|Electronic Funds Transfer Act as implemented by Regulation E|
Congress enacted the Electronic Funds Transfer Act (EFT) in 1978 to establish the rights and liabilities of consumers and all participants in electronic funds transfer activities. For electronic fund transfers in which a consumer’s account is involved, the Electronic Funds Transfer Act states that the terms and conditions must be disclosed to the consumer when the service is contracted. In addition, the disclosures must be written in comprehensible language and include information such as contact information in the event of an unauthorized fund transfer, the right to stop payment on a preauthorized electronic fund transfer and how to do this, and charges for electronic fund transfer services. Any change in terms by the consumer’s financial institution must be conveyed to the consumer in writing a minimum of 21 days prior to the effective date of the change. Financial institutions are also required to document electronic fund transfers for consumers with periodic statements. The statements must include fees and consumer’s balances at the beginning and end of the period in question.
Preauthorization of electronic fund transfers from a consumer’s account may only be authorized by a consumer in writing, according to the Electronic Funds Transfer Act. The consumer may stop payment on a preauthorized electronic fund transfer either orally or in writing. The limitation is that notification of a stop must be provided at least three business days prior to the date on which the transfer is scheduled. The financial institution may require a confirming written authorization following upon an oral notification, in which case it must inform the consumer of the requirement and where to send the written notification in order to comply with it.
Regulation E is designed to protect the integrity of the electronic funds transfer system and to provide a mechanism for reporting errors with electronic funds transfers, unauthorized transactions and fraud. Under Regulation E, consumers are entitled to a number of protections. Consumers are obligated to report unauthorized activity as quickly as possible to their financial institutions for investigation. The longer consumers wait, the more liability they will have for unauthorized activities such as withdrawals from their bank accounts. Lost or stolen bankcards, bank account information, and other data that could lead to unauthorized transactions must also be reported quickly.
Financial institutions are required to follow up on such reports, furnishing consumers with information about their investigations and crediting consumer accounts when unauthorized transactions exceed consumer liability and the financial institution determines that the consumer is not responsible for the transaction. In turn, institutions can pursue actions against people who engage in such transactions in order to recover their costs. Regulation E provides some protection for financial institutions as well in the form of limiting their liability. Consumers cannot, for example, demand that an amount be returned to their account six months after the fact.
The information covered relates to electronic transfers initiated by financial institutions and/or consumers. For transactions initiated by a consumer, the financial institutions holding the consumer’s account must make available, at the time the transfer is initiated, documentation that sets forth the following:
The EFTA provides for civil and criminal penalties. Any person who fails to comply with any provision of the EFTA with respect to a consumer, is liable to such consumer in an amount equal to the sum of any actual damages sustained by the consumer as a result of such failure; and, in the case of an individual action, an amount not less than one hundred dollars ($100) nor greater than one thousand dollars ($1,000). The statute also provides recovery in a class action in an amount of the lesser of five hundred thousand dollars ($500,000) or 1 percent of the net worth of the defendant.
Section 916 of the EFTA provides for criminal liability. Anyone who knowingly and willfully gives false or inaccurate information or fails to provide information which is required to be disclosed shall be fined not more than five thousand dollars ($5,000) or imprisoned not more than one year, or both. Anyone who uses or attempts or conspires to use any counterfeit, fictitious, altered, forged, lost, stolen or fraudulently obtained debt instrument to obtain anything of value in excess of one thousand dollars ($1,000) aggregate for one year, or commits one of the other similar offenses listed in Section 916, shall be fined not more than ten thousand dollars ($10,000) or imprisoned not more than 10 years or both.