In today’s digital age, banking fraud has become increasingly sophisticated. Scammers are using elaborate schemes to trick consumers into authorizing transfers from their accounts, often by impersonating bank employees and exploiting the very security measures meant to protect us. When banks fail to protect their customers from these schemes or refuse to make things right afterward, the Electronic Fund Transfer Act (EFTA) provides crucial protections for consumers.
Understanding the EFTA
The Electronic Fund Transfer Act (EFTA) is a powerful federal consumer protection law enacted in 1978 to safeguard consumers in their electronic banking transactions. As more banking has moved online, the EFTA’s protections have become increasingly vital for consumers.
Key Protections Under the EFTA
The law provides several crucial protections:
- Limited Liability for Unauthorized Transfers: If you report unauthorized transfers within 2 business days of learning about them, your liability is capped at $50. Even after 2 days, the maximum liability is typically $500.
- Mandatory Error Resolution Procedures: Banks must:
- Investigate errors within 10 business days (they can extend this to 45 days if they provide provisional credit)
- Provide provisional credit for disputed amounts during extended investigations
- Report investigation results to consumers in writing
- Correct any confirmed errors within 1 business day of verification
- Required Disclosures: Banks must provide clear information about:
- Consumer liability for unauthorized transfers
- How to report unauthorized transfers or errors
- The types of transfers consumers can make
- Fees for electronic fund transfers
- Consumer rights to receipts and periodic statements
Strong Consumer Remedies
The EFTA provides significant remedies when banks violate its requirements:
- Actual Damages: Recovery of all money lost due to the bank’s violation
- Statutory Damages: Up to $1,000 in individual cases
- Treble Damages: In cases where banks fail to make provisional credits or conduct good faith investigations
- Attorney’s Fees and Costs: The law allows recovery of reasonable legal fees, making it easier for consumers to obtain legal representation
Important CFPB Guidance
The Consumer Financial Protection Bureau has issued clear guidance that strengthens consumer protections under the EFTA, including:
- Banks cannot deny claims solely because a consumer was deceived into sharing access codes
- A consumer’s negligence cannot be considered when determining liability
- Banks must conduct thorough investigations even when consumers provided authentication codes
- The bank bears the burden of proving a transfer was authorized
Bank Investigation Requirements
The EFTA sets strict standards for how banks must investigate error claims:
- **Timeline Requirements**:
- Banks must begin investigating promptly upon receiving notice
- They must complete the investigation within 10 business days
- They may extend this to 45 days, but only if they:
- Provide provisional credit within 10 business days
- Notify the customer of the provisional credit
- Give the customer full use of the provisional credit during investigation
- Investigation Standards:
- Must review all relevant information, including:
- The customer’s statement about what happened
- Account logs and transaction records
- Any security measures that were triggered
- Related transactions before and after the disputed transfer
- Cannot deny claims solely based on:
- Customer providing access codes
- Customer falling victim to social engineering
- Authentication procedures being followed
- Must review all relevant information, including:
- Documentation Requirements:
- Must document their investigation steps
- Must retain records of their investigation
- Must provide written explanation of findings
- Must respond to customer requests for documentation
What Constitutes an “Error” Under EFTA
The EFTA defines several types of “errors” that trigger protection:
- Unauthorized Electronic Fund Transfers:
- Transfers not authorized by the consumer
- Transfers exceeding authorized amount
- Transfers made using stolen credentials
- Technical Errors:
- Incorrect amounts
- Wrong account credited or debited
- Omission of transfers from statements
- Computational or bookkeeping errors
- Failed or Improper Transfers:
- Transfers requested but not made
- Transfers made with incorrect amount
- Transfers to wrong recipient
- Documentation Errors:
- Missing required receipts
- Incorrect information on statements
- Missing required disclosures
Common Bank EFTA Violations
Based on our experience representing consumers, common violations include:
- Investigation Failures:
- Rushing to deny claims without thorough investigation
- Failing to provide provisional credit
- Not documenting investigation steps
- Ignoring evidence of fraud
- Improper Liability Decisions:
- Blaming customers for falling for sophisticated scams
- Treating social engineering victims as “authorizing” transfers
- Ignoring CFPB guidance on authentication codes
- Making customers liable beyond EFTA limits
- Documentation Violations:
- Not providing required notices
- Failing to explain investigation results
- Refusing to share investigation documents
- Incomplete or inaccurate disclosures
- Procedural Violations:
- Missing investigation deadlines
- Not following error resolution procedures
- Failing to train staff on EFTA requirements
- Not updating policies to reflect current threats
A Real-World Example: How Banks Sometimes Fail Their Customers
A recent case we filed against JPMorgan Chase Bank illustrates how these protections work in practice. Our clients, long-time Chase customers, fell victim to a sophisticated fraud scheme where a scammer impersonated a Chase fraud specialist. The fraudster called from what appeared to be Chase’s legitimate phone number and knew detailed information about our clients’ accounts.
