ELECTRONIC FUND TRANSFERS

Instant Money

On his way home last Friday night, John Jones realized he

had no cash for the weekend. The bank was closed, but John had

his bank debit card and the code to use it. He inserted the

the bank; then, using a number keyboard, he entered his code

and pressed the buttons for a withdrawal of $50. John's cash

was dispensed automatically from the machine, and his bank

account was electronically debited for the $50 cash withdrawal.

John's debit card is just one way to use electronic fund

transfer (EFT) systems that allow payment between parties by

substituting an electronic signal for cash or checks.

Are we heading for a checkless society? Probably not. But

a dent in the number of paper checks in the country's banking

system--or a reduction in the rate at which that number has

been growing--is clearly one advantage to electronic banking.

Today, the cost of moving checks through the banking

system is estimated to be approximately 80 cents per check,

including the costs of paper, printing, and mailing. Moreover,

checks--except your own check presented at your own bank--take

time to cash: time for delivery, endorsement, presentation to

another person's bank, and winding through various stations in

the check clearing system. Technology now can lower the costs

of the payment mechanism and make it more efficient and

convenient by reducing paperwork.

EFT in Operation

The national payment mechanism moves money between

accounts in a fast, paperless way. These are some examples of

EFT systems in operation:

Teller Machines (ATMs). Consumers can do their banking

without the assistance of a teller, as john Jones did to get

cash, or to make deposits, pay bills, or transfer funds from

one account to another electronically. These machines are used

with a debit or EFT card and a code, which is often called a

personal identification number or "PIN."

(POS) Transactions. Some EFT cards can be used when

shopping to allow the transfer of funds from the consumer's

account to the merchant's. To pay for a purchase, the consumer

presents an EFT card instead of a check or cash. Money is taken

out of the consumer's account and put into the merchant's

account electronically.

Preauthorized Transfers. This is a method of automatically

depositing to or withdrawing funds from an individual's

account, when the account holder authorizes the bank or a third

party (such as an employer) to do so. For example, consumers

can authorize direct electronic deposit of wages, Social

Security or dividend payments to their accounts. Or, they can

authorize financial institutions to make regular, ongoing

payments of insurance, mortgage, utility or other bills.

Telephone Transfers. Consumers can transfer funds from one

account to another--from savings to checking, for example--or

can order payment of specific bills by phone.

What Law Applies?

THE ELECTRONIC FUND TRANSFER ACT gives consumers answers

to several basic questions about using EFT services.

A check is a piece of paper with information that

authorizes a bank to withdraw a certain amount of money from

one person's account and pay that amount to another person.

Most consumer questions center on the fact that EFT systems

transmit the information without the paper. Thus, they ask:

-- What record--what evidence--will I have of my

transactions?

-- How easily will I be able to correct errors?

-- What if someone steals money from my account?

-- What about solicitations?

-- Do I have to use EFT services?

Here are the answers the EFT Act gives to consumer

questions about these systems.

What Record Will I Have of My Transactions?

A cancelled check is permanent proof that a payment has

been made. Is proof of payment available with EFT services?

The answer is yes. If you use an ATM to withdraw money or

make deposits, or a point-of-sale terminal to pay for a

purchase, you can get a written receipt--much like the sales

receipt you get with a cash purchase--showing the amount of the

transfer, the date it was made, and other information. This

receipt is your record of transfers initiated at an electronic

terminal.

Your periodic bank statement must also show all electronic

transfers to and from your account, including those made with

debit cards, by a preauthorized arrangement, or under a

telephone transfer plan. It will also name the party to whom

payment has been made and show any fees for EFT services (or

the total amount charged for account maintenance) and your

opening and closing balances.

Your monthly statement is proof of payment to another

person, your record for tax or other purposes, and your way of

checking and reconciling EFT transactions with your bank

balance.

How Easily Will I Be Able to Correct Errors?

The way to report errors is somewhat different with EFT

services than it is with credit cards (see page 22 for

correcting credit billing errors). But, as with credit cards,

financial institutions must investigate and correct promptly

any EFT errors you report.

If you believe there has been an error in an electronic

fund transfer relating to your account:

1. Write or call your financial institution immediately if

possible, but no later than 60 days from the date the first

statement that you think shows an error was mailed to you. Give

your name and account number and explain why you believe there

is an error, what kind of error, and the dollar amount and date

in question. If you call, you may be asked to send this

information in writing within 10 business days.

2. The financial institution must promptly investigate an

error and resolve it within 45 days. However, if the financial

institution takes longer than 10 business days to complete its

investigation, generally it must put back into your account the

amount in question while it finishes the investigation. (The

time periods are longer for POS debit card transactions and for

any EFT transaction initiated outside the United States.) In

the meantime, you will have full use of the funds in question.

3. The financial institution must notify you of the

results of its investigation. If there was an error, the

institution must correct it promptly--for example, by making a

re-credit final.

If it finds no error, the financial institution must

explain in writing why it believes no error occurred and let

you know that it has deducted any amount re-credited during the

investigation. You may ask for copies of documents relied on in

the investigation.

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