Electronic Funds Transfer Insurance Coverage?

Electronic funds transfer insurance coverage is a financial institution’s criminal coverage for unlawfully conveyed instructions from a non-employee that cause monies to be wrongly moved to or from a customer’s checking or savings account.

More Information

Coverage for losses incurred by banks due to transfers conducted in reliance on false instructions received through phone, fax, or email is provided by the Surety & Fidelity Association of America (SFAA) fraudulent transfer instructions rider included in the financial institution bond for banks.

EFTs’ Benefits

There are several advantages to using electronic funds transfers for handling insurance payments.

Single-Use Setup

In addition to ensuring the timely arrival of future payments, EFT requires only a single setup. Your payment will be automatically taken out of your account on the same day of the month. There is no requirement to make a check, acquire stamps, or try to remember the login information for a billing website you seldom visit.

Note

Since credit card expiry dates must be updated often, you may find it more convenient to withdraw money from a checking or savings account rather than use a credit card. Unless you decide to switch financial institutions, you may safely ignore such details.

Inquire about the types of financing that are accepted by your business from your insurance agent. In some cases, you may only be able to pay using a checking account, and neither a debit card nor a credit card will work.

Lessen Costs

Insurance companies may charge you additional fees for processing, payment, or services when you send in your monthly premium payments. These fees might be anything from $3 to $10.3 each visit, depending on your insurance provider and state. Setting up an electronic money transfer typically eliminates or significantly reduces the fee. In addition, if you set up automatic withdrawal, you may forget about late fees altogether.

Note

Even if your service fees are reduced or eliminated, you may still be compelled to pay an installment charge for the convenience of making smaller, more frequent payments.

Cost savings using EFT

In addition to the fee avoidance associated with EFT transactions, some companies provide a further discount for making payments in this manner. Even though it’s not as wonderful as the discount for paying your premium in advance, every little bit helps. Find out whether your insurance provider offers discounts for using electronic funds transfer.

EFT Mistakes to Avoid

EFT has numerous benefits, but there are also certain dangers you should be aware of.

Funds Transfer

Don’t make a rookie move like switching banks without alerting your insurer beforehand. If you change banks and close the account you had allowed payments to be withdrawn from, the insurance company will not be able to remove your payment and your premium will not be paid. Serious problems might arise from unpaid insurance coverage.

Note

If you switch banks and cause a disruption in your payments, your insurance may be canceled for nonpayment. If there are any changes to your billing or payment information, you must let your provider know right soon.

Make sure you keep track of all the monthly deductions so that you can make any necessary adjustments right away. If you choose this method, you won’t have to worry about forgetting to notify a biller of your bank switch. Similarly, if your credit card number or expiration date has changed, you must update both.

Swapping Health Insurance Plans

Adjustments to your account or a complete switch in insurance providers both take processing time from your carrier. A payment that was scheduled to be withheld prior to the cancellation of your insurance may still be handled.

If you are switching service providers, let them know as soon as possible so they can cancel any upcoming EFT payments. However, the removal may take a few days to process, so it’s best not to put it off until the last minute.

Note

It is recommended that you keep the scheduled EFT in your bank account even if you cancel your insurance. If the payment arrives on time, the insurance company will cover the difference.

Lack of Sufficient Resources

It is imperative that you remember to save enough money in your bank account to cover your payment. If the insurance company tries to take the money out and you don’t have enough cash on hand, it’s the same as if you’d bounced a check.

The bank will charge you a fee for going above your limit or having insufficient cash. Insurance may not be renewed if payment attempts are repeatedly declined. They may cancel your policy and charge you a fee for making a late payment. If you monitor your account balance often and set aside some emergency funds, you can reduce the likelihood of a payment being returned as unpaid.

Electronic Fund Transfers FAQs

The following questions and answers focus on the Electronic Financial Transfer Act (EFTA) and its companion regulation, Regulation E.

This tool is a result of the Consumer Financial Protection Bureau releasing their regulations. The Bureau has released a Policy Statement on Compliance Aids that explains its position on the topic.

Included: Business Deals

1. What kinds of financial dealings are under the purview of the EFTPA and Regulation E?

The Electronic Fund Transfer Act (EFTA) and Regulation E govern the process by which a financial institution can electronically debit or credit a customer’s account. 12 CFR 1005.3(a). (a).

