You’re a responsible consumer. You watch your spending, and you carefully review your monthly bank statement when it arrives. This month, as you look over the transactions in your statement, you find a withdrawal you don’t recognize. As soon as you find a bank error, you need to take action.
But what should you do? What will your bank do? What are your legal rights? Will you get your money back?
If you have discovered an unauthorized electronic transfer in your account, you are probably protected by the Electronic Fund Transfer Act (EFTA). This act spells out what you need to do to protect your rights and limit your financial losses and what the bank must do when you report a bank error.
The Electronic Fund Transfer Act was created to establish the rights, responsibilities, and liabilities of consumers who use electronic fund transactions and the financial institutions that offer them.
According to Regulation E §1005.3(a), the EFTA applies to, “any electronic fund transfer that authorizes a financial institution to debit or credit a consumer’s account” and §1005(1)(b) states “the primary objective of the act… is the protection of individual consumers engaging in electronic fund transfers and remittance transfers.”
Perhaps the most important protection provided by the EFTA is protection against unauthorized charges. Under the EFTA’s “Consumer Liability” provision (§1693g) and Regulation E (§1005.6), consumers are generally not liable for unauthorized transactions on their accounts as long as they contact the bank within certain time limits.
Regulation E also defines which bank errors fall under the EFTA. The most common “errors” include:
If you find an unauthorized electronic transfer, it is critical to report the problem to your bank as soon as possible. Your potential loss depends on how quickly you notify your bank. You don’t have to follow any certain format, but you need to share your name and account number, why you believe there is a bank error and if possible, details about the error including the date(s), type(s), and amount(s) of any unauthorized transactions.
When you find a bank error, it’s a good idea to immediately notify your bank by phone or go to a bank office in person. However, even if you provide verbal notice, you should always send written notice of the problem and request a return receipt to prove when the bank received your information. Include copies of any documents that support your dispute and a copy of your periodic statement with the disputed items circled or highlighted. Keep a copy of everything you send for your records.
In very broad terms, if you notify the bank within two business days of learning about the problem, your potential losses should be limited to $50. If you miss the two-day window but notify your bank within 60 days of the date your monthly statement was issued, your losses may go up to $500. However, if you wait longer than 60 days from the date of the statement that showed the bank error, your liability could be much greater.
This free Consumer’s Guide to the Electronic Funds Transfer Act provides more details and specific examples of EFTA notification and liability rules.
Once you notify your bank about an unauthorized electronic fund transfer (EFT), the bank is required to take certain steps. First, the bank may ask you to provide written confirmation of your dispute within 10 days from when you called or went to the bank in person to make a verbal complaint. If the bank asks for written proof, make sure you provide the requested information within 10 days or you risk losing your right to reimbursement.
Next, the bank must promptly and reasonably investigate your dispute to determine if there is an error. It must respond within 10 days of receiving your notice. Also, the bank must report its findings within three days of reaching a conclusion. Finally, the bank must correct the error within one business day if it determines there was an error.
If the bank needs more than 10 days to do its investigation, the law allows up to 45 days to finalize its review. If the bank takes more than 10 days, it must return the disputed amount to your account, including interest if applicable, within 10 days of receiving your complaint. This is known as a “provisional credit.”
Also, the bank must notify you within two days that the provisional credit is in your account, how much was credited back, and that you can use those funds while the bank completes its analysis. The funds are yours to use until a final determination is made.
If the bank finds an error, it must correct the error within one business day of completing its investigation and report the investigation outcome within three days. If there was a provisional credit of the disputed funds, that refund becomes final.
If the bank determines there was no error, it must send you a written explanation of its investigation and the results. It also must explain that you have the right to review any documents the bank used to reach its conclusion. If you request those documents, the bank must provide them promptly.
If your bank reverses the provisional credit (takes the amount from your account again) after its investigation, it must tell you when and the amount debited. The bank should still process third-party payments for five days without charging any overdraft fees that occur because of the credit reversal.
Sometimes banks don’t follow EFTA requirements. For example, a bank may:
Although these actions or omissions are violations of the EFTA, some financial institutions are lazy about following procedures. They may hire overseas companies that don’t understand or follow investigation rules, or they simply don’t care about their customers’ rights.
When a bank error happens, although it’s not your fault, you may end up paying the price. If your bank doesn’t follow the rules, correct the error, and return your money, you may feel like there’s nowhere to turn. We created the Financial Justice Initiative to help consumers resolve these problems.
Combining two of the country’s leading consumer protection law firms—Schlanger Law Group on the East Coast and Terrell Marshall Law Group on the West Coast—we serve consumers throughout the country who are facing financial institutions that don’t abide by the law. For a free case consultation, call (206) 775-7310 or complete this contact form today.