As of 2017, the average American had a staggeringly high 18% chance of being the victim of an unauthorized withdrawal from their bank account sometime between 2018 and 2038. Aside from the intelligent alternatives of making purchases via credit card or the timeless standby cold-hard cash, you might wonder: What rights do you have if there is a money taken from your bank account without your permission/knowledge?
First of all, there are two entities that you may be interested in addressing if money is taken from your account without permission—the bank that permitted the withdrawal, and the person or business that took the money from your account without permission.
The law governing consuming protections from banks can be found in Regulation E of the Electronic Fund Transfer Act (EFTA).
Regulation E gives consumers both responsibilities and protections relating to unauthorized use of their account.
Regulation E is typically boiled down to four provisions that are of interest to banking customers:
- If your debit card is lost or stolen, you are no liable for no more than $50 if you report it within 48 hours of losing the card. You should note that the test is not when you discover that the card has been lost or stolen, but when it is actually lost or stolen. And as a matter of policy, banks won’t typically charge you anything in this scenario, but this is the result of industry custom rather than federal law.
- If you report that you debit card is lost sometime between “greater than 2 days” and “60 days”, then your liability for the unauthorized use can rise up to $500. Typically, if you notify the bank promptly after receiving your monthly statement, you will not receive a charge. But again, this is the result of industry custom rather than a legal mandate. There is no clear banking practice for what happens upon your notification at “Day Fifty-Something.”
- If it takes you more than two months to discover the unauthorized use, then you do not receive guaranteed protection by federal law. There is also no consistent banking practice to mention. Here, you would need to look to your state laws to see if you could find a source of protection. But the general rule is that the longer the delay in your notification, the less protection you receive, with 2 days and 60 days being triggering points to note.
- And lastly, these protections are contingent upon you losing or having the card stolen from you. If you voluntarily give your debit card to someone, and they use it in a manner that you do not authorize, you are not eligible for Regulation E protections.
The bank has a very strong incentive to investigate your claim of unauthorized use, as Regulation E holds the bank accountable for treble/triple damages if it fails to investigate a credible claim in good faith. If you have $25,000 taken out of your bank account and the bank doesn’t investigate seriously, it is liable for $75,000 and has to pay your attorney fees and costs to resolve the unauthorized use.
Regulation E of the EFTA also suggests what punishments await those who are the ones engaging in the unauthorized use.
Three elements need to be met to define unauthorized use: (1) the customer cannot give the person the “means of access” to use the card to withdraw money, such as furnishing him with the card number or the card itself. If the card or card number was voluntarily given to the card user, it does not qualify as unauthorized access. Then (2) the consumer cannot receive any benefit from the withdrawal—e.g. the victim cannot have received any good or service tied to the withdrawal, and (3) the transaction must be initiated by someone who lacks the authority to do so.
Note: The definitions of unauthorized use that implicate the unauthorized user are not the same as those that implicate the bank to reimburse you, and you may have other remedies than those provided by Regulation E.
If these elements can be met, the consequences can be significant for the unauthorized user. He will face: (1) a federal felony charge; (2) a $10,000 fine per use; and (3) imprisonment up to 10 years. Those penalties are discretionary rather than mandatory.
The takeaway here is that Regulation E does provide a solution for victims of unauthorized use against your bank account, but receiving relief is contingent upon your quick action. Ideally, you should inform the bank of the lost/stolen card within two days, but if that is not possible, action within sixty days will also provide a meaningful measure of protection. After that, it is discretionary with the bank.
A pragmatic, pro-active approach would involve setting up an alert on your account to inform you of any transactions above a certain amount—say, withdrawals greater than $500 in a single day. If you only make a few such transactions each month, the inconvenience will be mild and the usefulness of the scan will be extreme.
Your only risk is that, sometimes, sophisticated criminals to try make small transactions by withdrawing $19 here and $24 there to milk your account over the long haul rather than make a transaction that will certainly catch your attention. There, the best way to catch it is by taking a few minutes to review your monthly statement each month. The only theoretical risk in this approach is that you belong to a bank that holds you responsible for up to $500, but given the number of banks that follow the industry custom to impose no charges against the customer in such situations and given the annoyance of receiving notifications from every single transaction, the trade-off is fair.
Of course, the best practice would be to rely on a combination of credit cards that are paid off monthly and cash payments as your standard operating procedure, but the personal risks even in debit transactions can be dramatically minimized so long as you catch the unauthorized use in a timely manner. Really, the hardship imposed is having to wait a few weeks for the banks to reimburse your cash as the investigation runs its course.