Electronic Fund Transfer Act
The Electronic Fund Transfer Act (EFTA) is a significant United States federal law enacted in 1978 that aims to protect consumers engaging in electronic fund transfers (EFTs). This legislation emerged in response to growing concerns over consumer rights during the early adoption of electronic payment methods, such as automatic teller machines (ATMs) and debit cards. The EFTA clarifies the rights and responsibilities of both consumers and financial institutions regarding various electronic transactions, ensuring that consumers receive vital information about fees and protections against unauthorized transactions.
Under the act, consumers have specific rights, such as the ability to report unauthorized transactions within sixty days and a liability limit of fifty dollars if they follow the reporting procedures. The EFTA also mandates that financial institutions verify customer identities and clearly disclose ATM withdrawal fees. While primarily focused on protecting consumers in the context of EFTs, the act has played a crucial role in the broader acceptance and use of online banking and digital payment systems, despite some ongoing debates about its relevance in contemporary digital transactions. Overall, the EFTA contributes to greater confidence and security for consumers navigating electronic financial transactions.
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Electronic Fund Transfer Act
The Electronic Fund Transfer Act is a United States federal law signed by President Jimmy Carter and enacted in 1978. The purpose of the Electronic Fund Transfer Act was to clarify consumer protections for electronic funds transfers (EFTs), which include transfers through automatic teller machines and point-of-sale terminals, bill-payment plans that involve recurring automated transfers, and other such paperless monetary transactions. The EFT Act was significant in enabling EFTs such as automated bill payment plans and debit transactions to become the primary mode of payment in the United States.
Overview
Credit cards were first introduced in the United States in the late 1950s and automatic teller machines (ATMs) were implemented a decade later. In 1975, Visa introduced the first debit cards, which are distinct from credit cards in that they immediately withdraw funds from a consumer’s account during a transaction rather than extend a line of credit. Although debit and credit cards offered several advantages over cash and paper checks, their widespread adoption was hampered by fear and uncertainty regarding consumer protections for electronic banking transfers in the late 1970s; although consumer protection laws existed for other types of transactions, their application to EFTs was unclear.
In 1978, the US Congress passed the Electronic Fund Transfer Act. The act was implemented in 1979 by the Federal Reserve Board under Regulation E, which establishes the rights, responsibilities, and liabilities of consumers and financial institutions using electronic fund and remittance transfer systems (the law was amended in 2010 to include the words “and remittance.”) The regulation defines EFTs as any transfer that is “initiated through an electronic terminal, telephonic instrument, or computer or magnetic tape so as to order, instruct, or authorize a financial institution to debit or credit an account.” Gift cards, store cards, credit cards, and prepaid phone cards are not addressed under Regulation E.
The law requires financial institutions to provide consumers with certain information regarding fees, liabilities, and procedures in the case of a lost or stolen card. Under the EFT Act, consumers have sixty days to report unauthorized transactions to their accounts; consumers who follow the appropriate reporting procedures cannot be held liable for more than fifty dollars of the unauthorized expenditures. The law also requires banks and financial institutions to confirm customers’ identities by asking account-specific questions for EFTs and to provide the contact information for consumers to report unauthorized transactions. It also requires financial institutions to clearly post notices regarding fees for ATM withdrawals. The law also clarifies the procedures for banks to convert paper checks to electronic transfers.
In the first decade of the twenty-first century, the online financial website PayPal was sued after several of its users’ accounts were hacked and PayPal froze the users’ accounts without notifying them; the lawsuit alleged that PayPal had violated the EFT Act by failing to investigate unauthorized fund transfers. PayPal was held liable for the unauthorized expenditures. However, some online retailers and financial institutions have argued that the EFT Act, which was enacted in 1978 primarily to regulate ATM transfers, has been interpreted too broadly. Nevertheless, the EFT Act protects consumers using EFTs and has facilitated widespread adoption and use of online banking, ATMs, and debit cards.
Bibliography
Board of Governors of the Federal Reserve System. Report to the Congress on the Application of the Electronic Fund Transfer Act to Electronic Stored-Value Products. Washington, DC: Board of Governors of the Federal Reserve System, 2005. PDF file.
Brown, Tom, and Lacey Plache. “Paying with Plastic: Maybe Not So Crazy.” University of Chicago Law Review 73.1 (2001): 63–86. Print.
Carrns, Ann. “Banks Seek Help against ATM ‘Vigilantes.’” New York Times. New York Times, 9 July 2012. Web. 27 Sept. 2013.
“Electronic Fund Transfer Act.” Federal Deposit Insurance Corporation. FDIC, 28 Dec. 2012. Web. 27 Sept. 2013.
“Electronic Fund Transfer Act.” Board of Governors of the Federal Reserve. FederalReserve.gov, n.d. PDF file.
Gnatek, Tim. “Some PayPal User Are in for a Payback.” New York Times. New York Times, 12 Aug. 2004. Web. 27 Sept. 2013.
Hsia, David C. “Legislative History and Proposed Regulatory Implementation of the Electronic Fund Transfer Act.” University of San Francisco Law Review 13.2 (1979): 299. Print.
Schroeder, Frederick J. Compliance Costs and Consumer Benefits of the Electronic Fund Transfer Act: Recent Survey Evidence. Washington, DC: Board of Governors of the Federal Reserve System, 1985. Print.