For many consumers, electronic banking means 24-hour access to cash through an automated teller machine (ATM) or Direct Deposit of paychecks into checking or savings accounts. But electronic banking now involves many different types of transactions.
Electronic banking, also known as electronic fund transfer (EFT), uses computer and electronic technology as a substitute for checks and other paper transactions. EFTs are initiated through devices like cards or codes that let you, or those you authorize, access your account. Many financial institutions use ATM or debit cards and Personal Identification Numbers (PINs) for this purpose. Some use other forms of debit cards such as those that require, at the most, your
signature or a scan. The federal Electronic Fund Transfer Act (EFT Act) covers some electronic consumer transactions.
Be especially careful in Internet and telephone transactions that may involve use of your bank account information, rather than a check. A legitimate merchant that lets you use your bank account information to make a purchase or pay on an account should post information about the process on their website or explain the process over the telephone. The merchant also should ask for your permission to electronically debit your bank account for the item you’re purchasing or paying on. However, because Internet and telephone electronic debits don’t occur face-to-face, you should be cautious with whom you reveal your bank account information. Don’t give this information to sellers with whom you have no prior experience or with whom you have not initiated the call, or to companies that seem reluctant to provide information or discuss the process with you.
Not all electronic fund transfers are covered by the EFT Act. For example, some financial institutions and merchants issue cards with cash value stored electronically on the card itself. Examples include prepaid telephone cards, mass transit passes, and some gift cards. These “stored-value” cards, as well as transactions using them, may not be covered by the EFT Act. This means you may not be covered for the loss or misuse of the card. Ask your financial institution or merchant about any protections offered for these cards.
To understand your legal rights and responsibilities regarding your EFTs, read the documents you receive from the financial institution that issued your “access device.” That is, a card, code or other means of accessing your account to initiate electronic fund transfers. Although the means varies by institution, it often involves a card and/or a PIN. No one should know your PIN except you and select employees of the financial institution. You also should read the documents you receive for your bank account, which may contain more information about EFTs.
Before you contract for EFT services or make your first electronic transfer, the institution must tell you the following information in a form you can keep.
In addition to these disclosures, you will receive two other types of information for most transactions: terminal receipts and periodic statements. Separate rules apply to passbook accounts from which pre-authorized transfers are drawn. The best source of information about those rules is your contract with the financial institution for that account. You’re entitled to a terminal receipt each time you initiate an electronic transfer, whether you use an ATM or make a point-of-sale electronic transfer. The receipt must show the amount and date of the transfer, and its type, such as “from savings to checking.” When you make a point-of-sale transfer, you’ll probably get your terminal receipt from the salesperson.
You won’t get a terminal receipt for regularly occurring electronic payments that you’ve pre-authorized, like insurance premiums, mortgages, or utility bills. Instead, these transfers will appear on your periodic statement. If the pre-authorized payments vary, however, you should receive a notice of the amount that will be debited at least 10 days before the debit takes place.
You’re also entitled to a periodic statement for each statement cycle in which an electronic transfer is made. The statement must show the amount of any transfer, the date it was credited or debited to your account, the type of transfer and type of account(s) to or from which funds were transferred, and the address and telephone number for inquiries. You’re entitled to a quarterly statement whether or not electronic transfers were made.
Keep and compare your EFT receipts with your periodic statements the same way you compare your credit card receipts with your monthly credit card statement. This will help you make the best use of your rights under federal law to dispute errors and avoid liability for unauthorized transfers.
You have 60 days from the date a periodic statement containing a problem or error was sent to you to notify your financial institution. The best way to protect yourself if an error occurs — including erroneous charges or withdrawals from an account, or for a lost or stolen ATM or debit card — is to notify the financial institution by certified letter, return receipt requested, so you can prove that the institution received your letter. Keep a copy of the letter for your records.
If you fail to notify the institution of the error within 60 days, you may have little recourse. Under federal law, the institution has no obligation to conduct an investigation if you’ve missed the 60-day deadline.
Once you’ve notified the financial institution about an error on your statement, it has 10 business days to investigate. The institution must tell you the results of its investigation within three business days after completing it and must correct an error within one business day after determining that the error has occurred. If the institution needs more time, it usually may take up
to 45 days, in most situations, to complete the investigation — but only if the money in dispute is returned to your account and you’re notified promptly of the credit. At the end of the investigation, if no error has been found, the institution may take the money back if it sends you a written explanation.
An error also may occur in connection with a point-of-sale purchase with a debit card. For example, an oil company might give you a debit card that lets you pay for gas purchases directly from your bank account. Or you may have a debit card that can be used for various types of retail purchases. These purchases will appear on your periodic statement from the bank. In case of an
error on your account, however, you should contact the card issuer (for example, an oil company or a bank) at the address or phone number provided by the company. Once you’ve notified the company about the error, it has 10 business days to investigate and tell you the results. In this situation, it may take up to 90 days to complete an investigation, if the money in dispute is
returned to your account and you’re notified promptly of the credit. If no error is found at the end of the investigation, the institution may take back the money if it sends you a written explanation.
If your credit card is lost or stolen, you can’t lose more than $50. If someone uses your ATM or debit card without your permission, you can lose much more.
If you report an ATM or debit card missing to the card issuer before it’s used without your permission, you can’t be held responsible for any unauthorized withdrawals.
If unauthorized use occurs before you report it, the amount you can be held responsible for depends upon how quickly you report the loss to the card issuer.
If you failed to notify the institution within the time periods allowed because of an extenuating circumstance, such as lengthy travel or illness, the issuer must reasonably extend the notification period. In addition, if state law or your contract imposes lower liability limits, those lower limits apply instead of the limits in the federal EFT Act.
Once you report the loss or theft of your ATM or debit card, you’re no longer responsible for additional unauthorized transfers occurring after that time. Because these unauthorized transfers may appear on your statements, however, you should carefully review each statement you receive after you’ve reported the loss or theft. If the statement shows transfers that you did not make or that you need more information about, contact the institution immediately, using the special procedures provided for reporting errors.
When you use an electronic fund transfer, the EFT Act does not give you the right to stop payment. If your purchase is defective or your order is not delivered, it’s as if you paid cash. That is, it’s up to you to resolve the problem with the seller and get your money back.
There is one situation, however, when you can stop payment. If you’ve arranged for regular payments out of your account to third parties, such as insurance companies, you can stop payment if you notify your institution at least three business days before the scheduled transfer. The notice may be oral or written, but the institution may require a written follow-up within 14 days of the oral notice. If you fail to provide the written follow-up, the institution’s responsibility to stop payment ends.
Although federal law provides only limited rights to stop payment, individual financial
institutions may offer more rights or state laws may require them. If this feature is important to you, you may want to shop around to be sure you’re getting the best “stop-payment” terms available.
The EFT Act protects your right of choice in two specific situations regarding use of electronic fund transfers: First, the Act prohibits financial institutions from requiring you to repay a loan by electronic transfer. Second, if you’re required to receive your salary or government benefit check by EFT, you have the right to choose your institution.
If you decide to use EFT, keep these tips in mind:
If you think a financial institution or company has failed to fulfill its responsibilities to you under the EFT Act, speak up. In addition, you may wish to complain to the federal agency listed below that has enforcement jurisdiction over that company.
The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.