The Electronic Fund Transfer Act (EFTA), sometimes referred to as Regulation E or Reg E, is a federal law that provides some guardrails for consumers against fraud and account errors. While it covers most types of transactions, there are some crucial exceptions.

The EFTA was enacted in 1978 in response to a growing shift from using physical checks as payment to electronic payment methods. As such, the EFTA protects electronic transactions, like debit card payments and online transfers, by granting consumers the right to dispute transactions and establishing consumers’ liability for unauthorized transactions.

Some examples of unauthorized transactions include:

  • A debit card gets stolen and is used by the thief to make a purchase.
  • Your personal information is stolen and used to transfer money out of your account using Zelle.
  • A subscription service charges a monthly fee after you cancel the subscription.
  • Someone threatens you at an ATM and forces you to make a withdrawal.
  • The financial institution that hosts the account makes a bookkeeping error affecting you.

Additionally, the EFTA provides guidelines on overdraft protection. It prohibits banks from charging an overdraft fee without the account holder’s permission. In other words, the account holder must opt-in to an overdraft protection program that charges a fee for overdrafts, and if not, then the transaction will simply be declined. This policy does not apply to recurring payments such as utility bills.

Credit card transactions are not included in EFTA regulations, since they are covered by a separate law called the Fair Credit Billing Act.

What does the EFTA protect and not protect?

Under the EFTA, most types of electronic transactions are protected from errors and fraud, though there are some exclusions.

The types of transactions that are protected include:

  • ATM transactions
  • Direct deposits
  • Over-the-phone payments
  • Online payments and transfers
  • Debit card transactions
  • Electronic check conversion
  • Peer-to-peer (P2P) payments

Transaction types not protected by the EFTA are:

  • Paper checks: While banks may independently offer protection for check-related fraud, they are not required to under federal law.
  • Wire transfers: The definition of electronic fund transfers excludes wire transfers since they are used to transfer funds between financial institutions.
  • Prepaid cards: This includes gift cards, stored-value cards and prepaid phone cards.

Are there limits to how much money is protected?

There are no limits to how much money is protected in a single transaction. However, consumers may be held liable for some or all of the unauthorized transaction amount depending on when they report them.

If the unauthorized transaction is reported within two days, the consumer is liable for no more than $50. If it’s reported within 60 days, the consumer may lose up to $500. After 60 days, there is no requirement for a financial institution to investigate an unauthorized transaction and the consumer may be liable for all of the lost money.

How to dispute an unauthorized transaction

1. Take action as soon as possible

Always report unauthorized transactions as soon as you notice them, so that you aren’t held liable for any stolen or lost money. It’s important to regularly check your account and look out for any suspicious withdrawals. One way to help monitor your account for suspicious activity is to set up bank alerts.

Even if it is a small amount, it’s important to report the transaction so that the thief does not continue to steal larger sums.

2. Report the unauthorized transaction to your financial institution

If you’ve noticed an unauthorized transaction, call your financial institution to report it. The Consumer Financial Protection Bureau (CFPB) also recommends that you follow up with a written letter describing the transaction and keep a copy of it for your records.

3. Keep track of the financial institution’s response

The financial institution has 10 business days to begin an investigation into the report, as enforced by the EFTA. After the investigation concludes, the institution must share its results with you within three days. Investigations may take up to 45 days in some cases, but the bank must give you the disputed funds until the investigation concludes.

If the bank or credit union does not adhere to these guidelines, you can submit a complaint online to the CFPB. The financial institution may owe you punitive damages between $100 and $1,000 for not following the EFTA rules.

Bottom line

The EFTA ensures that you will be responsible for a minimal amount of lost or stolen money — but that’s only if you report any unauthorized transactions quickly. You have 60 days to dispute the transaction before becoming liable for all of the amount in question.

Since checks and wire transfers are not covered by the EFTA, it may be safer to send money by other means when possible.