, including:
- In-store or online purchases made with a debit card
- Cash withdrawals made from an ATM with a debit card
- Direct deposits into your bank account
- Direct debits from your bank account
- Electronic checks
- Transfers initiated over the phone
Intentionally omitted from this list are prepaid cards, gift certificates, and store gift cards. Though use of these are technically electronic funds transfers, they are treated differently under the Electronic Funds Transfer Act (see the last section of this article).
When you use an electronic funds transfer account or service (e.g., debit card, ATM card, etc.), the Electronic Funds Transfer Act says that the providing financial institution is required to disclose the following to you:
- Type and nature of transfers you can make
- Your liability for unauthorized transfers
- Contact information you are to use if you believe an unauthorized transfer is made
- How much you will be charged for transfers
- Your right to stop payment on preauthorized transfers
- Your right to receive records documenting transfers
- Summary of how to resolve errors
- The financial institution’s liability to you
- When the financial institution can share your account information with third parties
- Statement that a fee may be charged to you for using an ATM that doesn’t belong to the financial institution, as well as a fee for “any national, regional, or local network utilized to effect the transaction”
Once you already have the account, the financial institution must provide you with 21-day notice of changes to terms and conditions that will increase your cost or liability.
For every electronic transfer you make with your account, the financial institution must provide you with documentation that includes:
- Date of the transfer
- Type of transfer
- How much was transferred
- Identity of your account
- Identity of the financial institution
- Identity of the third-party funds are transferred to or from
- Where the electronic terminal used for the transfer is located
Notices regarding preauthorized transfers
If you have a scheduled preauthorized transfer — “from the same payor at least once in each successive sixty-day period, except where the payor provides positive notice of the transfer to the consumer” — the financial institution must let you know when the transfer is made or, conversely, if it was not made as scheduled.
In addition to the documentation (i.e., receipts) required for each individual transfer, financial institutions are required to provide you with periodic statements, including:
- Breakdown of every transfer made during this period
- How much transfers cost you during this period
- How much you had in the account when the period began
- How much you had in the account when the period ended
- Contact information you are to use if you see an error on the statement
As for frequency, these periodic statements “shall be provided at least monthly for each monthly or shorter cycle in which an electronic fund transfer affecting the account has occurred, or every three months, whichever is more frequent.”
Note, the provision of documentation varies for consumer passbook accounts.
If you want to preauthorize a transfer, you must do so in writing. If you want to cancel a preauthorized transfer, your written or oral cancellation must be provided within 3 business days of the scheduled transfer date. Note, financial institutions can require subsequent written instruction be provided within 2 weeks of an oral notification.
As for recurring preauthorized transfers, if the amount varies each time, you must be given “reasonable advance notice” of the amount before the transfer is made.
Dealing with errors
Should a receipt or periodic statement alert you to an error, you need to notify the financial institution immediately so they can investigate.
As outlined in the Electronic Funds Transfer Act, examples of errors include:
- Unauthorized transfers
- Incorrect transfers
- Missing transfers from periodic statements
- Mathematical errors made by the financial institution
- Incorrect amount of money received from an electronic terminal
To initiate an investigation, you must notify the financial institution — orally or in writing — within 60 days of the date on the documentation that reveals the error.
This notification should include:
- Your name and account number
- Identification of the error
- Why you believe it is an error
We recommend that you send it in writing, via certified mail, with return receipt. This way you can have proof of the date it was received — an important record to keep as they only have 10 business days from the receipt of your letter to complete their investigation. This time period extends to 45 business days if the financial institution recredits your account the amount in question (within 10 business days of the receipt of your dispute) pending completion of the investigation.
Regardless, if the investigation determines that there was, in fact, an error, the financial institution is responsible for correcting it within 1 business day of making that determination. Conversely, if they find that no error was made, the financial institution must notify you of such within 3 business of its investigation being complete.
If an unauthorized transfer is made, your liability shall not “exceed the lesser of $50 or the amount of money or value of property or services obtained in such unauthorized electronic fund transfer prior to the time the financial institution is notified of, or otherwise becomes aware of, circumstances which lead to the reasonable belief that an unauthorized electronic fund transfer involving the consumer's account has been or may be effected.”
Financial institution liability
Generally, a financial institution is liable “[if they fail] to make an authorized transaction, in accordance with the terms and conditions of an account, in the correct amount or in a timely manner when properly instructed to do so by the consumer.”
However, a financial institution will not be held liable if the transfer was not made due to:
- Insufficient funds in the account
- Insufficient funds in the electronic terminal
- The transfer being greater than a credit limit
- Funds being subject to legal process
- An act of God
- A technical malfunction
Prepaid cards, gift certificates, and store gift cards
Again, prepaid cards, gift certificates, and store gift cards do not come with same Electronic Funds Transfer Act protections as other electronic funds transfers outlined above.
As the FTC explains:
“These ‘stored-value’ cards, as well as transactions using them, may not be covered by the EFT Act, or they may be subject to different rules under the EFT Act. This means you may not be covered for the loss or misuse of the card. Ask your financial institution or merchant about any protections offered for these cards.”
That said, the Electronic Funds Transfer Act does say that prepaid cards, gift certificates, and store gift cards must conspicuously state:
- That an inactivity, dormancy, or service fee may be charged
- How much that charge would be
- When that charge would be assessed
Also, prepaid cards, gift certificates, and store gift cards need not include an expiration date, but if they do, the date cannot be less than 5 years from the date of purchase (or loading of money onto a card).
Want to know more about your electronic funds transfer rights?
Check out the Electronic Funds Transfer Act in its entirety for details and exceptions.