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F ederal

reserve

Ba n k

DALLAS. TEXAS

of

Dallas

75222

Circular No. 80-128
June 25, 1980

NEW FEDERAL RESERVE SYSTEM PUBLICATION

TO ALL BANKS
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
The enclosed booklet, "Alice in Debitland," is the la te st in the
Board's series o f consumer publications and explains consumer protections
under the Electronic Fund Transfer Act.
A lice's adventure with electron ic money includes descriptions of
EFT system s in operation and answers to consumer questions about loss or
th eft o f EFT cards, error-correction procedures, and records of electronic
payments.

It also supplies helpful tips to consumers using EFT.
Additional copies of the pamphlet may be obtained free of charge

from Publications Services, Board o f Governors of the Federal Reserve Sys­
tem , Washington, D.C. 20551, or from the Bank and Public Information
Department of this Bank, Ext. 6261.
Sincerely yours,
Robert H. Boykin
First Vice President

Enclosure

Banks and others are encouraged to use the following incoming W AT S numbers in contacting this Bank:
1-800-442-7140 (intrastate) and 1-800-527-9200 (interstate). For calls placed locally, please use 651 plus the
extension referred to above.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

in
Debitland
CONSUMER PROTECTIONS A ND THE ELECTRONIC FUND TRANSFER A CT

ALICE'S ADVENTURE
It’ 1980. Alice has pushed through a
s
revolving glass door into the department store
and selected several items. Reaching into her
wallet, she pulls out a debit card with such
beautifully printed letters it seems to say, "Use
M e."
"Curiouser and curiouser," remarks
Alice. But she has already adjusted easily to
the change credit cards have made in her life.
So, reasoning from her experience in a child­
hood adventure, Alice supposes it's simply a
question of opposites: "If a credit card post­
pones payment, then a debit card probably
speeds it up. It's sure to make SOM E change
in the size of m y bank account, and either
w ay I shall have m y purchases."
Alice hands her debit card to the clerk,
who inserts it into a computer terminal. A t
the press o f a button, electronic impulses fly
to the Wonderland Bank, where Alice keeps
her checking account. Automatically and in­
stantaneously, funds are transferred from her
account to the merchant's.

Alice gathers her parcels just fast
enough to side-step the White Rabbit, who is
hurrying by with his pocket watch and fret­
ting, "No time, no tim e." "Yes, ” reflects Alice,
"That seems to be the whole point."
Indeed it is. Instant money. EFT.

i

CAN ALICE ADJUST?
Alice's debit card is just one way to
use EFT, electronic fund transfer systems that
effect paym ent between parties by substitut­
ing an electronic signal for cash or checks.
Are we heading for a "checkless soci­
ety?'' Probably not. But putting a dent in the
pile of paper checks in the payments system—
or reducing the rate it has been growing—is
clearly one advantage to electronic banking.
Today, the cost of clearing each check
through the banking system is estimated at
between 30 to 50 cents per check, to which
must be added the costs of paper, printing,
and mailing. Moreover, checks—except your
own check presented at your own b an k —take
time to cash: time for delivery, endorsement,
presentation to another person's bank, and
circuitous travel through various stations in
the clearing system. The technology now
exists to lower the costs of the payments
mechanism and make it more efficient and
convenient by reducing paperwork.

In fact, a num ber of steps have
already been taken tow ard a payments mech­
anism that moves money between accounts in
a fast, paperless way. These are some exam­
ples of EFT systems in operation:
♦ Autom ated Teller Machines (ATMs).
Consumers can do their banking w ith­
out the assistance of a teller—using
these machines to get cash, to make
deposits, to pay bills, or to transfer
funds from one account to another
electronically. First the consumer in­
serts a plastic "debit" or EFT card into
the machine; next, using a number
keyboard, enters a code, presses the
appropriate transaction button, and
authorizes a debit or credit of the
desired am ount; then—in the case of a
w ithdraw al—waits for cash to be dis­
pensed. (The code is often called a
personal identification number, or
"PIN.")

♦ Point of Sale Terminals (POS). In
some com m unities—like A lice's—
electronic terminals located in shop­
ping areas allow the transfer of funds
from the consumer's account to the
merchant's. To pay for a purchase,
the consumer inserts an EFT card into
the terminal and punches in an
am ount. M oney is taken out of the
consumer's account and credited to
the merchant's account electronically.
♦ Preauthorized Payments. This is a
method of automatically withdrawing
or depositing funds to an individual
account, under authority given to the
financial institution or to a third party
(an employer, for example) by the ac­
count holder. For example, consumers
can authorize direct electronic deposit
of wages, social security or dividend
paym ents to be made to their ac­
counts. O r, they can authorize finan-

cial institutions to make regular, re­
curring payments of insurance, m ort­
gage, utility or other bills.
♦ Telephone Transfers. Consumers can
transfer funds from one account to
another—from savings to checking,
for example—or can order paym ent of
specific bills by phone.
Despite these developments, for many
of us the world of electronic money is still a
wonderland. Alice, encountering change, is
satisfied that something interesting is bound
to happen. But most of us need to understand
EFT in order to adjust to it. Recognizing this,
Congress passed the Electronic Fund Transfer
Act.

