Unauthorized Bank Transactions

Have you ever heard the saying “the devil is in the details?” Well, with regard to unauthorized bank transactions and the Electronic Funds Transfer Act (“EFTA”), “the dollars are in the details”—when the “details” are the fine print that accompanies all electronic fund transfer agreements.

Simply put, you can stop a pre-authorized electronic fund transfer by notifying the financial institution orally or in writing at any time up to three business days preceding the scheduled date of such transfer. Any pre-authorized electronic fund transfer agreement that says otherwise violates the EFTA (and if your agreement for a pre-authorized electronic fund transfer isn’t in writing, that too violates the EFTA).

Violations of the EFTA may entitle you to up to $1,000 in statutory damages, plus actual damages, plus payment of your attorney fees. Banks, credit unions, service providers such as a cellular providers or a utility company, credit card companies, debt collectors, payday lenders and many more businesses are regulated by the EFTA. How many times a day or a week do you deal with these types of companies? Because industry experts opine that more than two out of every three electronic fund transfers violate this law… To know whether your EFTA rights have been violated, answer these questions:

1. Are you paying any debts or bills on a recurring basis (i.e. on a monthly basis) via your debit card? Examples may include car payments, insurance payments, student loans, payments on debts, or other bills.
2. Are you paying any debts or bills on a recurring basis (i.e. on a monthly basis) via an automatic withdrawal from your checking or savings account?
3. If yes, do you have a written agreement authorizing these debits or withdrawals?
   a. Did you sign the written agreement authorizing these debits or withdrawals?
   b. Did you receive a written confirmation authorizing these debits or withdrawals?

How does the Electronic Funds Transfer Act work?

The Electronic Fund Transfer Act (EFTA, 15 U.S.C. §§ 1693-1693r, as amended) works to protect you during electronic funds transfer, including direct deposits, point of sale (POS), debit cards withdrawals, and ATM cards. Violations of your EFTA rights may entitle you to up to $1,000 in statutory damages, plus actual damages, plus payment of your attorney fees.

What are EFTA rights and what is required?

The Electronic Fund Transfer Act (“EFTA”) protects consumers by regulating banks and others that collect payments through electronic transfer or charge fees for the use of debit cards and ATMs. The EFTA also requires prompt investigation of consumer complaints and errors regarding electronic debits or credits from the consumer’s bank account.

What businesses are regulated by the EFTA?

Common examples of entities which may violate your EFTA rights include banks, credit unions, service providers such as a cellular providers or a utility company, credit card companies, debt collectors, payday lenders and companies to which automatic monthly payments are made (such as a lender for a car loan).

When does the EFTA apply?

Common instances where the EFTA applies include pre-authorized transfers (when funds are automatically withdrawn from an individual’s account) and when the account holder authorizes the third party (such as a collector) to do so. The EFTA also regulates banks that charge ATM and debit card overdraft fees, requiring certain disclosures be made before the bank may charge for either service. Many other types of electronic payments that are regulated by the EFTA, including:

1. automatic bill pay,
2. direct deposits,
3. point of sale (POS), and
4. ATM/debit cards withdrawals.

The EFTA also provides you with certain rights when you notify your bank of an error regarding your account. And, the financial institution is required to promptly investigate errors you report.

Additionally, if pre-authorized payments from your account vary in amount, 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.

Do I have to agree to use EFT?

The EFTA 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 your funds. The financial institution must also give you the following information about your electronic fund transfer rights and responsibilities, including:

• 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 unauthorized transfer;
• 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.

Is it hard to correct EFT errors?

Reporting errors is different with EFT services than it is with credit cards (see the Fair Credit Billing Act 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, 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.

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 question.

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 re-credit 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 re-credited during the investigation. You may ask for copies of documents relied on in the investigation.

Are loss or theft of EFTs protected?

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 (more info). 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 code. 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.