many consumers, electronic banking means 24-hour access to cash
through an automated teller machine (ATM) or Direct Deposit
of paychecks into checking or savings accounts. But electronic
banking now involves many different types of transactions.
Electronic banking, also known
as electronic fund transfer (EFT), uses computer and electronic
technology as a substitute for checks and other paper transactions.
EFTs are initiated through devices like cards or codes that
let you, or those you authorize, access your account. Many financial
institutions use ATM or debit cards and Personal Identification
Numbers (PINs) for this purpose. Some use other forms of debit
cards such as those that require, at the most, your signature
or a scan. The federal Electronic Fund Transfer Act (EFT Act)
covers some electronic consumer transactions.
EFT offers several
services that consumers may find practical:
- Automated Teller Machines
or 24-hour Tellers are electronic terminals that let
you bank almost any time. To withdraw cash, make deposits,
or transfer funds between accounts, you generally insert an
ATM card and enter your PIN. Some financial institutions and
ATM owners charge a fee, particularly to consumers who don't
have accounts with them or on transactions at remote locations.
Generally, ATMs must tell you they charge a fee and its amount
on or at the terminal screen before you complete the transaction.
Check the rules of your institution and ATMs you use to find
out when or whether a fee is charged.
- Direct Deposit lets
you authorize specific deposits, such as paychecks and Social
Security checks, to your account on a regular basis. You also
may pre-authorize direct withdrawals so that recurring bills,
such as insurance premiums, mortgages, and utility bills,
are paid automatically.
- Pay-by-Phone Systems
let you call your financial institution with instructions
to pay certain bills or to transfer funds between accounts.
You must have an agreement with the institution to make such
- Personal Computer Banking
lets you handle many banking transactions via your personal
computer. For instance, you may use your computer to view
your account balance, request transfers between accounts,
and pay bills electronically.
- Point-of-Sale Transfers
let you pay for purchases with a debit card, which also may
be your ATM card. The process is similar to using a credit
card, with some important exceptions. While the process is
fast and easy, a debit card purchase transfers money - fairly
quickly - from your bank account to the store's account. So
it's important that you have funds in your account to cover
your purchase. This means you need to keep accurate records
of the dates and amounts of your debit card purchases and
ATM withdrawals in addition to any checks you write. Your
liability for unauthorized use, and your rights for error
resolution, may differ with a debit card.
- Electronic Check Conversion
converts a paper check into an electronic payment at the point
of sale or elsewhere, such as when a company receives your
check in the mail. In a store, when you give your check to
a store cashier, the check is processed through an electronic
system that captures your banking information and the amount
of the check. Once the check is processed, you're asked to
sign a receipt authorizing the merchant to present the check
to your bank electronically and deposit the funds into the
merchant's account. You get a receipt of the electronic transaction
for your records. When your check has been processed and returned
to you by the merchant, it should be voided or marked by the
merchant so that it can't be used again. In the mail-in situation,
you should still receive advance notice from a company that
expects to process your check electronically.
Be especially careful in telephone
transactions, which also could involve e-checks. A legitimate
merchant should explain the process and answer any questions
you may have. The merchant also should ask for your permission
to debit your account for the item you're purchasing or paying
on. However, because telephone e-checks don't occur face-to-face,
you should be cautious with whom you reveal your bank or checking
account information. Don't give this information to sellers
with whom you have no prior experience or with whom you have
not initiated the call, or to sellers who seem reluctant to
discuss the process with you.
Not all electronic fund transfers
are covered by the EFT Act. For example, some financial institutions
and merchants issue cards with cash value stored electronically
on the card itself. Examples include prepaid telephone cards,
mass transit passes, and some gift cards. These "stored-value"
cards, as well as transactions using them, may not be covered
by the EFT Act. This means you may not be covered for the loss
or misuse of the card. Ask your financial institution or merchant
about any protections offered for these cards.
To understand your legal
rights and responsibilities regarding your EFT account, read
the documents you receive from the financial institution that
issued your "access device." That is, a card, code
or other means of accessing your account to initiate electronic
fund transfers. Although the means varies by institution, it
often involves a card and/or a PIN. No one should know your
PIN except you and select employees of the financial institution.
