Electronic Funds Transfer Act

The Electronic Funds Transfer Act is a federal law that protects consumers engaged in the transfer of funds through electronic methods. This includes the use of debit cards, automated teller machines and automatic withdrawals from a bank account. The act also provides a means of correcting transaction errors and limits the liability from any losses due to a lost or stolen card.

The law was passed in 1978 as a result of the growth of electronic ATM machines and electronic banking. The use of paper checks steadily declined since then but checks continued to serve as hard evidence of payment. The explosion of electronic financial transactions created a need for new rules that would give consumers the same level of confidence they had in the checking system. This includes the ability to challenge errors, to correct them within a 60-day window, and to limit liability on a lost card to $50 – if the card is reported as lost within two business days.

The protections of the Electronic Funds Transfer Act extend to transactions made with point-of-sale terminals, automated clearing house systems, telephone bill-payment plans and remote banking programs. The law includes a mandate for ATM operators to disclose any fees that consumers will be charged when using their machines. A notice of these fees must be posted openly and conspicuously on the ATM as well as on screen or in print before the consumer commits to completing the transaction.

This particularly applies to ATMs that are not owned and operated by a consumer’s bank. Most third-party ATMs charge fees to conduct transactions such as making cash withdrawals. These fees are automatically charged to the consumer’s account when the transaction is completed. ATMs that belong to a consumer’s bank typically do not charge transaction fees to account holding customers.

Financial institutions are required to disclose in detail limitations on the frequency and dollar amount of transfers. For example, a bank might limit each account holder to a certain maximum on daily cash withdrawals from ATMs. Financial institutions must disclose all fees stemming from electronic fund transfers or the right to make such transfers. The institutions may disclose other fees such as minimum-balance fees, account overdrafts and stop-payment fees but they are not required to do so.

The Electronic Signatures in Global and National Commerce Act allowed electronic documents and signatures to hold the same validity as paper documents and handwritten signatures. In combination with the Electronic Funds Transfer Act, these laws granted consumers more access and protections when conducting financial transactions electronically.