What is the Electronic Funds Transfer Act?

The Electronic Funds Transfer Act (EFTA) was passed with the purpose of regulating the practice of transferring funds electronically. More specifically, the EFTA applies to electronic transfers of money between two separate institutions. It does not apply to automatic account transfers within the same financial institution. The EFTA is administered by the Federal Reserve Board.

Example: The EFTA does not apply to an automatic monthly account deduction to be deposited into the consumers saving account in that same financial institution. It does not apply to automatic transfers from accounts held by a financial institution to a consumers account with that institution, such as where there is an automatic payment for a mortgage held by Big Bank from the consumers bank account at Big Bank. Rather, it does not apply to cards with a stated value on the face of the card, such as gift cards.

What are the Consumer Protections of the EFTA?

The EFTA protects a consumer for lost, stolen, or misused debit cards. These protections are similar to the protection afforded under the FCBA. Responsibility for loss in such situations is allocated between the transferring financial institution and the consumer. A consumers liability in such a case is limited to $50 if the consumer follows the appropriate procedure. The consumer must report the misuse of a debit card within 2 days of learning of the misuse. If the consumer fails to report a misuse within 2 days of learning of it, her potential liability moves up to $500. If she fails to report a misuse for more than 60 days, the EFTA does not place any limits on the consumers responsibility for losses. The EFTA prohibits creditors from requiring that a consumer repay a debt via electronic funds transfer. Lastly, any state law or contract that subjects a customer to greater liability than that mention above is preempted by the EFTA.

Note: The EFTA does not give the consumer the right to stop payment on an electronic transfer.

What are the Responsibilities of Financial Institution under the EFTA?

If a consumers card is lost or stolen, the financial institution must provide her with notice of her potential liability. It must also provide a method for reporting the lost or stolen card and provide instructions on resolving the issue. If a consumer reports an erroneous fund transfer, the financial institution must investigate the error and resolve it within 45 days (or 90 days in limited circumstances). If the financial institution takes more than 10 days (20 days for new accounts) to complete the investigation into the transfer error, it must re-credit the customers account for the amount in question. In any event, the financial institution must notify the customer of the results of investigation. If there is a confirmed error, the financial institution must correct it or make re-credit to the consumers account final. If there is no error, the financial institution must explain in writing the reason or justification for the transfer. It must also notify the customer that any temporary re-credit to the customers account will be deducted from the account. Note: The customer has the right to ask for copies of any documents relied upon in the investigation.

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