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.

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 clearinghouse (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 reported within 60 days, the consumer isn't protected from liability at all, meaning it 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 rulemaking 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:

You have the right to stop pre-authorized 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: