Banks and Banking

Many banks are replacing traditional checks and deposit slips with electronic fund transfer (EFT) systems, which utilize sophisticated computer technology to facilitate banking and payment needs. Routine banking by means of EFT is considered safer, easier, and more convenient for customers.

Many types of EFT systems are available, including automated teller machines; pay-by-phone systems; automatic deposits of regularly received checks, such as paychecks; automated payment of recurring bills; point-of-sale transfers or debit cards, where a customer gives a merchant a card and the amount is automatically transferred from the customer's account; and transfer and payment by customers' home computers.

Electronic banking has replaced many traditional banking methods.
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When an EFT service is arranged, the customer receives an EFT card that will activate the system and the bank is legally required to disclose the terms and conditions of the account. These terms and conditions include the customer's liability and the notification process to follow if an EFT card is lost or stolen; the type of transactions in which a customer can take part; the procedure for correction of errors; and the extent of information that can be disclosed to a third party without improper infringement on the customer's privacy. If a bank is planning to change the terms of an account—for example, by imposing a fee for transactions previously conducted free of charge—the customer must receive written notice before the change will be effective.

Banks must send account statements for EFT transactions on a monthly basis. The statements must have the amount, date, and type of transaction; the customer's account number; the account's opening and closing balances; charges for the transfers or for continuation of the service; and an address and telephone number for referral of account questions or mistakes.

EFT transactions have become a highly competitive area of banking, with banks offering various bonuses such as no fee for the use of a card when the account holder meets certain provisions such as maintaining a minimum balance. Also, the rapid growth of personal and home office computing has increased pressure on banks to provide services on-line. Several computer software companies produce technology that can complete many routine banking services, like automatic bill paying, at a customer's home.

Banks have a wide range of options available for notifying a customer that a check has been directly deposited into her or his account.

If a customer has arranged for automatic payment of regularly recurring bills, like mortgage or utility bills, the customer has a limited period of time, usually up to three days before the payment is made, in which to order the bank to stop payment. When the amounts of such bills vary, as with utility bills, the bank must notify the customer of the payment date in sufficient time so that there will be enough funds in the account to cover the debt.

If the customer discovers a mistake in an account, the bank must be notified orally or in writing after the erroneous statement is received. The bank must investigate the claim.

Often, after several days, the customer's account will be temporarily recredited with the disputed amount. After the investigation is complete, the bank is required to notify the customer in writing if it concludes that no error occurred. It must provide copies of its decision and explain how it reached its findings. Then the customer must return the amount of the error if it was recredited to his or her account.

A customer is liable if an unauthorized transfer is made because an EFT card or other device is stolen, lost, or used without permission. This liability can be limited if the customer notifies the bank within two business days of the discovery of the misdeed; it is extended to $500 if the customer fails to comply with the notice requirement. A customer can assume unlimited liability if she or he fails to report any unauthorized charges to an account within a specified period after receiving the monthly statement.

A customer is entitled to sue a bank for COMPENSATORY DAMAGES caused by the bank's wrongful failure to perform the terms and conditions of an EFT account, such as refusing to pay a charge if the customer's account has more than adequate funds to do so. The customer can also recover a maximum penalty of $1,000, attorneys' fees, and costs in an action based upon violation of this law.

The expansion of the INTERNET in the mid 1990s allowed banks to offer many more electronic services to their customers. Although this form of business with banks is certainly convenient, it has also caused a considerable amount of concern regarding the security of transactions conducted in this manner. Although laws designed to prevent FRAUD in traditional banking also apply to electronic banking, identifying individuals engaged in fraud can be more difficult when electronic transactions are concerned. On the federal level, the Electronic Funds Transfers Act, 15 U.S.C.A. §§ 1693a et seq., provides protection to consumers who are the subject of an unauthorized electronic funds transfer.

The Gramm-Leach-Bliley Financial Modernization Act, PL 106-102 (S 900) November 12, 1999. also modified federal statutory provisions related to electronic banking. Under this act, banks must now disclose the fees they charge for use of their automated teller machines. If the consumer is not provided with proper fee disclosure, an ATM operator cannot impose a service fee concerning any electronic fund transfer initiated by the consumer. Furthermore, the act requires that possible fees be disclosed to a consumer when an ATM card is issued.