HISTORY OF ELECTRONIC FUND TRANSFERS

By 1955, a major advancement was changing the banking industry forever.  With the development of the MICR (Magnetic Ink Character Recognition) program, there was finally a way for high-speed sorting, reading, and tabulation of checks. (This program created the odd-looking numbers at the bottom of your checks.)

In 1965, another revolutionary event in the financial world was making history.  West Coast Life conceived the idea of eliminating monthly billing of insurance customers by setting up a pre-authorized system that consisted of having the customer's bank transfer the specified premium amount due directly into the insurance company's account.  The system was so successful that it was adopted by virtually every insurance company in the nation.  The drawback was that the insurance company had to open a checking account at each of their client's banks.

A year later, credit card companies solved this problem by establishing regional clearing houses.  Clearing houses gave approved financial institutions the authority to represent the bank on which the credit card was drawn, as well as the bank representing the credit card for payment.  The exhange could be made on the spot!

It was these clearing houses that later formed NACHA, the National Automated Clearing House Association, now recognized by financial institutions worldwide.  Nearly all of America's financial institutions today clear their credit card transactions and automatic transfers through NACHA and the Federal Reserve Bank.

EXCERPTS FROM REGULATION E

Regulation E was issued by the Federal Reserve Board of Governors to implement the Electronic Fund Transfers Act, which was enacted in November 1978.

The Electronic Fund Transfers Act provides for rights and duties of consumers and financial institutions in connection with "electronic fund transfers" - transfers to or from demand, savings, or other deposit accounts that are initiated through computer or magnetic tape, telephones, point-of-sale terminals, automated teller machines, and any other electronic device.  Its requirements MUST BE MET by financial institutions that offer an electronic fund transfer service or maintain the deposit accounts of consumers involved in these transfers.  There are substantial liabilities for violations.

A financial institution must mail or deliver to the consumer a periodic disclosure containing specified information for any account to or from which an electronic fund transfer can be made.  A disclosure must be made for each monthly statement cycle in which a transfer has occurrred and must contain the following: account identification, fees or charges (other than finance charges), the beginning and ending account balance, and an address and telephone number that the consumer can call to determine whether a pre-authorized transfer has been made from the account.  The amount of transfer, date and type of transfer, accounts to or from which the transfer was made, and name of the party to whom the funds were transferred must also be included.

What this means to you, the consumer, is simply this: EFTs are the safest money in the world.  According to Teresa Turner, Director of Rules and Operations at NACHA, they process more than $4.7 TRILLION each year and "have never had a loss that resulted from any kind of tampering or fraudulant use" of the system.  A banking official says, "There is far less risk in electronic transfers than in any other means of moving funds."  By comparison, mishaps are commonplace in ordinary check writing, and untold havoc is wreaked by items lost in the mail.  If the public fully understood the safety and ease of EFTs, they'd never again settle for the old-fashioned method. 

A prime example of this comes from 1987 when the Independent Communication Network, Inc. went bankrupt.  Customers whose advance payments had been tendered in the form of checks simply lost their money.  Due to regulatory requirements, those whos payments had been made via automatic transfer received full refunds.

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