ELECTRONIC FUND TRANSFERS

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
card into an automated teller machine outside the front door of
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
recredit 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 recredited during the
investigation. You may ask for copies of documents relied on in
the investigation.


What About Loss or Theft?


It's important to be aware of the potential risk in using
an EFT card, which differs from the risk on a credit card.

On lost or stolen credit cards, your loss is limited to
$50 per card (see page 25). On an EFT card, your liability for
an unauthorized withdrawal can vary:

-- Your loss is limited to $50 if you notify the financial
institution within two business days after learning of
loss or theft of your card or code.

-- But, you could lose as much as $500 if you do not tell the
card issuer within two business days after learning of the
loss or theft.

-- If you do not report an unauthorized transfer that appears
on your statement within 60 days after the statement is
mailed to you, you risk unlimited loss on transfers made
after the 60-day period. That means you could lose all the
money in your account plus your maximum overdraft line of
credit.

Example:

On Monday, john's debit card and secret code were stolen.
On Tuesday, the thief withdrew $250, all the money John had in
his checking account. Five days later, the thief withdrew
another $500, triggering John's overdraft line of credit. John
did not realize his card was stolen until he received a
statement from the bank, showing withdrawals of $750 he did
not make. He called the bank right away. John's liability is
$50.

Now suppose that when john got his bank statement he
didn't look at it and didn't call the bank. Seventy days after
the statement was mailed to john, the thief withdrew another
$1,000, reaching the limit on John's line of credit. In this
case, John would be liable for $1,050 ($50 for transfers before
the end of the 60 days; $1,000 for transfers made more than 60
days after the statement was mailed).


What About Solicitations?


A financial institution may send you an EFT card that is
VALID FOR USE only if you ask for one, or to replace or renew
an expiring card. The financial institution must also give you
the following information about your rights and
responsibilities:

-- A notice of your liability in case the card is lost or
stolen;

-- A telephone number for reporting loss or theft of the card
or an unauthorized transfer;

-- A description of its error resolution procedures;

-- The kinds of electronic fund transfers you may make and
any limits on the frequency or dollar amounts of such
transfers;

-- Any charge by the institution for using EFT services;

-- Your right to receive records of electronic fund
transfers;

-- How to stop payment of a preauthorized transfer;

-- The financial institution's liability to you for any
failure to make or to stop transfers; and

-- The conditions under which a financial institution will
give information to third parties about your account.

Generally, you must also get advance notice of any change
in the account that would increase your costs or liability, or
limit transfers.

A financial institution may send you a card you did not
request only if the card is NOT VALID FOR USE. An "unsolicited"
card can be validated only at your request and only after the
institution makes sure that you are the person whose name is on
the card. It must also be sent with instructions on how to
dispose of an unwanted card.


Do I Have to Use EFT?


The EFT Act forbids a creditor from requiring you to repay
a loan or other credit by EFT, except in the case of overdraft
checking plans. And, although your employer or a government
agency can require you to receive your salary or a government
benefit by electronic transfer, you have the right to choose
the financial institution that will receive your funds.


Special Questions About Preauthorized Plans


Q. How will I know a preauthorized credit has been made?

A. There are various ways you may be notified. Notice may
be given by your employer (or whoever is sending the funds)
that the deposit has been sent to your financial institution.
Otherwise, a financial institution may provide notice when it
has received the credit or will send you a notice only when it
has not received the funds. Financial institutions also have
the option of giving you a telephone number you can call to
check on a preauthorized credit.

Q. How do I stop a preauthorized payment?

A. You may stop any preauthorized payment by calling or
writing the financial institution, so that your order is
received at least three business days before the payment date.
Written confirmation of a telephone notice to stop payment may
be required.

Q. If the payments I preauthorize vary in amount from
month to month, how will I know how much will be transferred
out of my account?

A. You have the right to be notified of all varying
payments at least 10 days in advance.

Or, you may choose to specify a range of amounts and to be
told only when a transfer falls outside that range. You may
also choose to be told only when a transfer differs by a
certain amount from the previous payment to the same company.

Q. Do the EFT Act protections apply to all preauthorized
plans?

A. No. They do not apply to automatic transfers from your
account to the institution that holds your account or vice
versa. For example, they do not apply to automatic payments
made on a mortgage held by the financial institution where you
have your EFT account. The EFT Act also does not apply to
automatic transfers among your accounts at one financial
institution.