Correcting the Record on the Electronic Fund Transfer Act

ABA, BPI, NYBA and TCH respond to the CFPB’s legally dubious claim

Washington, D.C. — The American Bankers Association, Bank Policy Institute, New York Bankers Association and The Clearing House Association responded today to CFPB General Counsel Seth Frotman’s blog post regarding the state of New York’s lawsuit against Citibank over alleged wire transfer scams that affected some bank customers. A key question at the heart of the case is what law applies when a scammer steals money from a customer’s bank account via a wire transfer. In a departure from its prior guidance, the CFPB now contends that the Electronic Fund Transfer Act – the federal law that provides certain consumer protections to specific types of electronic payments – applies in the New York v. Citibank case because the bank linked wire transfer capabilities to its online banking platform and a fraudster initiated an unauthorized wire transfer online. This is not what the law says. The EFTA expressly does not apply to wire transfers, which are governed instead by Article 4A of the Uniform Commercial Code (UCC).

“Banks are dedicated to protecting consumers from fraud and scams, as demonstrated by the extensive consumer education campaigns they conduct and the significant investments they have made to ensure strong cybersecurity safeguards. They also investigate and report scammers to law enforcement, while working closely with their customers to remedy the situation. The CFPB has the law wrong here: Wire transfers are excluded from the Electronic Fund Transfer Act. The CFPB cannot reinterpret a statute and reverse decades of settled law in an amicus brief and then use a blog post to suggest that its position is the law. The Bureau is supposed to be educating consumers, not confusing them.” – ABA, BPI, NYBA and TCH wrote in a joint statement.

  • The case: New York sued Citibank, alleging that the bank responded inadequately to customers’ reports that scammers stole money by initiating wire transfers from the customers’ online bank accounts. The question is whether a scam transaction conducted via wire transfer is governed by the EFTA.
  • The reality: It is well-settled law that the Electronic Fund Transfer Act does not apply because wire transfers are explicitly excluded from the EFTA’s coverage. Congress has declined to expand EFTA’s coverage to the wire transfers of the sort at issue in the NYAG’s complaint. Those wire transfers are instead governed by a different legal framework – Article 4A of the UCC.

The ultimate costs: As ABA, BPI, NYBA and TCH noted in their amicus brief in this case, applying this law more broadly to wire transfers would impose costs on customers by forcing financial institutions to become insurers against all unauthorized online wire transfers. That would mean higher costs and less convenience for consumers when they wish to make payments.

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About Bank Policy Institute

The Bank Policy Institute 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. The Institute 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.

About the American Bankers Association

The American Bankers Association is the voice of the nation’s $24 trillion banking industry, which is composed of small, regional and large banks that together employ approximately 2.1 million people, safeguard $19 trillion in deposits and extend $12.4 trillion in loans.

About New York Bankers Association

The New York Bankers Association (NYBA) represents community, regional, and large banks across the State of New York. Together NYBA members employ nearly 150,000 New Yorkers, safeguard $2.6 trillion in deposits, extend nearly $145 billion in home and small business loans, and support their communities through more than $200 million in donations and 500,000 volunteer hours.

About The Clearing House Association

The Clearing House Association L.L.C., the country’s oldest banking trade association, is a nonpartisan organization that provides informed advocacy and thought leadership on critical payments-related issues. Its sister company, The Clearing House Payments Company L.L.C., owns and operates core payments system infrastructure in the United States, clearing and settling more than $2 trillion each business day.

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