An “account” is a deposit or savings account at a bank or other financial institution that was opened primarily to meet the requirements of an individual, family, or household. (other than an occasional or accidental credit amount in a credit plan). 12 CFR 1005.2(b)(1) (1). Included is a prepaid card in accordance with Regulation E. 12 CFR 1005.2(b)(3) (3).

The phrase “electronic fund transfer” (abbreviated as “EFT”) refers to any transaction in which a financial institution receives an order, instruction, or authorization to debit or credit a customer’s account through electronic terminal, telephone, computer, or magnetic tape. 12 CFR 1005.3(b)(1) (1). P2P or mobile payments that use EFTs such debit cards, ACH, prepaid accounts, and other electronic transfers to or from a consumer account are governed by Regulation E. Comment 3(b)(1)-1.ii and 12 CFR 1005.3(b)(1).(v).

2. To what extent do Regulation E EFTs include “P2P” (person-to-person) payments?

Yes.

“P2P” payments refer to the process of sending money from one person to another without the need for a central clearinghouse, physical cards, or even physical currency. Depending on the PSP, a consumer can initiate a P2P transaction using their online banking site, prepaid account portal, or mobile app.

Every person-to-person (P2P) payment that falls under the EFT definition is subject to Regulation E and EFTA. (for more details, see Electronic Fund Transfers Coverage: Transactions Question 1). See Electronic Fund Transfers Coverage: Financial Institutions Question 2 for further details on the coverage of P2P payment providers under EFTA and Regulation E.

3. Is it an EFT if I use my debit card to make a person-to-person (P2P) payment?

Yes. As discussed in Electronic Funds Transfers Coverage: Regulation E, this regulation applies to any EFT that authorizes a financial institution to debit or credit a customer’s account. Transactions 12 C.F.R. 1005.3(a) (Question 1) (a). EFT is the term used to describe the process of using a debit card. 12 CFR 1005.3(b)(1)(v) (v).

4. Is it an electronic funds transfer (EFT) when a customer makes a credit-push P2P payment from their checking, savings, or prepaid card?

Yes. Any EFT that allows a financial institution to debit or credit a consumer’s account is subject to Regulation E, as discussed in Electronic Fund Transfers Coverage: Transactions. First, a question. 12 CFR 1005.3(a) (a). Money that is sent from one account to another using electronic means (such as a computer, phone, or magnetic tape) is known as an electronic funds transfer (EFT). 12 CFR 1005.3(b)(1) (1). A credit-push P2P payment is considered to be an EFT since it begins with the use of an electronic terminal, telephone, or computer to issue a command, direct, or authorize a financial institution to debit a customer’s account.

A credit-push P2P transfer is still considered an EFT, even if a third party uses credentials stolen in a data breach or fraudulently obtained. In this scenario, the credit-push P2P transfer would be considered an unauthorized electronic funds transfer (EFT). Electronic Fund Transfers Error Resolution: Unauthorized EFTs Question 1 has more details on what defines an illegal EFT.

5. Can I make a “pass-through” payment using my P2P debit card, or is it not an EFT?

Yes.

Transferring funds from one person’s account at an external financial institution to another is a common kind of “pass-through” payment. A “pass-through” payment is one that is processed by a third party financial institution, such as a non-bank P2P provider, rather than the customer’s primary financial institution. Any EFT that allows a financial institution to debit or credit a consumer’s account is subject to Regulation E, as discussed in Electronic Fund Transfers Coverage: Transactions. First, a question. 12 CFR 1005.3(a) (a). As discussed in Electronic Fund Transfers Coverage: Transactions Question 3, the term EFT includes debit card transactions, hence debit card “pass-through” payments are also considered EFTs. 12 CFR 1005.3(b)(1)(v) (v). For more information on the financial institutions’ roles in error resolution while processing debit card pass-through payments, see Electronic Money Transfers Coverage: Financial Institutions Questions 3 and 4.

Conclusion

If you have been successfully using electronic money transfers to pay other payments, add your insurance provider to the list of billers. Financial incentives will boost your bottom line, and the ease of use is unparalleled. Contacting your agent or signing up on the insurance company’s website are both simple ways to set up electronic payments transfers. What Is Portable Electronics Insurance, and Why Do I Need It? is a good read.