On his way home last Friday night, John Jones realized he had no cash
for the weekend. The bank was closed, but John had his bank debit card
and the code to use it. He inserted the card into an automated teller
machine outside the front door of the bank; then, using a number
keyboard, he entered his code and pressed the buttons for a withdrawal
of $50. John's cash was dispensed automatically from the machine, and
his bank account was electronically debited for the $50 cash withdrawal.
John's debit card is just one way to use electronic fund transfer (EFT)
systems that allow payment between parties by substituting an electronic
signal for cash or checks.
Are we heading for a checkless society? Probably not. But a dent in the
number of paper checks in the country's banking system--or a reduction
in the rate at which that number has been growing--is clearly one
advantage to electronic banking.
Today, the cost of moving checks through the banking system is estimated
to be approximately 80 cents per check, including the costs of paper,
printing, and mailing. Moreover, checks--except your own check presented
at your own bank--take time to cash: time for delivery, endorsement,
presentation to another person's bank, and winding through various
stations in the check clearing system. Technology now can lower the
costs of the payment mechanism and make it more efficient and convenient
by reducing paperwork.
EFT in Operation
The national payment mechanism moves money between accounts in a fast,
paperless way. These are some examples of EFT systems in operation:
Teller Machines (ATMs). Consumers can do their banking without the
assistance of a teller, as john Jones did to get cash, or to make
deposits, pay bills, or transfer funds from one account to another
electronically. These machines are used with a debit or EFT card and a
code, which is often called a personal identification number or "PIN."
(POS) Transactions. Some EFT cards can be used when shopping to allow
the transfer of funds from the consumer's account to the merchant's. To
pay for a purchase, the consumer presents an EFT card instead of a check
or cash. Money is taken out of the consumer's account and put into the
merchant's account electronically.
Preauthorized Transfers. This is a method of automatically depositing to
or withdrawing funds from an individual's account, when the account
holder authorizes the bank or a third party (such as an employer) to do
so. For example, consumers can authorize direct electronic deposit of
wages, Social Security or dividend payments to their accounts. Or, they
can authorize financial institutions to make regular, ongoing payments
of insurance, mortgage, utility or other bills.
Telephone Transfers. Consumers can transfer funds from one account to
another--from savings to checking, for example--or can order payment of
specific bills by phone.
What Law Applies?
THE ELECTRONIC FUND TRANSFER ACT gives consumers answers to several
basic questions about using EFT services.
A check is a piece of paper with information that authorizes a bank to
withdraw a certain amount of money from one person's account and pay
that amount to another person. Most consumer questions center on the
fact that EFT systems transmit the information without the paper. Thus,
-- What record--what evidence--will I have of my transactions?
-- How easily will I be able to correct errors?
-- What if someone steals money from my account?
-- What about solicitations?
-- Do I have to use EFT services?
Here are the answers the EFT Act gives to consumer questions about these
What Record Will I Have of My Transactions?
A cancelled check is permanent proof that a payment has been made. Is
proof of payment available with EFT services?
The answer is yes. If you use an ATM to withdraw money or make deposits,
or a point-of-sale terminal to pay for a purchase, you can get a written
receipt--much like the sales receipt you get with a cash purchase--
showing the amount of the transfer, the date it was made, and other
information. This receipt is your record of transfers initiated at an
Your periodic bank statement must also show all electronic transfers to
and from your account, including those made with debit cards, by a
preauthorized arrangement, or under a telephone transfer plan. It will
also name the party to whom payment has been made and show any fees for
EFT services (or the total amount charged for account maintenance) and
your opening and closing balances.
Your monthly statement is proof of payment to another person, your
record for tax or other purposes, and your way of checking and
reconciling EFT transactions with your bank balance.
How Easily Will I Be Able to Correct Errors?
The way to report errors is somewhat different with EFT services than it
is with credit cards (see page 22 for correcting credit billing errors).
But, as with credit cards, financial institutions must investigate and
correct promptly any EFT errors you report.
If you believe there has been an error in an electronic fund transfer
relating to your account:
1. Write or call your financial institution immediately if possible, but
no later than 60 days from the date the first statement that you think
shows an error was mailed to you. Give your name and account number and
explain why you believe there is an error, what kind of error, and the
dollar amount and date in question. If you call, you may be asked to
send this information in writing within 10 business days.
2. The financial institution must promptly investigate an error and
resolve it within 45 days. However, if the financial institution takes
longer than 10 business days to complete its investigation, generally it
must put back into your account the amount in question while it finishes
the investigation. (The time periods are longer for POS debit card
transactions and for any EFT transaction initiated outside the United
States.) In the meantime, you will have full use of the funds in
3. The financial institution must notify you of the results of its
investigation. If there was an error, the institution must correct it
promptly--for example, by making a recredit final.
