Electronic funds transfer act

The electronic funds transfer act is part of the consumer credit protection act. With the rights of the individual consumer in mind this act was put in place to establish a basic outline of the rights, responsibilities and liability of those involved in the use of this electronic funds transfer system including the financial institutions providing this service and the intermediaries involved.

Congress had seen the benefits to the consumer in this system but conversely saw legislation in this area as vague and undefined.

An electronic funds transfer is defined as a transfer of funds initiated by means other than by paper instrument and typically through the means of an electronic terminal, telephone, computer or magnetic tape in order to direct a financial institution to debit or credit an account.

Some of the typical transactions in an electronic funds transfer are;

point of sale transfers,( POS)

automated teller machine transactions (ATM)

direct deposits or withdrawal of funds

transfers initiated by telephone

Point of sale being the store or business that the debit occurred at.

Types of transfers it does not cover

The electronic funds transfer act deals primarily with electronic funds transfers that are of a consumer nature and not private matters.

 Ie: If you are a customer at a bank with electronic banking and you happen to have many accounts at this establishment. You find yourself close to over drafting your checking account. You decide to transfer funds from your savings to cover overdrafts on your checking.

THESE kinds of transfers are not covered in this act. Along with those made to a broker in the instance of buying securities( stocks and mutual funds).

One of the main issues the electronic funds transfer act deals with is in the area of unauthorized electronic fund transfers.

An unauthorized electronic funds transfer is defined as a transfer that is initiated by someone other than the consumer without any actual authority to do so or the consumer receives no benefit.

This does not include those who have been furnished the means of doing so by proper documentation UNLESS the consumer has notified the institution that such transfers are no longer authorized.

Additionally any consumer initiating an electronic funds transfer with fraudulent intent cannot call that transfer an unauthorized transfer.

AND one considered to be a financial institutions error cannot be considered unauthorized (though should be expected to be corrected in full including fees charged returned to the consumer)


ATM's (automated teller machines)

Any automated teller machine operator whom imposes fees on the consumer for use of their host services must provide notice of those fees at the time of the service and the amount of the fee for the service.

This notice required of the electronic funds transfer act must be posted in a prominent and conspicuous place on or at the machine. It must also be posted on the screen or issued on paper by the machine after the transaction but before the transaction can be irrevocably changed.


In other types of transactions the terms and conditions of electronic funds transfers act involving a consumer’s account shall be disclosed at the time the consumer contracts for an electronic funds transfer service, these would be the types with a financial institution directly involving an account with that institution.

The notices required in the electronic funds transfer act are:

  • the consumers liability for unauthorized transfers

  • the telephone address or office of the person to be notified in the case of unauthorized transfers

  • the type and nature of the electronic funds transfers the consumer may make with that institution, including any limitations imposed on the transactions such as frequency or dollar limits

  • any charges that will incur to make the transfer

  • the right to stop payment of a preauthorized agreement and procedure for doing so

  • the right to receive documentation of the electronic fund transfers

  • a summary of Error Resolution Provisions and the consumers rights thereunder

  • the financial institution's liability to the consumer

  • privacy notices about what kind of information about the consumer the institution will share with others during the normal course of business

  • notices to the consumer that a fee may be impose by an ATM from that bank or other machines that the consumer may use connected by a shared network of use and notice of changes to that fee

The financial institution has 21 days to inform a consumer prior to any changes made in terms or fees connected to the electronic funds transfer when the changes result from greater cost or liability for such consumer or decreased access to the consumer’s account.

There is no need for prior notice for changes that are made to increase security for the electronic funds transfer system or the consumers account.


For each transaction made the electronic funds transfer act requires the institution to provide written documentation either directly or indirectly (online statement) and must include

  • the amount and date the transfer occurred
  • the type of transfer
  • the identity of the consumers account with the financial institution making the transfer of funds
  • the identity of the third party to whom the funds are transferred to
  • location or identification of any electronic terminal involved

For a notice of any credit to account of consumer:

This is by way of a preauthorized electronic funds transfer that results in a credit to the consumer's account from the same payor at least once in every 60 days. The institution will make notice of either a positive credit or negative in the case that the preauthorized amount was not made according to scedule.

The Electronic funds transfer act calls for periodic statements to be made by the institution of the account affected by the electronic funds transfer. They must be made monthly unless the schedule of transfer occurs less often than that schedule.

The statement must include the same information as above, fees assessed during the period and account maintenance fees, the beginning and ending balance of account, the address and number used by institution for account inquiries and errors.

Passbook savings accounts can only be accessed by a preauthorized agreement to credit the account and the statement can be in the form of when the consumer presents the passbook and has it updated.

Preauthorized electronic funds transfers must be initiated in writing by the consumer and the consumer is to be furnished with a copy of that agreement. Most common types are an application accompanied with a voided check (such as in an insurance application) or when the numbers of a debit card are used.

According to the electronic funds transfer act the payment can be stopped anytime up to 3 days before the payment is due to be taken from the account.

This can be done orally or written to the financial institution involved. There may be an obligation to follow an oral notification with a written one within 14 days of the notice. (If you walk into your bank and orally alert them to your wanting to end authorization they will probably make you follow it up then and there with official forms to sign)

Resolving Errors of the Electronic Funds Transfer

Generally you have 60 days in which to find errors on accounts. The institution must verify the name and number of the account in error and then investigate.

Within 10 days the institution must verify that an error occurred and the results and determination of their investigation. Just as with a preauthorization on an account if the error was verbally announced then it must be followed with a written documentation.

