The term electronic funds transfer, or EFT, is used to describe a transaction that uses an electronic terminal, telephone, or computerized system to instruct or authorize a financial institution to transfer money into, or out from, an account.
Electronic funds transfer is considered a secure and inexpensive alternative to the processing of paper checks. The use of electronic means significantly lowers the cost to prepare, issue, and receive funds. Therefore, the system provides both a speed and cost advantage versus the handling of paper checks.
Also referred to as EFT, the term is typically applied to:
- Wire transfers of money between banking institutions
- Debit and credit card transactions, including point of sales transfers
- Direct deposits such as employee paychecks
- Electronic or online bill payments
- Withdraws of cash or transfers of funds using automated teller machines (ATM)
Consumer protections were codified in 1978 through the Electronic Funds Transfer Act, which established the rights, liabilities, and responsibilities of all participants in the EFT process. Some of the consumer protections include the following:
- If a customer reports their credit card is missing or stolen before a transaction takes place, they cannot be held responsible for any subsequent transactions.
- Loss is limited to $50 of unauthorized withdrawals if the financial institution is notified within 2 business days of a credit card being lost or stolen.
- Consumers can be held responsible for losses up to $500 in unauthorized withdrawals if notification takes place between 3 and 59 days after a credit card is lost or stolen.
If a consumer discovers an error associated with an electronic transfer, the consumer is obligated to:
- Immediately write or call the financial institution.
- No later than 60 days following the error, provide the financial institution with their name, account number, dollar amount, and date of the transaction, explaining why they believe there is an error.
- A financial institution can require these details within ten business days.
Once notified, the financial institution is obligated to:
- Investigate the error and resolve the problem within 45 days.
- If the investigation takes more than 10 days to resolve, the financial institution must re-credit the consumer's account pending the outcome of their investigation.
- Notify the consumer of the final outcome of the investigation, including finalizing the re-credit (if the error is verified), or deducting it from the consumer's account (if the investigation finds there was not an error).
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