CFPB, Financial Trades Clash Over Wire Transfer Fraud Liability

CFPB says wire transfers are covered by the Electronic Funds Transfer Act

Financial services trade groups are railing against the Consumer Financial Protection Bureau’s assertion that consumers who initiate a wire transfer made through their financial institution are protected by the Electronic Fund Transfer Act.

The debate is not theoretical, as the CFPB recently filed a statement with the U.S. District Court for the Southern District of New York in support of New York State’s lawsuit against Citibank. New York filed suit against Citibank in January, alleging that the bank “has not deployed sufficiently robust data security measures to protect consumer financial accounts, respond appropriately to red flags, or limit theft by scam.” In the lawsuit, the state said the bank was subject to the EFTA.

Citibank has said that wire transfers are covered by the Uniform Commercial Code, under which banks are not required to reimburse payments for unauthorized wire transfers as long as the transfers are executed in good faith and are subject to agreed-upon protections negotiated by the financial institution and customers. The bank contends that those transactions are not covered by the Electronic Fund Transfer Act.

The CFPB filed a statement disagreeing with that assertion. “When a bank connects wire transfer capabilities to its online consumer banking platform and a person authorizes (or a scammer purports to authorize) a transfer online, the Electronic Fund Transfer Act applies to the transaction except for the bank-to-bank portion of it,” the CFPB said.

That essentially would make the financial institution responsible for reimbursing consumers in such cases.

Financial services trade groups contend that the Electronic Funds Transfer Act does not cover such transactions. The current CFPB position is a departure from its previous guidance, the American Bankers Association, Bank Policy Institute, New York Bankers Association and The Clearing House Association said in a statement.

“Wire transfers are excluded from the Electronic Fund Transfer Act,” the groups said, in a joint statement. “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.”

America’s Credit Unions agreed and called on Congress to clarify the law. “There has to be a limitation on liability,” Carrie Hunt, the group’s chief advocacy officer told reporters Monday. “No one wants to see a consumer defrauded, but it can’t be the financial institution that makes them whole every time.”