BPI and Coalition of Trades File Brief in The People of The State of New York v Citibank

The Clearing House Association L.L.C. (“Association”). Established in 1853, the Association is a nonpartisan advocacy organization that represents the interests of its member banks by developing and promoting policies to support a safe, sound, and competitive banking system that serves customers, communities, and economic growth.[1] Its sister company, The Clearing House Payments Company L.L.C. (“PaymentsCo”), owns and operates U.S. payments networks that provide safe, sound, and efficient payment clearing and settlement services to financial institutions. PaymentsCo’s CHIPS® wire-transfer system and EPN® automated clearing house (“ACH”) network clear and settle more than $2 trillion of payments every business day.

The Bank Policy Institute (“BPI”). BPI is a nonpartisan public policy, research, and advocacy group that represents universal banks, regional banks, and the major foreign banks doing business in the United States. BPI produces academic research and analysis on regulatory and monetary policy topics, analyzes and comments on proposed regulations, and represents the financial services industry with respect to cybersecurity, fraud, and other information security issues.

New York Bankers Association (“NYBA”). NYBA, founded in 1894, comprises more than 100 community, regional and money center commercial banks and thrift institutions operating across the State of New York. NYBA’s members have over 200,000 employees and aggregate assets in excess of $10 trillion. NYBA’s mission is to be New York State’s preeminent provider of legislative and regulatory services to a unified banking industry.

American Bankers Association (“ABA”). The ABA is the principal national trade association of the financial services industry in the United States. Founded in 1875, ABA is the voice for the nation’s $23.7 trillion banking industry and its more than two million employees. ABA members provide banking services in each of the fifty states and the District of Columbia. Among them are banks, savings associations, and non-depository trust companies of all sizes.

Amici have an interest in this case because their members provide payment services that are governed by the Electronic Fund Transfer Act (“EFTA”) or Article 4A of the Uniform Commercial Code (“UCC”), depending on the nature of the particular payment transaction. Amici have considerable experience with consumer wire transfers, which are the transactions of focus of the New York Attorney General’s Complaint in this case. Indeed, Amici’s members facilitate billions of dollars in wire transfers a day, including consumer wire transfers. Amici’s members are deeply committed to consumer protection, including by meeting their obligations under EFTA, the UCC, and other applicable laws and regulations, as well as to providing consumers with efficient, effective methods for making payments.

Introduction

The Complaint by the New York Attorney General (“NYAG”) posits an interpretation of the law governing wire-transfer payments that contradicts the text, Congressional intent, regulatory interpretation, and settled understanding of the relevant statutes and that would upend decades of legal precedent and industry practice. According to the NYAG, Citibank, N.A. (“Citibank”) violated EFTA by failing to follow the statute’s requirements when customers fell victim to wire fraud schemes. But the NYAG omits a critical point: The wire transfers targeted by the Complaint are categorically exempt from EFTA’s coverage. 15 U.S.C. § 1693a(7)(B); 12 C.F.R. § 1005.3(c)(3). Instead, as the Second Circuit has recognized, it is Article 4A of the UCC that provides the “comprehensive body of law that defines the rights and obligations that arise from wire transfers.” Export-Import Bank of U.S. v. Asia Pulp & Paper Co., 609 F.3d 111, 118 (2d Cir. 2010); Bodley v. Clark, 2012 WL 3042175, at *4 (S.D.N.Y. July 23, 2012) (Forrest, J.) (applying Article 4A to unauthorized consumer funds transfer). This Court should reject the NYAG’s attempt to deviate from established law and practice and to impose—through litigation— the NYAG’s own policy choices as to how the risk of loss surrounding an electronic transfer of funds should be allocated.[2]

First, the NYAG badly misreads EFTA. The statute on its face excludes wire transfers from its scope. Congress has repeatedly declined to amend EFTA to bring all wire transfers within its coverage despite numerous suggestions and opportunities to do so. Indeed, when Congress amended EFTA in 2010, it subjected only a subset of wire transfers (remittance transfers) to part of EFTA’s regime—a subset and part not mentioned or relied upon by the NYAG in this case. Congress chose not to apply EFTA to consumer wire transfers in general, as the NYAG would do here. See 76 Fed. Reg. 29902, 29908 (May 23, 2011).

Seeking to avoid the clear statutory language and implementing regulations exempting wire transfers from EFTA’s coverage, the NYAG attempts to transform the series of integrally connected transactions that constitute a single consumer wire transfer into three supposedly “independent” transfers of funds. But that creative pleading theory cannot survive scrutiny: EFTA and its implementing regulation (Regulation E), along with Article 4A, make clear that the components of a wire transfer are not standalone transactions but rather together constitute a single funds transfer that is expressly excluded from EFTA’s reach. A single wire transfer is inherently a “series of transactions, beginning with the originator’s payment order, made for the purpose of making payment to the beneficiary of the order.” N.Y. U.C.C. § 4-A- 104(1) (emphasis added); 15 U.S.C. § 1693a(12) (defining “unauthorized electronic fund transfer” as a transfer “from a consumer’s account initiated by” someone “without actual authority to initiate such transfer” where the consumer “receives no benefit”) (emphasis added); 12 C.F.R. pt. 210, app. A (applying the Article 4A definition of funds transfer to Fedwire® Funds Service transfers by virtue of 12 C.F.R. § 210.25(b)(1)). The NYAG’s contention that the first part of this “series of transactions”—a debit to a consumer’s account to pay for a payment order to effect a funds transfer—is an “independent” transfer that falls outside of Article 4A is therefore wrong. Instead, Article 4A governs a customer’s obligation to pay for such a payment order (N.Y. U.C.C. § 4-A- 402(3)) and explicitly addresses the debiting of the customer’s account to do so (N.Y. U.C.C. § 4- A-403(1)(c)).

To read the full comment letter, please click here, or click on the download button below.


[1] The defendant, Citibank, N.A., is a member of the Association, The Clearing House Payments Company L.L.C., the Bank Policy Institute, the New York Bankers Association, and the American Bankers Association. Both parties were timely notified of the filing of this brief. Further, no counsel for a party authored this brief in whole or in part, and no party, party’s counsel, or person or entity other than Amici and their counsel funded its preparation and submission.

[2] This brief does not take a position as to whether the wire transfers in this case were unauthorized under EFTA. Instead, it argues only that UCC Article 4A is the controlling and exclusive legal framework for wire transfers, including consumer wire transfers (apart from a limited exception for remittance transfers not relevant for the present case but discussed below).