Consumer Law: Electronic Fund Transfers FAQ

Information courtesy of the Federal Reserve.

  • What laws apply to electronic fund transfers?

  • What are some examples of electronic fund transfer systems?

  • What record should I be provided with my transaction?

  • How do I correct an error?

  • What happens if I lose my ATM or other EFT card?

  • Can a financial institution set up an account and send me a card without my approval?

  • Can a creditor require that I use an EFT account?

  • How will I know when a preauthorized deposit has been made?

  • How do I stop a preauthorized payment?

  • If the payments I preauthorize vary in amount from month to month, how will I know how much will be transferred out of my account?

  • Do the EFT Act protections apply to all preauthorized plans?

  • What are the penalties if a creditor breaks the EFT Act?

    Q: What laws apply to electronic fund transfers?

    A: The Electronic Fund Transfer Act covers the use of the electronic fund transfer ("EFT") systems.

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    Q: What are some examples of electronic fund transfer ("EFT") systems?

    A: EFT systems include:

      Automated Teller Machines ("ATMs")

      Consumers can do their banking without the assistance of a teller, to get cash, make deposits, pay bills, or transfer funds from one account to another electronically. These machines are used with a debit or EFT card and a code, which is often called a personal identification number or "PIN."

      Point-of-Sale ("POS") Transactions

      Some debit or EFT cards (sometimes referred to as "check cards") can be used when shopping to allow the transfer of funds from the consumer's account to the merchant's. To pay for a purchase, the consumer presents an EFT card instead of a check or cash. Money is taken out of the consumer's account and put into the merchant's account electronically.

      Preauthorized Transfers

      This is a method of automatically depositing to or withdrawing funds from an individual's account, when the account holder authorizes the bank or a third party (such as an employer) to do so. For example, you can authorize direct electronic deposit of wages, social security, or dividend payments to your account. Or you can authorize financial institutions to make regular, ongoing payments of insurance, mortgage, utility or other bills.

      Telephone Transfers

      Consumers can transfer funds from one account to another - from savings to checking, for example - or can order payment of specific bills by phone.

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    Q: What record should I be provided with my transaction?

    A: If you use an ATM to withdraw money or make deposits, or a POS terminal to pay for a purchase, you can get a written receipt - much like a sales receipt you get with a cash purchase - showing the amount of the transfer, the date and other information. This receipt is your record of transfers initiated at an electronic terminal.

    Your periodic bank statement must also show electronic transfers to and from your account, including those made with debit cards, by a preauthorized arrangement or under a telephone transfer plan. The statement will also name the party to whom payment has been made and show any fees for EFT services (or the total amount charged for account maintenance) and your opening and closing balances.

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    Q: How do I correct an error?

    A: The way to report errors is somewhat different with EFT services than it is with credit cards. But as with credit cards, financial institutions must investigate and promptly correct any EFT errors that you report.

    If you believe there has been an error in an electronic fund transfer relating to your account:

    • Write or call your financial institution immediately if possible, but no later than 60 days from the date the first statement that you think shows an error was mailed to you
    • Give your name and account number and explain why you believe there is an error, what kind of error, and the dollar amount and date in question. If you call, you may be asked to send this information in writing within 10 business days.

    The financial institution must promptly investigate an error and resolve it within 45 days. For errors involving new accounts (opened in the last 30 days), POS transactions, and foreign transactions, the institution may take up to 90 days to investigate the error.

    If the financial institution takes longer than 10 business days to complete its investigation, generally it must put back into your account the amount in question while it finishes the investigation. For new accounts, the financial institution may take up to 20 business days to credit your account for the amount you think is in error.

    The financial institution must notify you of the results of its investigation. If there was an error, the institution must correct it promptly, for example, by making a recredit final. If it finds no error, the financial institution must explain in writing why it believes no error occurred and let you know that it has deducted any amount recredited during the investigation. You may ask for copies of documents relied on in the investigation.

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    Q: What happens if I lose my ATM or other EFT card?