If it finds no error, the financial institution must explain in writing
why it believes no error occurred and let you know that it has deducted
any amount recredited during the investigation. You may ask for copies
of documents relied on in the investigation.
What About Loss or Theft?
It's important to be aware of the potential risk in using an EFT card,
which differs from the risk on a credit card.
On lost or stolen credit cards, your loss is limited to $50 per card
(see page 25). On an EFT card, your liability for an unauthorized
withdrawal can vary:
-- Your loss is limited to $50 if you notify the financial institution
within two business days after learning of loss or theft of your card or
-- But, you could lose as much as $500 if you do not tell the card
issuer within two business days after learning of the loss or theft.
-- If you do not report an unauthorized transfer that appears on your
statement within 60 days after the statement is mailed to you, you risk
unlimited loss on transfers made after the 60-day period. That means you
could lose all the money in your account plus your maximum overdraft
line of credit.
On Monday, john's debit card and secret code were stolen. On Tuesday,
the thief withdrew $250, all the money John had in his checking account.
Five days later, the thief withdrew another $500, triggering John's
overdraft line of credit. John did not realize his card was stolen until
he received a statement from the bank, showing withdrawals of $750 he
did not make. He called the bank right away. John's liability is $50.
Now suppose that when john got his bank statement he didn't look at it
and didn't call the bank. Seventy days after the statement was mailed to
john, the thief withdrew another $1,000, reaching the limit on John's
line of credit. In this case, John would be liable for $1,050 ($50 for
transfers before the end of the 60 days; $1,000 for transfers made more
than 60 days after the statement was mailed).
What About Solicitations?
A financial institution may send you an EFT card that is VALID FOR USE
only if you ask for one, or to replace or renew an expiring card. The
financial institution must also give you the following information about
your rights and responsibilities:
-- A notice of your liability in case the card is lost or stolen;
-- A telephone number for reporting loss or theft of the card or an
-- A description of its error resolution procedures;
-- The kinds of electronic fund transfers you may make and any limits
on the frequency or dollar amounts of such transfers;
-- Any charge by the institution for using EFT services;
-- Your right to receive records of electronic fund transfers;
-- How to stop payment of a preauthorized transfer;
-- The financial institution's liability to you for any failure to make
or to stop transfers; and
-- The conditions under which a financial institution will give
information to third parties about your account.
Generally, you must also get advance notice of any change in the account
that would increase your costs or liability, or limit transfers.
A financial institution may send you a card you did not request only if
the card is NOT VALID FOR USE. An "unsolicited" card can be validated
only at your request and only after the institution makes sure that you
are the person whose name is on the card. It must also be sent with
instructions on how to dispose of an unwanted card.
Do I Have to Use EFT?
The EFT Act forbids a creditor from requiring you to repay a loan or
other credit by EFT, except in the case of overdraft checking plans.
And, although your employer or a government agency can require you to
receive your salary or a government benefit by electronic transfer, you
have the right to choose the financial institution that will receive
Special Questions About Preauthorized Plans
Q. How will I know a preauthorized credit has been made?
A. There are various ways you may be notified. Notice may be given by
your employer (or whoever is sending the funds) that the deposit has
been sent to your financial institution. Otherwise, a financial
institution may provide notice when it has received the credit or will
send you a notice only when it has not received the funds. Financial
institutions also have the option of giving you a telephone number you
can call to check on a preauthorized credit.
Q. How do I stop a preauthorized payment?
A. You may stop any preauthorized payment by calling or writing the
financial institution, so that your order is received at least three
business days before the payment date. Written confirmation of a
telephone notice to stop payment may be required.
Q. If the payments I preauthorize vary in amount from month to month,
how will I know how much will be transferred out of my account?
A. You have the right to be notified of all varying payments at least 10
days in advance.
Or, you may choose to specify a range of amounts and to be told only
when a transfer falls outside that range. You may also choose to be told
only when a transfer differs by a certain amount from the previous
payment to the same company.
Q. Do the EFT Act protections apply to all preauthorized plans?
A. No. They do not apply to automatic transfers from your account to the
institution that holds your account or vice versa. For example, they do
not apply to automatic payments made on a mortgage held by the financial
institution where you have your EFT account. The EFT Act also does not
apply to automatic transfers among your accounts at one financial
from Board of Governors of the Federal Reserve System
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