Understanding the Electronic Fund Transfer Act

After it became commonplace to transfer money electronically (via EFT payments, for example), the US government found that it was necessary to pass legislation to protect the rights of consumers. The ensuing law – the Electronic Fund Transfer Act – has been one of the most important money transfer regulations in the US since its inception. But what does it actually do? What rights does it protect? And when was the Electronic Fund Transfer Act signed into law anyway? Find out everything you need to know about the Electronic Fund Transfer Act, right here.

When was the electronic fund transfer act signed into law?

The Electronic Fund Transfer Act (EFTA) (15 U.S.C. § 1693) was signed into law in 1978. Also referred to as Regulation E, the EFTA was implemented to protect consumers when they send and receive electronic payments. Before we move on, it’s important to note that the law governs the exchange of money via Direct Deposit, pay-by-phone, internet, debit cards, ATMs, and electronic check conversion. Now, let’s take a look at some of the benefits of the Electronic Fund Transfer Act.

What are the benefits of the Electronic Fund Transfer Act?

There are a couple of different elements of the Electronic Fund Transfer Act that have helped to standardize the way that money is transferred electronically. These are as follows:

1. Clear notifications regarding fees – Firstly, the EFTA stipulates that if there is a fee associated with a transaction, the consumer should receive a notification. Before the act, such notifications were either unclear or not properly displayed, meaning that consumers often weren’t able to make an informed decision about whether to go through with the transaction and pay the fee. This part of the Electronic Fund Transfer Act is most prominent in ATM withdrawals.

2. Full disclosure – In addition, the EFTA provided clarity around the necessity for full disclosure in electronic transactions. When transactions are passed to someone’s bank account, a link to the terms and conditions must be included. The language of the terms and conditions must be clear and easy-to-understand, and important information (as regards to dates, contact information, fees, instructions on how to stop transactions, etc.) must be outlined therein. Furthermore, the EFTA stipulates that financial institutions need to provide consumers with periodic statements (via mail or electronically) and logs of all their transactions.

3. Protection against errors made by banking institutions – Next, the Electronic Fund Transfer Act protects the consumer if the bank (or other financial institution) makes an error at any point in the transaction. For example, if mistakes are made during processing, if the bank fails to credit an account, or if the bank fails to stop payment despite the correct cancellation procedure being followed, the EFTA stops the consumer from having to take the financial hit.

4. Written authorization required before electronic transfers – Finally, the EFTA ensured that banks and other financial institutions had to receive written consent (from the consumer) before they set up and actioned an electronic transfer of funds. This helped to protect against the risk of identity theft or other types of cyber-crime relating to money transfers.

Beyond these standardized practices, the Electronic Fund Transfer Act provides protection for consumers around unauthorized transactions (consumers have 60 days to report an unauthorized transaction involving their account, limiting their liability), withdrawal limits (limiting loss in the event of theft), overdraft fees (consumers have to opt-in), and required use (consumers cannot be made to make or receive electronic fund transfers). Furthermore, the EFTA provides consumers with the right to challenge errors and have them corrected within a 45-day window with limited penalties. Plus, if a financial institution breaches the Electronic Fund Transfer Act, consumers may be able to sue for damages.

In concert with other money transfer regulations in the US, the EFTA ensures that the rights of consumers – as well as the responsibilities of financial institutions – are clear and comprehensible to all.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.