Protection From Electronic Banking Fraud and Errors

illustration of electronic Money

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In a world of instant electronic payments and money transfers, you might worry about a simple mistake or fraud draining your bank account. Your money could be withdrawn by somebody thousands of miles away, and you’ll never know about it unless you review your accounts or start getting overdraft notices.

In many cases, you do not have to pay when something goes wrong with your bank account. Federal law gives you the right to have those fraudulent charges removed. But you also have the responsibility that comes with those rights. Your job is to monitor your accounts and report any problems to your bank or credit union quickly.

Federal Law

The Electronic Fund Transfer Act protects electronic funds transfers (EFTs) in bank accounts. For example, your debit card is protected because it pulls directly from your checking account, but fraud protection for your credit card is covered by a separate law: the Fair Credit Billing Act.

Your bank or card issuer might offer benefits above and beyond what’s required by law. Even if you have zero liability, you still might be without cash in your account for a few days while things are sorted out.

The EFTA protects you from any errors or fraud that affect your account. Common examples of protected transactions include:

  • ATM withdrawals
  • Debit card transactions completed in-person, online, or by phone
  • Paper checks converted to electronic checks
  • Transfers between bank accounts
  • Transfers in and out of your accounts, such as direct deposit or online bill payments. However, if your bank prints and mails a check, the payment might not be covered.

Fraudulent Transactions

If your debit card gets stolen, it’s important to act quickly. If you notify your bank of the loss before any unauthorized charges hit your account, you aren’t liable for the charges. However, waiting can cost you.

You can be held responsible for up to $50 of unauthorized charges if you notice the charges and tell your bank of the loss within two business days of the loss. The more time you allow to pass, the greater your portion of uncovered expenses grows. You may be responsible for up to $500 of unauthorized charges if you wait to tell your bank after two days but within 60 days.

If you wait longer than 60 days to report fraud, you could be liable for all charges. Thieves can drain your account and spend money you don’t even have by using overdraft lines of credit.

If only your debit card number is stolen, but you still have the card, your protection is better. In that case, you are not liable for any fraudulent transactions as long as you report them within 60 days.

After you Notify your Bank

Once you notify your bank of any problems, you won't necessarily get reimbursed immediately for any losses. This is another way debit cards are riskier than credit cards: It's your own money being stolen as opposed to a line of credit being fraudulently tapped. The money you need for bills or other day-to-day expenses might not be available when you need it.

Notifying your bank might require more than just a phone call or a quick email. To get full protection under the EFTA, it’s essential to follow any instructions that your bank provides. After a verbal notification, you may be required to submit a specific form or provide documentation proving that you’re not responsible for the charges. If you skip any steps, you might forfeit your rights.

Banks have 10 days to investigate any claims you make or temporarily credit your account (known as a provisional credit). You’ll often see the funds credited sooner than that. An investigation into the error might take much longer—up to 45 or 90 days, depending on the type of transaction—but you’re allowed to use the funds while an investigation takes place. However, if the bank determines that there was no error or fraud, you’re responsible for the charges. The provisional credit will be taken back, and you’ll have to replace that money if you already spent it.

More (or Less) Protection

The EFTA is not the only set of rules that can protect you from fraud and errors. State laws sometimes provide additional relief. Find consumer protection resources in your state if you’re having problems. The website for your state's attorney general is a good place to start.

Payment processors also can help. For example, Visa and MasterCard both offer robust protection to cardholders. Other intermediaries like PayPal offer similar benefits.

Unfortunately, if you run a business, you don’t enjoy the same protection as consumers. The EFTA does not cover business accounts, so it’s especially important that you monitor bank accounts, manage cash levels, and keep track of spending cards. However, you might get zero liability protection from credit card issuers.