If a determination that an error did occur then the error will be corrected promptly and no more than one business day after the determination.

There is also a provisional re-credit of an account that can occur which is the institution re-crediting an account while it investigates the alleged error this may include applicable interest and is to be re-credited within 10 days. The investigation must be completed in 45 days after receiving notice of an error and the consumer shall have full use of the funds re-credited.

In the instance that the financial institution determines that an error did not occur it will mail the consumer the result of their findings within 3 days of the investigation.

The Electronic funds transfer act calls for treble (treble meaning 3 times the amount) damages for any institution willfully and knowingly violates these rules:

  • the institution did not provisionally recredit the account within the 10 day period
  • did not make a good faith investigation of the alleged error
  • did not have a reasonable basis for believing the account was not in error
  • in short made an assessment knowing and willfully that the account was not in error though the evidence in hand could not reasonably offer that conclusion

List of acts constituted as an error by the electronic funds transfer act

    unauthorized electronic funds transfer

    an incorrect amount on an electronic funds transfer to or from the consumer account

    an omission of an electronic funds transfer from a consumer's account or periodic statement

    a computational error by the financial institution

    the receipt of an incorrect amount by an electronic terminal

    a consumers request for additional information or clarification concerning an electronic funds transfer

Liability of the Consumer of the Electronic Funds Transfer Act

The consumer will be liable for an unauthorized fund transfer if the access to that account was provided by the consumer by means of a card, code or other means that identifies the consumer as the person authorized to provide that means and supplemented by a signature, finger print, photo or by electronic or mechanical confirmation.

However the liability will not exceed the lessor of


the amount of money or value of property or services obtained in such unauthorized electronic funds transfer

Burden of Proof of electronic funds transfer act

In any action which involves a consumer’s liability for an unauthorized electronic funds transfer, electronic funds transfer act puts the burden of proof upon the financial institution to show that the electronic funds transfer was authorized or, if the electronic funds transfer was unauthorized. Then the burden of proof is upon the financial institution to establish that the conditions of liability have been met, and, that the disclosures required to be made to the consumer under section 1693c (a)(1) and (2) of this title were in fact made in accordance with such section.

Liability of a financial institution in the Electronic funds transfer act Action or failure to act proximately (immediately) causing damages

  • 1. failure by the financial institution to make an electronic funds transfer in correct amount or timely manner when directed to do so by the consumer (except in the case of insufficient funds, exceeding a credit limit, a legal process restricting the transfer, or a terminal has insufficient cash to complete the transaction)
  • 2. the financial institution failed to make the electronic funds transfer due to insufficient funds YET failed to credit an account a deposit that would have made the account sufficient in funds to make the transfer.
  • 3. the institution’s failure to stop payment of a preauthorized transfer from a consumer’s account when instructed to do so in accordance with the terms and conditions of the account.

    A financial institution shall NOT be liable if by show of evidence its actions or lack of action is due to circumstance beyond its control such as acts of God or technical malfunctions and reasonable precautions were taken to avoid the situation. Additionally if the malfunction is known to the consumer and a transfer is initiated anyway the institution is not liable.


    The usual means of access to an account for electronic funds transfer is by a card and other times a code. In no way can these be issued without being accompanied by an application or request for this kind of agreement. Subsequent renewals or substitutions do not need a new application if done from the original issuer.

    A card or code can be distributed to a consumer in an unsolicited manner with the intent to access their account for electronic funds transfers ONLY if it is in an unvalidated form.

    The consumer would need to take steps to validate and the card would need to be accompanied by disclosures of consumer rights,liabilities and fees. Along with necessary action to dispose of if not needed or desired.

    The steps to validate must be clear and only after response from the consumer requesting activation or an application received and verification of consumers identity.

    The use of electronic funds transfers or preauthorized electronic funds transfers cannot be used as a condition to extend credit to a consumer in repayment of that credit nor can you be made subject to opening an account with purpose of receiving funds as a condition of employment or receipt of government funds.

    There can be no agreement between a consumer and another person or institution that waives these rights herein.

    Prepaid Cards, Store Gift Cards & Gift Certificates

    prepaid cards are generally accepted by many merchants and electronic tellers. Are prepaid and at issuers discretion may be reloaded at holders convenience.
    gift certificates are issued by single merchants and honored at that location only or at it's affiliate sites. Issued with a specific value that can not be added to or reloaded.
    store gift cards are also issued by that store and only honored there or at an affiliate with same name or logo. Issued with a specific value and at the stores discretion reloaded.

    There may be fees associated with these cards but the electronic funds transfer act states it is unlawful for any person to impose a dormancy fee, an inactivity charge or fee, or a service fee with respect to a gift certificate, store gift card, or general-use prepaid card.
    for none use for 12 months
    when disclosures about any such fees and frequency of fees have been given
    No more than one fee may be given in any one month, vendor must inform the consumer about such fees before the card is purchased.

    In general it is unlawful for a prepaid card, store card or gift certificate to expire unless it clearly and conspicuously states so. Even so stated they cannot expire before 5 years after the initial issue date.

    Enforcing agencies of the Electronic funds transfer act

    Overall enforcement authority is the Federal Trade Commission

    within your state you will generally be directed toward these agencies

    National Banks,,,,,the office of the Comptroller of the Currency

    member banks of....the federal reserve board or division of banks

    federal credit unions,,,,,Administrator of the National Credit Union Administration

  • electronic funds transfer act to credit laws 

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