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Electronic Fund Transfer Act

person holding a credit card in front of a laptop

Pre-authorized transactions are a common and convenient way for consumers to stay on top of bills and subscriptions. Services from credit card to entertainment companies offer (and emphasize) auto-billing as insurance that you’ll never miss a payment. But authorizing any institution to automatically withdraw money from a personal account has the potential to cause problems. 

Congress enacted the Electronic Fund Transfer Act (EFTA) in 1978 to establish the rights and liabilities of consumers and responsibilities of businesses engaging in electronic funds transfer. The legislation came about with the rise of new technologies in banking such as the ATM, and has seen several updates in the past 40 years.

What is the EFTA and what does it protect?

Today, the EFTA applies to many services including:

  • ATMs 
  • Direct Deposit
  • Pay-by-phone
  • Internet transactions such as checking account activity, paying bills and transferring funds.
  • Debit card purchases online or in person
  • Electronic check conversion (mobile deposit)


The EFTA requires financial institutions to disclose important transaction information before any transfer takes place. For example, a bank must disclose ATM users if a fee applies for using their machines. Other required disclosures include but are no limited to:

  • Consumer liability for unauthorized electronic funds transfers
  • Telephone and address of the person/office to whom you can report unauthorized transactions
  • Any charges/fees associated with electronic fund transfers
  • The consumer’s right to stop payment of a preauthorized transaction (and how to do so)
  • Upcoming changes to consumer accounts

Fraud under the EFTA

Have you ever had a lost or stolen credit card? The EFTA contains specific protections for consumers against any liability for fraudulent charges.

For unauthorized charges involving a lost or stolen credit or debit card, customers have 60 days to report the violation. If the card is reported right away, the consumer is not liable for any further unauthorized charges. Once notified, the financial institution has 10 (business) days to investigate your claim. In the event that the institution refuses to credit your account, you could potentially sue for violations of the EFTA. 

Damages could include the money lost and punitive damages ranging from $100-$1,000. However, failure to notify a financial institution within those 60 days could result in full liability– meaning the customer cannot recoup losses or file suit.

Unauthorized withdrawals 

Similar to debit and credit card fraud, if you have an established connection between your financial institution and a subscription service, and that service deducts from your account without consent, the EFTA is useful.

In early 2021, mortgage servicer Nationstar initiated tens of thousands of unauthorized withdrawals from its customers. The company attributed the glitch to its payment processor, ACI, but Nationstar charged some customers as much as $50,000 in one day.  Maginnis Howard has filed class action lawsuits in five states, including North Carolina, on behalf of consumers impacted by Nationstar and its payment processor, ACI Worldwide.  

The EFTA stipulates financial institutions must “provide reasonable advance notice to the consumer… of the amount to be transferred and the scheduled date of the transfer”. Nationstar did not provide any warning about the deductions made from consumer accounts. 

Although Nationstar credited to the appropriate amount account-holders within the following days, complications arose from the incident.  The consumers were deprived of their own property, unable to make other payments, and savings accounts were unable to accrue interest. 

Electronic Fund Transfer Act Attorneys

Electronic services are an essential part of everyday commerce. When properly executed, these transfers make retail transactions and banking that much easier. However, when the contract between purchaser and service provider is violated, the consequences can be far-reaching.

If a service provider or financial institution has wrongfully withdrawn funds from your account, we may be able to help. 

The experienced consumer protection attorneys at Maginnis Howard settled cases against large corporations totaling millions of dollars. Our results speak for themselves, and our clients are our number one priority. Reach us by phone at (919) 526-0450, by email, or through our contact page.