Before you contract for EFT services
or make your first electronic transfer, the institution must
tell you the following information in a form you can keep.
- A summary of your liability
for unauthorized transfers.
- The telephone number and address
of the person to be notified if you think an unauthorized
transfer has been or may be made, a statement of the institution's
"business days" (which is, generally, the days the
institution is open to the public for normal business), and
the number of days you have to report suspected unauthorized
- The type of transfers you can
make, fees for transfers, and any limits on the frequency
and dollar amount of transfers.
- A summary of your right to receive
documentation of transfers, to stop payment on a pre-authorized
transfer, and the procedures to follow to stop payment.
- A notice describing the procedures
you must follow to report an error on a receipt for an EFT
or your periodic statement, to request more information about
a transfer listed on your statement, and how long you have
to make your report.
- A summary of the institution's
liability to you if it fails to make or stop certain transactions.
- Circumstances under which the
institution will disclose information to third parties concerning
- A notice that you may be charged
a fee by ATMs where you don't have an account.
In addition to these disclosures,
you will receive two other types of information for most transactions:
terminal receipts and periodic statements. Separate rules apply
to passbook accounts from which pre-authorized transfers are
drawn. The best source of information about those rules is your
contract with the financial institution for that account. You're
entitled to a terminal receipt each time you initiate an electronic
transfer, whether you use an ATM or make a point-of-sale electronic
transfer. The receipt must show the amount and date of the transfer,
and its type, such as "from savings to checking."
When you make a point-of-sale transfer, you'll probably get
your terminal receipt from the salesperson.
You won't get a terminal receipt
for regularly occurring electronic payments that you've pre-authorized,
like insurance premiums, mortgages, or utility bills. Instead,
these transfers will appear on your periodic statement. If the
pre-authorized payments vary, however, you should receive a
notice of the amount that will be debited at least 10 days before
the debit takes place.
You're also entitled
to a periodic statement for each statement cycle in which an
electronic transfer is made.
The statement must show the amount of any transfer, the date
it was credited or debited to your account, the type of transfer
and type of account(s) to or from which funds were transferred,
and the address and telephone number for inquiries. You're entitled
to a quarterly statement whether or not electronic transfers
Keep and compare your EFT receipts
with your periodic statements the same way you compare your
credit card receipts with your monthly credit card statement.
This will help you make the best use of your rights under federal
law to dispute errors and avoid liability for unauthorized transfers.
You have 60 days from the
date a periodic statement containing a problem or error was
sent to you to notify your financial institution. The best way
to protect yourself if an error occurs - including erroneous
charges or withdrawals from an account, or for a lost or stolen
ATM or debit card - is to notify the financial institution by
certified letter, return receipt requested, so you can prove
that the institution received your letter. Keep a copy of the
letter for your records.
fail to notify the institution of the error within 60 days,
you may have little recourse. Under federal law, the institution
has no obligation to conduct an investigation if you've missed
the 60-day deadline.
Once you've notified the financial
institution about an error on your statement, it has 10 business
days to investigate. The institution must tell you the results
of its investigation within three business days after completing
it and must correct an error within one business day after determining
that the error has occurred. If the institution needs more time,
it may take up to 45 days, in most situations, to complete the
investigation - but only if the money in dispute is returned
to your account and you're notified promptly of the credit.
At the end of the investigation, if no error has been found,
the institution may take the money back if it sends you a written
An error also may occur in connection
with a point-of-sale purchase with a debit card. For example,
an oil company might give you a debit card that lets you pay
for gas purchases directly from your bank account. Or you may
have a debit card that can be used for various types of retail
purchases. These purchases will appear on your periodic statement
from the bank. In case of an error on your account, however,
you should contact the card issuer (for example, an oil company
or a bank) at the address or phone number provided by the company.
Once you've notified the company about the error, it has 10
business days to investigate and tell you the results. In this
situation, it may take up to 90 days to complete an investigation.
