The EFTA, Innovative Financial Regulations

The Electronic Funds Transfer Act EFTA or the EFTA for short is a federal law that was passed in 1978. The EFTA was passed to provide American consumers with protection in regards to the transfer of funds through electronic means, including ATM withdrawals, debit card usage, and automatic withdrawals from bank accounts. As such, the EFTA outlines the requirements that banks and other financial institutions must abide by when errors occur in relation to the electronic transfer of funds. Moreover, the EFTA also limits the level of liability that can result from the errors that can occur when conducting electronic transactions and transfers. The EFTA was passed in large part due to the rise of ATM usage across the country during the 1970s.

As financial transactions were largely conducted via physical documents such as checks prior to the rise of ATM usage in the late 1960s and early 1970s, errors that occurred during financial transactions were typically limited to the parties directly involved. However, as errors involving ATM transactions were not directly connected to a particular individual or employee, legislation was needed to regulate the newfound use of ATM machines, as well as the subsequent forms of electronic transactions that would later arise. To this end, the EFTA provides American consumers with a means to challenge errors, have said errors corrected, and receive some level of financial penalties as it pertains to electronic transactions.

What are the requirements for banks and other financial institutions under the EFTA?

Under the EFTA, banks, financial institutions, and other third parties who are involved in the transferring of electronic funds are required to disclose the following information to American consumers:

• A summary of liability as it pertains to unauthorized transfers and transactions.
• The contact information for the individuals who should be contacted in the event of the occurrence of an unauthorized transfer or transaction, as well as the procedure that consumers must follow when looking to file a claim.
• The types of transfers and transactions that consumers are permitted to make, any fees that are associated with these transfers or transactions, as well as any limitations that may exist.
• A summary of the rights that consumers have under the law, including the right to receive periodic financial statements and point of sale purchase receipts.
• A summary of a particular bank or financial institution’s liability in the event that they fail to either make or stop certain transactions or transfers.
• The specific circumstances under which a particular financial institution will share personal information relating to a consumer’s account and account activities with third parties.
• A notice detailing the process that consumers must follow to report an error, request further information, as well as the timeframe in which a report must be filed.

What’s more, while the EFTA was passed largely in the context of physical money and checks being deposited into ATM machines, the law also covers a wide range of financial services. These services include ATMs, direct deposit, pay-by-phone transactions, internet banking, debit card transactions, and electronic check conversions. Moreover, the EFTA defines an “error” to include the following.

• An unauthorized electronic funds transfer.
• Incorrect electronic funds transfer from a consumer’s account.
• The omission from a periodic statement of an electronic fund transfer to or from a consumer’s account that should have been included.
• Bookkeeping or computational error made by a financial institution relating to an electronic funds transfer.
• A consumer’s receipt of an incorrect amount of money from an electronic terminal.
• An electronic funds transfer “not identified in accordance with the requirements of sections 205.9 or 205.10(a)” of the EFTA.
• A consumer’s request for any documentation required by sections 205.9 or 205.10(a) or for additional information or clarification concerning an electronic funds transfer.

Contrarily, the EFTA does not consider the following actions to be errors in accordance with the law:

• A routine inquiry about the balance in the consumer’s account or a request for duplicate copies of documentation or other information that is made only for tax or other recordkeeping purposes.
• The fact that a financial institution does not make a terminal receipt available for a transfer of $15 or less in accordance with 205.9(e) of the EFTA.

What are the penalties for violating the EFTA?

Individuals, banks, and other financial institutions who fail to comply with the provisions of the EFTA are subject to a variety of penalties. The EFTA is enforced by the Federal Trade Commission or FTC for short, and failure to comply with the law “may result in liability for the actual damages sustained by the consumer, statutory damages of $100 – $1000, class action damages in the lesser of $500,000 or 1% of net worth, as well as reasonable attorney’s fees and costs as determined by the court”. Additionally, failing to comply with the provisions of the EFTA also constitutes a criminal offense.

Through the passing of the EFTA in 1978, American consumers were provided with both protections and an avenue of recourse with respect to errors that can occur during the electronic fund’s transfer process. As reporting such errors has become second-hand nature to many American citizens due to the digital and internet-based function of our current age, many people may not know that the EFTA protects their right to challenge financial errors that occur. Because of the EFTA and its provisions, consumers can rest assured that if an error does occur at a bank or financial institution with which they conduct business, they will be able to remedy the issue.