What is the ELECTRONIC FUNDS TRANSFER ACT ?
In 1979, the Electronic Fund Transfer Act (EFTA), also known as Regulation E, was implemented to protect consumers when they use electronic means to manage their finances.
Electronic fund transfers are defined as transactions that use computers, phones or magnetic strips to authorize a financial institution to credit or debit a customer’s account.
This includes the use of ATMs, debit cards, direct deposits, point of sale transactions, transfers initiated by phones and pre-authorized withdrawals from checking or savings accounts. Consumers typically use a card or pin number to initiate transfers from one account to another.
The EFTA allows consumers to challenge errors and have them corrected within a 45-day period with limited financial penalties. When errors occur, EFTA outlines requirements for banking institutions and consumers to follow. It also requires banks to provide certain information to consumers and defines how consumers can limit liability in the case of a lost or stolen card.
Starting April 2019, the Consumer Financial Protection Bureau will enforce its Prepaid Accounts Rule that will clear up some complications of the EFTA with digital wallets. The rule will ensure that consumers receive full credit card protection, while making it easier to link those accounts to digital wallets that can store funds. .
Industry analysts said the value of prepaid reloadable cards has grown from just over $1 billion in 2003 to $65 billion in 2012 and is expected to reach $116 billion by 2020.
More than half the states in the United States have their own provisions regarding Regulation E, but in virtually every instance where there is conflict, the federal law takes precedent over state laws.
Types of Electronic Fund Transfers
Financial institutions offer a variety of services to make electronic banking more convenient.
The six most basic services that are protected under the EFTA are as follows:
- ATM – enables virtually 24-hour access to make withdrawals or deposits. If the ATM is owned or operated by an institution other than your bank, you may be charged a fee. This charge must be disclosed at the time of transfer.
- Direct Deposit– offered by most banks; allows you to preauthorize deposits (e.g. payroll checks or government benefits) or recurring bill payments (e.g. mortgages, insurance payments or utility bills). You have the right to stop preauthorized transfers at any given time, regardless of any opposing contract terms. To stop future automatic payments, notify your bank at least three days before the next scheduled transfer.
- Pay-by-Phone– enables you to instruct and authorize your financial institution to make payments or transfer funds via telephone. Banks are required to confirm your identity by asking account-specific questions.
- Internet– allows you to access your accounts through financial institutions’ web portals, enabling account monitoring, transfers and online bill payment.
- Debit Card– issued by financial institutions; allows consumers to make purchases online or at a retail store or business. This does not include gift cards, store-value cards, credit cards and prepaid phone cards, which are excluded from the EFTA.
- Electronic Check Conversion– enables a business to convert a paper check into an electronic payment by scanning the check and capturing the bank name, address, account number and routing number. After the paper check is scanned into an electronic payment, it becomes null and void.