The acronym EFT short for Electronic Funds Transfer, it is the transfer of money from one bank account to another accomplished in electronic form. The transfer can be performed within one financial institution or across multiple entities.
The transfer is accomplished through systems that are computer-based and without any interruption or intervention by the staff of the bank or financial institution. The EFT is also called electronic checks or e-checks by some institutions as it works essentially the same way as a traditional check except that the transfer of money is instantaneous.
The Electronic Fund Transfer (EFT) Act of 1978
The technology for transferring funds electronically had started to grow in popularity by the mid-1970s as the advantages of using such a system became apparent. In 1978, the Electronic Fund Transfer Act was signed to provide a set of standards for both financial institutions and consumers to help regulate the transfer of money electronically from one source to another.
The EFT Act recognizes the rights of consumers to select the financial institution that will carry out the electronic fund transfer on their behalf. Furthermore, it prohibits creditors or lenders from requiring that repayment of loans be handled by an EFT except in the cases of overdrafts or other specific plans of checking.
In addition, the EFT Act set standards for customer liability and the loss of the credit or debit card in order to protect their money. The standards set by the act include the following;
- Losses limited to $50 if financial institution is notified within two business days
- Losses limited to $500 if financial institution is notified in three to fifty-nine days
- Any losses not reported after sixty days may result in total loss of the money
Also, the EFT Act regulated situations in which inaccuracies or errors could be handled by the consumer. As technology has grown over the years, such errors or inaccuracies have been reduced, but there is still a prescribed method for consumers to take action.
Different Payment Systems of the EFT
There are a number of payment systems that the EFT covers between institutions. It has become the most common way for money to be transferred.
- Direct Deposit Payments: Deposit made by the payer
- Direct Debit Payments: Here, the business debits the consumer’s account from their financial institution for products or services rendered.
- Wire Transfer: This typically uses an international banking network such as SWIFT for example
- Electronic Bill Payment: Here, a bill is paid automatically through an electronic debit by a company to the consumer’s bank account such as utility bill, premium payment, etc.
- Credit or Debit Card: A transaction initiated by the cardholder to purchase products or services. Quite often, the card acts as both credit and debit depending on the needs of the consumer.
- Transactions of Saved or Stored Money: Often private currency that is electronic money is transferred between accounts.
Overall, the EFT has become the standard for consumers and financial institutions around the world when it comes to the purchase or transfer of money from one account to another.