Overview of the Electronic Fund Transfer Act in Relation to Internet Banking Fraud

Overview of US legislative framework to tackle internet banking fraud:

When considering the legislative framework governing online banking in the United States, Electronic Fund Transfer act can be thought of as an integral component not only in safe guarding online banking but also to regulate how funds are transferred electronically through various other methods. This act would facilitate the other legislative enactments such as federal computer fraud and abuse statute, Electronic Signatures in Global and National Commerce Act (E-Sign Act), Bank Services Company Act, Gramm–Leach–Bliley Act (GLBA), USA Patriotic Act…etc.

What does electronic fund transfer act do?

Being an important component of the legal framework, as mentioned earlier, this act provides the necessary tools to tackle unauthorized fund transfers that can take place electronically. This may also be linked to internet banking and other means of electronic fund transfer which can take place at times of bill online purchasing and in other events. The legal definition given to an ‘electronic fund transfer’ is, fund transfer through an “electronic terminal, telephone, or computer or magnetic tape, to order or authorize a financial institution to debit or credit an account.” (EFTA § 1693(a)(6)).

How does ‘electronic fund transfer act’ influence internet banking?

The importance of this enactment lies on the fact that, almost all online banking sites provide the facility to do fund transfers, bill settlements and other such services which are liable to be considered under the electronic fund transfer act. Thus, the scope of the legislature defines which constitutes unauthorized fund transfer and which is not.

What are the important and relevant issues tackled by this act?

The act states that when a person was furnished by means of verification, a card or other means to initiate the process of fund transfer by the authorized consumer, it does not amount to unauthorized fund transfer.

If the bank makes an erroneous fund transfer, it also does not constitute to be unauthorized according to this act.

Finally, if a consumer initiates a transaction with fraudulent intent, this also does not constitute to be an unauthorized fund transfer.


In most instances, the ‘identity theft’ and ‘phishing’ would be the main perpetrators before initiating an unauthorized fund transfer in ‘internet banking’ and therefore, this would be a supporting legislature to all other legal enactments mentioned in the beginning. Therefore, it is correct to state that, electronic fund transfer act, although not directly linked with internet banking, is a supportive legislature for the purpose of preventing fraudulent fund transferring activities.