If no error is found at the end of the investigation, the institution
may take back the money if it sends you a written explanation.
Lost or Stolen ATM or Debit
If your credit card is
lost or stolen, you can't lose more than $50. If someone uses
your ATM or debit card without your permission, you
can lose much more.
If you report an ATM or debit card
missing to the card issuer before it's used without your permission,
you can't be held responsible for any unauthorized withdrawals.
If unauthorized use occurs before
you report it, the amount you can be held responsible for depends
upon how quickly you report the loss to the card issuer.
- If you report the loss within
two business days after you realize your card is missing,
you won't be responsible for more than $50 for unauthorized
- If you fail to report the loss
within two business days after you realize the card is missing,
but do report its loss within 60 days after your statement
is mailed to you, you could lose as much as $500 because of
an unauthorized transfer.
- If you fail to report an unauthorized
transfer within 60 days after your statement is mailed to
you, you risk unlimited loss. That means you could lose all
the money in your account and the unused portion of your maximum
line of credit established for overdrafts.
If you failed to notify the institution
within the time periods allowed because of an extenuating circumstance,
such as lengthy travel or illness, the issuer must reasonably
extend the notification period. In addition, if state law or
your contract imposes lower liability limits, those lower limits
apply instead of the limits in the federal EFT Act.
Once you report the loss or theft
of your ATM or debit card, you're no longer responsible for
additional unauthorized transfers occurring after that time.
Because these unauthorized transfers may appear on your statements,
however, you should carefully review each statement you receive
after you've reported the loss or theft. If the statement shows
transfers that you did not make or that you need more information
about, contact the institution immediately, using the special
procedures provided for reporting errors.
Limited Stop-Payment Privileges
When you use an electronic
fund transfer, the EFT Act does not give you the right to stop
payment. If your purchase is defective or your order is not
delivered, it's as if you paid cash. That is, it's up to you
to resolve the problem with the seller and get your money back.
There is one situation, however,
when you can stop payment. If you've arranged for regular payments
out of your account to third parties, such as insurance companies,
you can stop payment if you notify your institution at least
three business days before the scheduled transfer. The notice
may be oral or written, but the institution may require a written
follow-up within 14 days of the oral notice. If you fail to
provide the written follow-up, the institution's responsibility
to stop payment ends.
Although federal law provides only
limited rights to stop payment, individual financial institutions
may offer more rights or state laws may require them. If this
feature is important to you, you may want to shop around to
be sure you're getting the best "stop-payment" terms
The EFT Act protects your
right of choice in two specific situations regarding use of
electronic fund transfers: First, the Act prohibits financial
institutions from requiring you to repay a loan by electronic
transfer. Second, if you're required to receive your salary
or government benefit check by EFT, you have the right to choose
decide to use EFT, keep these tips in mind:
- Take care of your ATM or debit
card. Know where it is at all times; if you lose it, report
it as soon as possible.
- Choose a PIN for your ATM or
debit card that's different from your address, telephone number,
Social Security number, or birthdate. This will make it more
difficult for a thief to use your card.
- Keep and compare your receipts
for all types of EFT transactions with your periodic statements.
That way, you can find errors or unauthorized transfers and
- Make sure you know and trust
a merchant before you share any bank account information or
pre-authorize debits to your account. Be aware that some merchants
use electronic processing of your check if you sign a receipt
authorizing the transaction.
Where to File Complaints
If you think a financial institution
or company has failed to fulfill its responsibilities to you
under the EFT Act, speak up. In addition, you may wish to complain
to the federal agency listed below that has enforcement jurisdiction
over that company.
Banks of the Federal Reserve System
Consumer and Community Affairs
Board of Governors of the Federal Reserve System
20th & C Streets, NW, Mail Stop 801
Washington, DC 20551
Office of the Comptroller of the Currency
Mail Stop 7-5
Washington, DC 20219
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314
Office of Consumer Programs
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Savings and Loans, and Federally Chartered State Banks
Consumer Affairs Program
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
and Debit or ATM Card Issuers
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