Electronic Fund Transfers

Electronic banking, also known as electronic fund transfer (EFT), uses computer and electronic technology in place of checks and other paper transactions. EFTs are initiated through  devices like cards or codes that let you, or those you authorize, access your  account. Many financial institutions use ATM or debit cards and Personal  Identification Numbers (PINs) for this purpose. Some use other types of debit  cards that require your signature or a scan. For example, some use radio  frequency identification (RFID) or other forms of "contactless"  technology that scan your information without direct contact with you. The  federal Electronic Fund Transfer Act (EFT Act) covers some electronic consumer  transactions.

Here are some common EFT services: 

ATMs are electronic terminals that let you bank almost  virtually any time. To withdraw cash, make deposits, or transfer funds between  accounts, you generally insert an ATM card and enter your PIN. Some financial institutions and ATM owners charge a fee, particularly if you don't have  accounts with them or if your transactions take place at remote locations.  Generally, ATMs must tell you they charge a fee and the amount on or at the  terminal screen before you complete the transaction. Check with your  institution and at ATMs you use for more information about these fees.

Direct Deposit lets you authorize specific deposits —  like paychecks, Social Security checks, and other benefits — to your account on  a regular basis. You also may pre-authorize direct withdrawals so that recurring bills — like insurance premiums, mortgages, utility bills, and gym memberships  — are paid automatically. Be cautious before you pre-authorize recurring  withdrawals to pay companies you aren't familiar with; funds from your bank  account could be withdrawn improperly. Monitor your bank account to make sure  direct recurring payments take place and are for the right amount.

Pay-by-Phone Systems let you call your financial institution  with instructions to pay certain bills or to transfer funds between accounts.  You must have an agreement with your institution to make these transfers. 

Personal Computer Banking lets you handle many banking transactions  using your personal computer. For example, you may use your computer to request  transfers between accounts and pay bills electronically.

Debit Card Purchase or Payment  Transactions let you  make purchases or payments with a debit card, which also may be your ATM card.  Transactions can take place in-person, online, or by phone. The process is similar to using a credit card, with some important exceptions: a debit card  purchase or payment transfers money quickly from your bank account to the  company's account, so you have to have sufficient funds in your account to  cover your purchase. This means you need to keep accurate records of the dates  and amounts of your debit card purchases, payments, and ATM withdrawals. Be  sure you know the store or business before you provide your debit card  information to avoid the possible loss of funds through fraud. Your liability for unauthorized use, and your rights for dealing with errors, may be different for  a debit card than a credit card.

Electronic Check Conversion converts a paper check into an electronic  payment in a store or when a company gets your check in the mail. 

When you give your check to a cashier in a  store, the check is run through an electronic system that captures your banking  information and the amount of the check. You sign a receipt and you get a copy  for your records. When your check is given back to you, it should be voided or  marked by the merchant so that it can't be used again. The merchant  electronically sends information from the check (but not the check itself) to your bank or other financial institution, and the funds are transferred into  the merchant's account.

When you mail a check for payment to a  merchant or other company, they may electronically send information from your  check (but not the check itself) through the system; the funds are transferred  from your account into their account. For a mailed check, you still should get  notice from a company that expects to send your check information through the  system electronically. For example, the company might include the notice on your monthly statement. The notice also should state if the company will electronically  collect a fee from your account — like a "bounced check" fee — if you  don’t have enough money to cover the transaction. 

Be careful with online and telephone  transactions that may involve the use of your bank account information, rather  than a check. A legitimate merchant that lets you use your bank account  information to make a purchase or pay on an account should post information  about the process on its website or explain the process on the phone. The  merchant also should ask for your permission to electronically debit your bank  account for the item you're buying or paying on. However, because online and  telephone electronic debits don't occur face-to-face, be cautious about sharing  your bank account information. Don't give out this information when you have no  experience with the business, when you didn’t initiate the call, or when the  business seems reluctant to discuss the process with you. Check your bank  account regularly to be sure that the right amounts were transferred. 

Not all electronic fund transfers are covered by the EFT Act. For example, some financial institutions and merchants issue cards with cash value stored electronically on the card itself. Examples include prepaid phone cards, mass transit passes, general purpose reloadable cards, and some gift cards. These "stored-value" cards, as well as transactions using them, may not be covered by the EFT Act, or they may be subject to different rules under the EFT Act. This means you may not be covered for the loss or misuse of the card. Ask your financial institution or merchant about any protections offered for these cards.