US CFPB Stokes Flames Of New York Versus Citibank Wire Transfer Case

June 7, 2024
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The Consumer Financial Protection Bureau (CFPB) has issued a statement that suggests that the Electronic Fund Transfer Act should apply in the case of New York v Citibank, provoking an immediate industry backlash from advocates in the banking and payments industries.

The Consumer Financial Protection Bureau (CFPB) has issued a statement that suggests that the Electronic Fund Transfer Act (EFTA) should apply in the case of New York v Citibank, provoking an immediate industry backlash from advocates in the banking and payments industries. 

Citibank has been taken to court for allegedly failing to respond to customers that claim fraudulent wire transfers have been made. 

The EFTA has exemptions in place for wire transfers, but the CFPB does not think they apply in this instance. 

On Wednesday May 29, the bureau stated that the act applies when “banks connect the capability to initiate wire transfers to a consumer-facing banking platform”, and that the exclusion to the rule for wire transfers is only applicable for bank-to-bank transfers and not consumer-facing online banking platforms, as Citibank argued. 

New York filed a case against Citibank that suggests the bank did not address customers' reports of scam artists initiating unauthorised wire transfers from their bank accounts on online platforms. The CFPB statement means it believes the case should be under EFTA jurisdiction and not the Uniform Commercial Code (UCC), which would normally apply to wire transfers but is less robust. 

In a memo published the same day, CFPB general counsel wrote: “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 position faced an immediate response from the industry, however. The American Bankers Association, the Bank Policy Institute, the New York Bankers Association and The Clearing House Association responded the following day, arguing that “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),” they wrote in a joint statement. 

“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.” 

Jonathan Frost, a fraud and cybercrime consultant and board member of the Stop Scams Alliance, told Vixio that the CFPB had taken the right action; however, pointing to disparities between the US and the laws of the United Kingdom. 

“Litigation shouldn’t be the default path to regulation in any jurisdiction,” he said. “As the UK moves toward the universal reimbursement of authorised fraud, it is ironic that US consumers are still fighting for reimbursement of unauthorised payments.

“The CFPB has rightly pointed out an intrinsic contradiction in the position adopted by US Banks.”

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