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What is the Electronic Fund Transfer Act?

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The Electronic Fund Transfer Act (EFTA) is a federal law in the U.S. that regulates electronic transactions to protect consumers.

The EFTA covers transactions that occur via EFT, including those that use mag stripes, phones, or computers during the authorization process. This means electronic transfers that involve phone, ATM, debit card, Automated Clearing House (ACH), point of sale (POS), and direct deposit transactions are protected. The EFTA offers a way to fix transaction errors and limits consumer liability for lost or stolen cards among other protections.

The Electronic Fund Transfer Act (EFTA) includes guidelines and requirements for consumers and financial institutions to resolve errors. For consumers, there is an option to challenge and fix errors without being financially penalized. The act also mandates that banks must provide specific information to consumers that outlines how to limit liability if their card is lost or stolen.

With the decline of paper checks in favor of the more popular electronic transfer option, consumers needed assurance that their money would still be secure. This prompted the creation of new rules that would allow consumers to confidently use electronic fund transfer methods, even without the benefit of a “paper trail” that traditional checks offered.

In the case of debit cards, consumers can challenge and correct errors within a 60-day timeframe. It also limits lost card liability to $50 as long as the card is reported as lost within two business days. If a consumer waits until between day three and 59, they may be liable for up to $500, and beyond 60 days, they aren’t protected from liability at all. At that point, the consumer may forfeit all money in the account tied to the card and also be responsible for any overdraft fees imposed.

What Do Service Providers Need to Know About the Electronic Fund Transfer Act (EFTA)?

The Electronic Fund Transfer Act (EFTA) lists several requirements for service providers, including third-party providers and financial institutions that use EFT services. These parties must disclose certain information to consumers, including:

  • A summary of what consumers may be liable for related to unauthorized transactions and transfers.
  • Who to notify when an unauthorized transaction occurs and how to file a claim.
  • Which transfer types are allowed and any associated fees and limitations.
  • A summary of the consumer’s rights, which includes receiving periodic statements and purchase receipts.
  • A summary of the institution’s liability to the consumer if it fails to stop or process certain transactions.
  • How, when, and why an institution might share a consumer’s account and account activity information with a third-party.
  • Guidance on how to report errors and request additional information, as well as the timeframe in which reports must be filed.

As payment methods continue to evolve, more types of transactions will inherently fall under EFTA guidance. One example is person-to-person (P2P) payments, where a person sends money to another person electronically. So long as a P2P payment meets the definition of an EFT, the consumer is protected under the EFTA.

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