THE CONSUMER ASKS QUESTIONS
Most questions center on this issue: 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. EFT
transmits this information without the paper,
but:
♦ 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?
The EFT Act, and Regulation E issued
by the Federal Reserve Board to carry it out,
give the consumer answers to several basic
questions about EFT.

♦ Do I have to use EFT?
Here are the answers the EFT Act
gives.

WHAT RECORD WILL I HAVE OF MY TRANSACTIONS?
A cancelled check is permanent proof
that a payment has been made. Can an elec­
tronic terminal give this proof?
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 statement must also
show all electronic transfers to and from your
account, including those made at electronic
terminals, or under a preauthorized arrange­
ment, or ordered by telephone. It will also
name the party to whom payment has been
made, and show any fees and your opening
and closing balances.
Your monthly statement is proof of
payment to a third party, your record for tax
or other purposes, and your way of checking

and reconciling EFT transactions with your
account balance.
R em em b er
w hen
you're paying bills that EFT
transactions may take place
IMMEDIATELY. When you
write a check you enter the
amount on your checkbook
stub and deduct it to keep a
running account of your balance. Be sure to
keep the same kind of accurate, day-to-day
record of your EFT transactions.

HOW EASILY WILL I BE ABLE TO CORRECT ERRORS?
The procedure for reporting errors is
somewhat different with EFT than it is with
credit cards. But, as with credit cards, finan­
cial institutions must investigate and correct
promptly any EFT errors you report.
If you believe there has been an error
in an electronic fund transfer:
1. Write or call your financial institu­
tion immediately if possible, but no later than
60 days from the time the first statement that
you think shows an error was mailed to you.
Give your name and account number and ex­
plain 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, it must re­
credit your account for the amount in
question while it finishes the investi­
gation. In the meantime, you will
have full use of the funds in question.
3.
The financial institution
notify you of the results of its investigation:
♦ If there was an error, the institution
must correct it promptly—for exam­
ple, by making a recredit final.
♦ If it finds no error, the financial insti­
tution must explain in writing why it
believes there was no error and let you
know that it has deducted any amount
recredited during the investigation.
You may ask for copies of documents
relied on for the investigation.
8

On a credit purchase,
you usually resolve an error
BEFORE making payment.
With EFT an error will show
up on your statement AFTER
funds have been taken out of
your account. So examine
your statements carefully and report errors
promptly.

WHAT ABOUT LOSS OR THEFT?
It's important to be aware of the po­
tential risk in using EFT, which differs from
the risk on a credit card.
On lost or stolen credit cards, your
loss is limited to $50 per card. On an EFT
card, your liability for unauthorized with­
drawals is also limited to $50 if you notify the
financial institution within 2 business days
after learning of loss or theft of your card or
code.

60-day period. That means you could
lose all the money in your account
plus your maximum overdraft line of
credit.
Here's an example of the rules:

But—
♦ You could lose as much as $500 if you
do not tell the card issuer within 2
business days after learning of loss or
theft.
♦ If you do not report an unauthorized
transfer that appears on your state­
ment within 60 days after the state­
ment is mailed to you, you risk un­
limited loss on transfers made after the

The Knave o f Hearts stole Alice's debit
card and secret code. The next day he w ith­
drew $250, all the m oney Alice had in her
checking account. Five days later, he with-

drew another $500, triggering Alice's over­
draft line o f credit.
Alice did not realize her card was
stolen until she received a statement from the
Wonderland Bank, showing withdrawals of
$750 she did not make. She called the bank
right away.
Alice's liability is $50.
Now suppose that when Alice got her
bank statement she didn't look at it and didn't
call the bank. Seventy days after the state­
ment was mailed to her, the Knave withdrew
another $1,000, reaching the limit on Alice's
line of credit. In this case, Alice would be
liable for $1,050 ($1,000 for transfers made
more than 60 days after the statement was
mailed; $50 for transfers before the end of the
60 days).

10

1.
Report
if you believe an EFT card has
been lost or stolen. The best
way to report is by telephone.
Keep the phone number for
reporting loss or theft handy.
If you write about a loss, your
notice will be effective on the day you mail
your letter.
2.
You will usually have a separate
code or "PIN" without which your EFT card
can't be used. Do NOT keep your card and
code together in your wallet. A card without
a code can't be used by a thief. And don't give
out your code to anyone or let anyone see the
numbers you punch in.

