Electronic Funds Transfer Act
The Electronic Fund Transfer Act (EFTA), also known as Regulation E, created protections against unauthorized electronic fund transfers (EFTs) for consumers using certain electronic banking and financial services, such as debit card transactions, electronic withdrawals, transfers, and deposits through automated teller machines (ATMs), automated clearinghouse systems, and remote banking programs. It also covers transfer of funds, check guarantee or authorization services, and transfers initiated by telephone between a consumer and a financial institution in certain situations (See: Electronic Fund Transfer Act). According to 12 C.F.R. § 1005.2 (m), an authorized electronic fund transfer (EFT) refers to an electronic fund transfer from a consumer's account initiated by a person other than the consumer” without actual authority to initiate the transfer and from which the consumer receives no benefit.”
After the transition from physical checks to electronic monetary transfers, Congress enacted the EFTA in 1978 to establish trust and predictability amongst consumers using electronic methods of payments where errors or fraud occur. The Act requires financial institutions to allow consumers to dispute incorrect financial statements, and if they should not agree, the act specifies means of resolving the dispute between the consumer and institution. Financial institutions are required to give consumers detailed information regarding the duties, rights, and liabilities of the consumer and institution regarding electronic fund transfers.
In situations where fraud occurs, the Act requires consumers and the financial institutes to communicate the fraud within certain timeframes to receive limited liability for the transaction. Consumers will only be held liable for $50 of a fraudulent transaction if reported within 2 days, $500 if reported within 60 days, and potentially unlimited liability after 60 days.
[Last reviewed in March of 2025 by the Wex Definitions Team]
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