    A: With lost or stolen credit cards, your loss is limited to $50 per card. On an EFT card, your liability for an unauthorized withdrawal can vary:
    • Your loss is limited to $50 if you notify the financial institution within two business days after learning of loss or theft of your card or code
    • You could lose as much as $500 if you don't tell the card issuer within two business days after learning of the loss or theft
    • If you don't report an unauthorized transfer that appears on your statement within 60 days after the statement is mailed to you, you risk unlimited loss on transfers made after the 60-day period. That means you could lose all the money in your account plus your maximum overdraft line of credit, if any.

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    Q: Can a financial institution set up an account and send me a card without my approval?

    A: A financial institution may send you an EFT card that is valid for use only if you ask for one, or to replace or renew an expiring card. The financial institution must also give you the following information about your rights and responsibilities:
    • A notice of your liability in case the card is lost or stolen
    • A telephone number for reporting loss or theft of the card or an unauthorized transfer
    • A description of its error resolution procedures
    • The kinds of electronic fund transfers you may make, and any limits on the frequency or dollar amounts of such transfers
    • Any charge by the institution for using EFT services
    • Your right to receive records of electronic fund transfers
    • How to stop payment of a pre-authorized transfer
    • The financial institution's liability to you for any failure to make or to stop transfers and
    • The conditions under which a financial institution will give information to third parties about your account

    Generally, you must also get advance notice of any change in the account that would increase your costs or liability, or would limit transfers. A financial institution may send you a card that you did not request only if the card is not valid for use.

    An unsolicited card can be validated only at your request and only after the institution makes sure that you're the person whose name is on the card. It must also be sent with instructions on how to dispose of an unwanted card.

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    Q: Can a creditor require that I use an EFT account?

    A: The EFT Act forbids a creditor from requiring you to repay a loan or other credit by EFT, except in the case of overdraft checking plans. With some exceptions, your employer or a government agency can require you to receive your salary or a government benefit by electronic transfer. However, you have the right to choose the financial institution that will receive your funds.

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    Q: How will I know that a preauthorized deposit has been made?

    A: There are various ways in which you may be notified. Notice may be given by your employer (or whoever is sending the funds) that the deposit has been sent to your financial institution. Otherwise, a financial institution may provide notice when it has received the credit or will send you a notice only when it has not received the funds. Financial institutions also have the option of giving you a telephone number you can call to check on a preauthorized deposit.

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    Q: How do I stop a preauthorized payment?

    A: You may stop any preauthorized payment by calling or writing the financial institution, but your order must be received at least three business days before the payment date. Written confirmation of a telephone notice to stop payment may be required.

    You should also contact the merchant or organization you authorized to debit your account.

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    Q: If the payments I preauthorize vary in amount from month to month, how will I know how much will be transferred out of my account?

    A: You have the right to be notified of all varying payments at least 10 days in advance. Or you may choose to specify a range of amounts and to be told only when a transfer falls outside that range. You may also choose to be told only when a transfer differs by a certain amount from the previous payment to the same company.

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    Q: Do the EFT Act protections apply to all preauthorized plans?

    A: No. They don't apply to automatic transfers from your account to the institution that holds your account, or vice versa. For example, they don't apply to automatic payments made on a mortgage held by the financial institution where you have your EFT account. The EFT Act also doesn't apply to automatic transfers among your accounts at one financial institution.

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    Q: What are the penalties if a creditor breaks the EFT Act?

    A: If a financial institution doesn't follow the provisions of the EFT Act, you may sue for actual damages (or in certain cases when the institution fails to correct an error or recredit an account, for three times actual damages), plus punitive damages of not less than $100 or more than $1,000. You're also entitled to court costs and attorney's fees in a successful lawsuit. Class action suits are also permitted.

    If an institution fails to make an electronic fund transfer or to stop payment of a preauthorized transfer when properly instructed by you to do so, you may sue for all damages that result.

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    Information courtesy of the Federal Reserve.
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