Following what seemed to be standard bank security procedures, including providing verification codes sent to their phone, our clients were ultimately deceived into facilitating a transfer of over $30,000 to a fraudulent account. When they discovered the fraud and reported it to Chase, the bank refused to reimburse them, claiming that because they had provided the verification codes, the transfer was authorized.
However, this position ignores clear guidance from the Consumer Financial Protection Bureau (CFPB) (https://www.consumerfinance.gov/compliance/compliance-resources/deposit-accounts-resources/electronic-fund-transfers/electronic-fund-transfers-faqs/) stating that:
- A fraudster using stolen credentials does not relieve a bank from liability under the EFTA
- When a third party fraudulently induces a consumer into sharing account access information, the consumer retains EFTA protections
- Banks cannot consider a consumer’s negligence when determining liability for unauthorized transfers
How We Help
As consumer protection attorneys, we help victims of banking fraud fight back by:
- Evaluating potential EFTA violations by banks
- Filing legal actions to recover stolen funds
- Seeking statutory damages and attorney’s fees under the EFTA
- Holding banks accountable for failing to follow required investigation procedures
The EFTA provides for actual damages, statutory damages of up to $1,000, and in some cases, treble damages when banks fail to conduct good faith investigations or reach conclusions not reasonably supported by available evidence.
Know Your Rights
If you’ve been the victim of banking fraud:
- Report the unauthorized transfer to your bank immediately
- Submit a detailed written account of what happened
- File a police report and provide it to your bank
- Keep detailed records of all communications with your bank
- Consider consulting with a consumer protection attorney if your bank denies your claim
Banks have significant obligations under the EFTA to protect consumers from fraud and unauthorized transfers. When they fail to meet these obligations, they can and should be held accountable.
About Bell Law and How We Can Help
At Bell Law, LLC, we believe that every consumer deserves a voice when facing off against large financial institutions. Located in Kansas City, our firm has built a reputation for successfully advocating for consumers who have been wronged by banks and other financial institutions.
Our approach is personal and dedicated – we take the time to understand each client’s unique situation and fight tirelessly to protect their rights. We have the experience and resources to stand up to large financial institutions, and we’re committed to holding them accountable when they fail to protect their customers.
If you’ve been the victim of banking fraud and your financial institution has denied your fraud claim, Bell Law may be able to help. Our team specializes in helping consumers assert their rights under consumer protection laws like the EFTA, and we’ve successfully recovered funds for numerous clients in similar situations.
Contact Bell Law Today
For a free consultation about your banking fraud case, contact Bell Law at:
- Phone: (816) 886-8206
- Website: www.bell-law-kc.com
- Location: 2600 Grand Blvd., Suite 580, Kansas City, Missouri 64108
Note: This blog post is for informational purposes only and does not constitute legal advice. Each situation is unique and requires individual evaluation by a qualified attorney.
