All about Electronic Fund Transfer Act

[img_assist|nid=7667|title=|desc=|link=none|align=left|width=92|height=100]There is hardly any user of the Internet who have never received money transfers. But very few people know what stands behind the smiling girls giving your money to you. And behind them is a serious industry with its rules, rivals and laws.

The Electronic Fund Transfer Act ("EFTA") is the framework for the electronic fund transfer system in the United States ("US").  EFTA establishes the rights, liabilities, and responsibilities of the parties to this e-system.  As EFTA § 1693 notes, the primary objective of this Act is the provision of individual consumer rights.  Surprisingly enough, most Americans do not know their rights, responsibilities, and liabilities when conducting electronic fund transfers, even though this has become a usual practice.   This article illustrates on the consumer liabilities for unauthorized e-fund transfers.   

Definition of Electronic Fund Transfer

Electronic fund transfer is defined as any fund transfer through an "electronic terminal, telephone, or computer or magnetic tape, to order or authorize a financial institution to debit or credit an account." (EFTA § 1693(a)(6). Therefore, paying your bills online or over the phone constitutes an e-fund transfer according to this statutory definition and, as such, it is subject to the EFTA rules.    

State v. Federal Law

E-fund transfers are subject to both state and federal law rules, including the EFTA.  The US Electronic Fund Transfer Act- EFTA- preempts only state laws that are inconsistent with the Act.  Thus, state laws regulating e-fund transfers are applicable law as long as they afford the same or higher protection to users than those afforded by EFTA. (EFTA § 1693q).   

Unauthorized Electronic Fund Transfers

EFTA defines what constitutes an unauthorized electronic fund transfer (§ 1693(a)(e)) and provides three clear scenarios to show what do not constitute an unauthorized e-fund transfer.  Knowing the scope of unauthorized e-fund transfers is imperative to recognize whether as consumers we have the right to complaint before the bank or financial institution for an e-fund transfer 'we consider' unauthorized.  For instance, does the use of your check card by your wife constitute an unauthorized electronic fund transfer? Maybe not, if you gave her the card and consented to its use. 

EFTA states that e-fund transfers initiated by a person, who was furnished with the card, code or other mean of access by the consumer, are not unauthorized funds transfers unless the consumer notifies the bank that that person is no longer authorized.    

What about transactions conducted by the bank in error, are they unauthorized electronic fund transfers?  No, EFTA expressly states that e-fund transfers made by a bank or financial institution in error do not constitute unauthorized fund transfers.  

The final scenario expressly stated in EFTA when defining unauthorized transfers obviously describe the case of a consumer that initiates the e-fund transfer with fraudulent intent, or someone acting in concert with the consumer.  Clearly, those e-funds transfers are not considered unauthorized under the EFTA rules.

In general, EFTA defines an unauthorized electronic fund transfer as the e-transfer initiated by a person other than the consumer without actual authority to initiate the transfer and from which the consumer receives no benefit.  Hence, the consumer authorization and benefit are important elements to review when determining whether a specific e-fund transaction was unauthorized. 

Legal controversies on e-fund transfers usually start by establishing whether there was an unauthorized fund transfer under its statutory definition.  US Courts have been clear in holding that access provided by consumers by means of the intentional tricks of others, do not provide actual authority and, therefore, constitute unauthorized use. See Ognibene v. Citibank, 112 Misc. 2d 219, 446 N.Y.S.2d 845 (1981).

In Ognibene, a consumer gave his card to a bank employee, without providing the access code.  The bank employee transferred funds using the card provided by the consumer; he obtained the access code by observing the consumer in previous transactions.  The defendant, Citibank, claimed this e-fund transfer did not constitute an unauthorized transfer because the consumer had provided the card to the bank employee.  The court concluded that the bank employee did not have actual authority to initiate the transfer and, therefore, Citibank could not hold the plaintiff responsible or liable.   The court held that plaintiff did not initiate the transfer, did not actually authorize anybody to initiate the transfer, and did not benefit from this transfer.   

Consumer Liability for Unauthorized e-Fund Transfers

Consumers may be subject to limited liability for unauthorized e-fund transfers provided that, (1) the access device used for the transfer was an authorized card or other authorized means of access; and (2) the person who actually used the device provided some means of identification (access code, card, etc). (15 U.S.C. § 1693g(a)).  This liability is limited to US$50 or less, or the aggregate value of the unauthorized transactions conducted before the bank was notified of the unauthorized transactions. 

Additionally, if consumers do not report the lost or stolen cards within the following 2 business days they become aware, the bank is not obliged to refund any loss occurred after these 2 days if it can prove that the losses could have not occurred if the consumer had reported the event.   In any event, consumers may not be liable for more than US$500 for any loss occurred after the 2nd business day following the loss and the day the bank is notified. 

Consumers are also partially liable for unauthorized e-fund transfers made 60 days after consumers have received their bank statement.  It is believed that consumers are notified of possible unauthorized use by the statement and failure to act within the following 60 days makes them ineligible for bank refunds.