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Article on Regulation E | Electronic Funds Transfer Act | Summary and Overview

By: Staff Editor
Date: October 21, 2011

The Electronic Funds Transfer Act, passed by Congress and signed into law by President Carter, was created to protect the rights of consumers using electronic means to transfer funds. The Federal Reserve Board is the regulatory agency that oversees its implementation and it formulated Regulation E to enforce the Act’s requirements.

What is Electronic Funds Transfer (EFT)?

According the Federal Reserve Board guidance on Regulation E, the term Electronic Funds Transfer or EFT refers to transactions initiated through electronic terminals, telephones, computers, or magnetic tape that instructs financial institutions to either credit or debit funds from a customer’s asset account.

Overview

The Electronic Funds Transfer Act or Regulation E (12 CFR 205) includes the following sections:

205.1 Authority and purpose.

205.2 Definitions.

205.3 Coverage.

205.4 General disclosure requirements; jointly offered services.

205.5 Issuance of access devices.

205.6 Liability of consumer for unauthorized transfers.

205.7 Initial disclosures.

205.8 Change in terms notice; error resolution notice.

205.9 Receipts at electronic terminals; periodic statements.

205.10 Preauthorized transfers.

205.11 Procedures for resolving errors.

205.12 Relation to other laws.

205.13 Administrative enforcement; record retention.

205.14 Electronic fund transfer service provider not holding consumer's account.

205.15 Electronic fund transfer of government benefits.

205.16 Disclosures at automated teller machines.

205.17 Requirements for electronic communication.

205.18 Requirements for financial institutions offering payroll card accounts.

Summary of Requirements

Applicability

Regulation E requirements apply to, but are not limited to, the following transactions:

POS and ATM transfers,
Direct deposits or withdrawals,
Telephone transfers, and
Transfers initiated through a debit card transaction

Disclosure requirements

Regulation E stipulates that disclosures:

Should be clear and readily understandable
Should be in writing
Should bee in a form that the customer can keep
May be made in a language other than English, but should also be provided in English if the customer requests it
May include additional information and be combined with disclosures required by Truth in Lending Act and Truth in Savings Act
Of multiple accounts held by one customer can be combined as a single statement
For joint accounts held by two or more customers can be provided as one set by the financial institution

Issuing access devices

Access devices such as debit cards can only be provided to a customer if he or she requests a financial institution to provide one either orally or in writing

Consumer’s liability for unauthorized transfers

Regulation E limits a consumer’s liability for unauthorized transfers to $50. These transfers include those arising from theft or loss of an access device.

If the consumer doesn’t notify the depository institution in a timely fashion, the liability may be $500 or unlimited.

Initial disclosures

Regulation E states that financial institutions must initially disclose information regarding the terms and conditions of their EFT services to customers. This information includes:

Consumer’s liability for unauthorized EFTs
Types of EFTs the consumer can make
Limits on the frequency of EFTs or dollar amounts
Fees charged by the institution
Error resolution procedures

Change-in-terms notice

If a financial institution implements adverse changes in fees, consumer liability, types of transfers available or limits on EFTs, it must provide a change-in-terms notice at least 21 days before the changes take effect.

Financial institutions must also issue periodic reminders of their error-resolution procedures.

Terminal receipts and periodic statements

Financial institutions should provide documentation regarding EFTs as terminal receipts and periodic statements.

Both these documents should include the following:

Type of EFT
Amount and date of the transaction
Location of the terminal

Preauthorized transfers

If a customer account is being credited or debited at regular intervals (transactions such as direct deposit of salaries or benefits and preauthorized payment of bills), the financial institution has to notify the customer that the EFT has occurred as scheduled.

Error resolution procedures

If a customer notifies a financial institution that there’s been an error with an EFT, the institution should investigate and resolve the claim within declared deadlines.

Errors covered under this requirement include: