The 1970s Law That Protects Your Electronic Bank Transactions

Today, if your debit card is stolen and used for purchases or your bank makes an accounting error that costs you money, there is a good chance you will recover most, if not all, of the funds. However, that was not always the case. Thanks to the Electronic Fund Transfer Act of 1978 (EFTA), individuals now have some protections when it comes to electronic bank transfers. According to Bankrate, the EFTA was enacted as banks introduced ATMs and electronic transfers, accelerating the decline of paper checks.

With Americans losing a terrifying amount of money to scams and fraud, the law and its amendments have kept many from losing their hard-earned money, though the protections are not perfect. According to the Federal Reserve's Report on the Economic Well-Being of U.S. Households, 63% of people who experienced non-credit-card fraud in 2024 lost money, and only 32% recovered their losses. The EFTA is also the reason a New York woman will receive $3.5 million after Citibank failed to protect her from a fraud scheme that cost her $772,000.

The EFTA provides several protections for consumers, but it is not a blanket coverage for all types of fraud. Because the law applies only to electronic transfers, it covers ATM withdrawals, direct deposits, recurring payments, ACH transactions, and debit card purchases. The act does not cover credit card purchases and checks. Zelle payments are more complicated under the law. Under Regulation E of the EFTA, Zelle payments are covered only if the bank deems the transaction unauthorized. So it may be smart to follow best practices when using Zelle. When it comes to fraud, the EFTA limits consumer liability for unauthorized transactions.

An unauthorized transaction is defined as an electronic transfer initiated without the account owner's permission. These transactions occur if someone accesses your debit card or gains access to your bank account. In contrast, impersonation scams trick people into moving money through authorized transactions, so don't expect banks to provide protection as they would in a traditional hack or theft. Under the law, if an individual reports a loss from an unauthorized transaction, banks must investigate the claim and provide provisional credit if the process takes longer than 10 days. However, these protections are tied to strict timelines. Reporting the loss within two business days limits liability to $50. Reporting after two days but within 60 days makes individuals responsible for up to $500. Waiting longer than 60 days, however, may leave the individual liable for the full amount, making recovery unlikely.