We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is the Electronic Funds Transfer Act?

Mary Elizabeth
Updated May 17, 2024
Our promise to you
America Explained is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At America Explained, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

The Electronic Funds Transfer Act, also known as the EFT Act or Regulation E, is a piece of 1978 United States legislation aimed at clarifying the rights and liabilities of those involved in the transfer of electronic funds, including consumers. It was passed by Congress with the expressed purpose of clarifying rights and liabilities that were determined to be unclear under the consumer protection legislation that was in force at the time. Thus, although the rights and liabilities of all who transfer electronic funds are touched on, protection of the rights of individual consumers was the focus of the Electronic Funds Transfer Act.

Within the EFT Act, transactions that are originated with a check, a draft, or any other type of paper instrument are not considered. Instead, the focus is on transactions that originate through a telephonic device, an electronic terminal, or a computer or magnetic tape; for example, an automated teller machine (ATM) transaction, a point-of-sale transfer, a telephone transfer, or a direct deposit or withdrawal. The type of transaction considered is one that authorizes, instructs, or orders a financial institution to credit or debit an account.

Some of the mandates of the Electronic Funds Transfer Act are of clear benefit to the consumer. For example, the notice requirements state that any fees associated with a transaction must be prominently and conspicuously displayed on or by an automated teller machine prior to the moment at which the consumer makes an irrevocable commitment to completing the transaction. Any fees not disclosed in this manner are prohibited.

For electronic fund transfers in which a consumer’s account is involved, the EFT Act states that the terms and conditions must be disclosed to the consumer when the service is contracted. In addition, the disclosures must be written in comprehensible language and include information such as contact information in the event of an unauthorized fund transfer, the right to stop payment on a preauthorized electronic fund transfer and how to do this, and charges for electronic fund transfer services. Any change in terms by the consumer’s financial institution must be conveyed to the consumer in writing a minimum of 21 days prior to the effective date of the change. Financial institutions are also required to document electronic fund transfers for consumers with periodic statements. The statements must include fees and consumer’s balances at the beginning and end of the period in question.

Preauthorization of electronic fund transfers from a consumer’s account may only be authorized by a consumer in writing, according to the Electronic Funds Transfer Act. The consumer may stop payment on a preauthorized electronic fund transfer either orally or in writing. The limitation is that notification of a stop must be provided at least three business days prior to the date on which the transfer is scheduled. The financial institution may require a confirming written authorization following upon an oral notification, in which case it must inform the consumer of the requirement and where to send the written notification in order to comply with it.

The Electronic Funds Transfer Act also provides a protocol for error resolution and limits the liability of consumers for unauthorized transfers. It clarifies the liability of financial institutions in the case in which they fail to make properly set-up electron funds transfers without an extenuating reason or through failure to credit a deposit, or failure to stop payment when properly requested to do so. It also details situations, such as acts of God, in which the financial institution is not liable.

America Explained is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary Elizabeth
By Mary Elizabeth
Passionate about reading, writing, and research, Mary Elizabeth is dedicated to correcting misinformation on the Internet. In addition to writing articles on art, literature, and music for America Explained, Mary works as a teacher, composer, and author who has written books, study guides, and teaching materials. Mary has also created music composition content for Sibelius Software. She earned her B.A. from University of Chicago's writing program and an M.A. from the University of Vermont.
Discussion Comments
By CoffeeJim — On Oct 14, 2010

The most significant impact of electronic funds transfer system has on our daily lives is the use of debit cards by credit institutions.

Most people do not realize it, but their use of a debit card is considered electronic funds transfer.

Because of this, electronic funds transfer act of 1978, covers you as an individual and dealing with banks and the debit card use that they desired their consumers have. Luckily the electronic funds transfer act of 1978 provides security and stability for consumers that are wishing to use the services of bank organizations.

By FrogFriend — On Oct 14, 2010

Both of the comments on this article have very valid points about the security of electronic funds transfers as well as the balance and restrictions that the safety we desire on these transfers causes.

I personally do not want terrorists capable of transferring money from or to the United States or any country for that matter. But that doesn't mean I want regulation so straight from my bank that I am incapable of but what about my daily financial business.

It is obvious to me that the means in which we have available to our security professionals in identifying individuals as security threats is still inadequate to protect us from the harm of terrorism.

With that thought, one must realize that we as individuals have a duty to help our nation as well.

By Burlap — On Oct 14, 2010

@youbiKan, while I agree with your analysis of the subject on safety of electronic funds transfer, I have to disagree with the increase of security measures.

At what point are we going to decide that the security we want is starting to infringe on the ability for us to be happy and exercise our freedom in this nation.

How much information is too much information to to ask when identifying an individual that is wishing to complete electronic funds transfer at a banking organization.

Other requirements so strict that it actually discourages people from making an electronic funds transfer and are we harming our economy and commerce because of the strict regulations.

By youbiKan — On Oct 14, 2010

In the day an age of terrorism and the fear that we now face in American society the regulation of electronic funds transfers is critical. while the regulations that were passed in 1978 by the United States Congress are very stringent and definitely provided some surety to customers of banks that provide electronic funds transfer, there is still in need for more regulations in the banking industry.

Some electronic funds transfers have become more difficult based on the geographical locations that they are taking place. This still means that we must identify the individuals or organizations that are wishing to transfer funds between banks by evaluating these parties and all, we are able to identify security risks that can happen.

The security of funds transfer is critical to protecting our society from the misuse of funds to purchase any type of weapon systems or harmful materials that will end up causing innocent life to be lost.

Mary Elizabeth
Mary Elizabeth
Passionate about reading, writing, and research, Mary Elizabeth is dedicated to correcting misinformation on the...
Learn more
America Explained, in your inbox

Our latest articles, guides, and more, delivered daily.

America Explained, in your inbox

Our latest articles, guides, and more, delivered daily.