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- 1 What is the Electronic Funds Transfer Act? The Electronic Funds Transfer Act (EFTA) is a consumer protection measure that went into law in 1978. The EFTA establishes your rights and liabilities, as well as the liabilities of financial institutions, when you engage in the electronic transfer of money. The most important aspect of the EFTA is how it shields you from liability if your credit card or debit card is lost or stolen. The EFTA says you are not liable for charges on your card after you lose it or someone steals it. The minute you report a lost or stolen card, you are no longer liable for charges on that card. Electronic Funds Transfer Definition and Examples According to the text of the Electronic Funds Transfer Act, an electronic funds transfer is “a funds transfer initiated through an electronic terminal, telephone, computer (including online banking) or magnetic tape for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit a consumer’s account.” Whenever you use an electronic method to move money around, whether it’s a withdrawal, deposit, or purchase, it’s an electronic transfer. Here are some examples: Automatic Teller Machine (ATM): An ATM allows you to make withdrawals, deposit/transfer funds, and check your account balance electronically. The first official ATM appeared on June 27, 1967 at a Barclays bank in London. Curiously, no single inventor can be credited with the invention of the cash vending machine. Cards: Debit cards initiate a checking account transaction, while credit cards allow you to borrow funds from a financial institution. Point-Of-Sale (POS): Whenever you make a purchase with credit or debit card, a request for an electronic funds transfer occurs at the point of sale. When your financial institution’s digital processes verify your card, the request is granted, and the amount of your purchase is entered onto an electronic ledger and applied to your account balance. Phone: You can make an electronic funds transfer via phone to make purchases, pay bills, and transfer money between financial accounts. To do so, you have to provide numerical account information and information to verify your identity. Direct Deposit: By providing bank account information to your employer, you can authorize them to pay you via electronic funds transfer. Online: Electronic funds transfers happen online in the form of e-banking and e-commerce, as well as via cryptocurrency exchanges. People spent $2.3 trillion online in 2017, and analysts believe that number could rise to $4.88 trillion by 2021. People make online EFTs via apps like Paypal and Venmo, by entering credit or debit card information into forms on merchant websites, and by providing bank account information to recipients. EFTA Prepaid Accounts Rule Not too long ago, prepaid cards didn’t have the same fraud and loss protection as other electronic funds. Many consumers without bank accounts would use prepaid cards in order to avoid overdraft fees and other trappings of the banking system, but if someone stole your prepaid card, you were liable for the loss. Early in 2018, the Consumer Financial Protection Bureau (CFPB) issued a rule to protect people who use prepaid debit cards under Regulation E (Regulation E puts the Electronic Funds Transfer Act into effect). Starting April 1, 2019, people who use prepaid cards will be protected from loss and fraud if they register the card. To register the card, you have to provide identity verification information, such as your Social Security number, to the card issuer. Once your card is registered, you can dispute fraudulent charges or electronic errors, and you’re protected against loss or theft, just like you would be with a regular debit card. Even if you don’t register it, before you purchase a prepaid debit card the card issuer has to provide you with clear information as to any fees you could incur with its use. Furthermore, you’ll now have free and easy access to account information by phone. What is the Purpose of the Electronic Funds Transfer Act?
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