DO I HAVE TO USE EFT?
A financial institution may send you
an EFT card that is VALID FOR USE only if
you ask for one, or in order to replace or re­
new an expired card. The financial institution
must also give you the following information
about your rights and responsibilities:
♦ A notice of your liability in case a
card is lost or stolen;
♦ A telephone number for reporting loss
or theft;
♦ A description of the error resolution
procedures;

♦ Any charge by the institution for
using EFT;
♦ Your right to receive records of elec­
tronic fund transfers;
♦ How to stop payment of a preauthor­
ized transfer;
♦ The financial institution's liability to
you for any failure to make or to stop
transfers;
♦ The conditions under which a finan­
cial institution will give information
to third parties about your account.

♦ The institution's business days;
♦ The kinds of electronic fund transfers
you may make and whether there are
limits on the frequency or dollar
amounts of such transfers;

Generally, you must also be notified
in advance of any change in terms of the ac­
count that would increase fees or liability or
limit transfers.
A financial institution may send you a
card you did not request only if the card is
11

N O T VALID FOR USE. An “unsolicited"
card can be validated only at your request
and only after the institution verifies that you
are the person whose name is on the card. It
must also be sent with a clear explanation of
how to destroy or dispose of the card if you
don't want to use it.
In addition, the EFT Act provides that
no person can require you to repay an exten­
sion of credit by electronic means. And,
although your employer or a government
agency can require you to receive your salary
or a government benefit by electronic trans­
fer, you have the right to choose the financial
institution at which you will receive the
funds.

12

You can use cash,
checks, credit cards, EFT or
any combination of services.
The choice depends, of course,
on how you weigh conveni­
ence, fees, money management
needs and other considera­
tions. If you do use EFT, compare information
about services and charges by financial insti­
tutions before you make your decision.

SPECIAL QUESTIONS ABOUT PREAUTHORIZED PLANS
Q. How will I know a preauthorized
credit has been made?
A. There are various ways you can be
notified. Notice can be given by the payor
that the deposit has been sent to your fi­
nancial institution. Otherwise, a financial
institution may provide notice that 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 transfer.
Q. How do I stop a preauthorized
payment?
A. You may stop any preauthorized
payment by calling or writing the financial in­
stitution, so that your order is received at
least 3 business days before the payment date.
Written confirmation of a telephone notice to
stop payment may be required.
13

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

14

Q. Do the EFT Act protections apply
to all preauthorized plans?
A. No. They do not apply to auto­
matic transfers from your account to the insti­
tution 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.

COMPLAINTS AND PENALTIES
If you have a complaint about an EFT
service, first try to resolve it directly with the
financial institution. If that fails, you can con­
tact the Division of Consumer and Community
Affairs, Board of Governors of the Federal
Reserve System, Washington, D.C. 20551.
The Board supervises only State-chartered
banks that are members of the Federal Re­
serve System; if your complaint is outside its
authority, the Board will refer your inquiry
to the proper regulatory agency. Or, you may
write directly to the enforcement agency iden­
tified on page 16. You as an individual may
also sue for actual damages plus a penalty of
not less than $100 or more than $1,000. Class
action suits are also permitted.

15

FEDERAL ENFORCEMENT AGENCIES
N ation al Banks
C o m ptroller of the C u rrency
Office of C u sto m er and
C o m m u n ity P rogram s
W ashington, D .C . 20219
State M em ber Banks
Federal Reserve Bank serving the
district in w hich the State m em ber
b a n k is located.
N on m em b er Insured Banks
Federal D eposit Insurance C o rp o ra ­
tion Regional D irector fo r the
region in w h ich the n o n m e m b er in­
sured b an k is located.

Savings Institutions Insured b y the
FSLIC a n d M em bers of the FHLB
System (except for Savings Banks
insured by FDIC)
T he Federal H om e Loan Bank
B oard Supervisory A gent in the
district in w hich the institution is
located.
Federal C redit Unions
Division of C onsu m er Affairs
N ational C redit Union
A dm inistration
1776 G . Street, N .W .
W ash ing ton, D .C . 20456

C reditors Subject to Civil
A eronautics B oard
D irector
Bureau of C on su m er P rotection
Civil A eronautics Board
W ashington, D .C . 20428
Brokers an d Dealers
Division of M ark et Regulation
Securities a n d Exchange
Com m ission
W ashington, D .C . 20549
Retail, D e p a rtm e n t Stores, C o n ­
sum er Finance C om panies, Certain
O th e r Financial Institutions, an d
All N o n b a n k Debit C ard Issuers
Federal T rad e C om m ission
Electronic Fund T ransfers
W ashington, D .C . 20580

Additional copies of this h a n d b o o k and other consum er pam phlets are available upon request from Publications Services,
Division of Support Services, Board of G overnors of the Federal Reserve System, W ashington, D .C . 20551.
Board of G overnors of the Federal Reserve System June 1980
16

.Board of Governors
of the Federal Reserve System
Washington, D.C. 20551
Official Business
Penalty for Private Use, $300

First Class


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102