ELECTRONIC FUND TRANSFER ACT
The People of New York v. Citibank N.A.
Date: May 2, 2024
Issue: Whether the Electronic Fund Transfer Act (EFTA) applies to wire transfers.
Case Summary: The American Bankers Association filed a coalition amicus brief urging a New York district court to dismiss New York Attorney General (NYAG) Letitia James’ lawsuit against Citibank, alleging it violated the EFTA by failing to protect wire fraud victims.
NYAG sued Citi alleging the bank violated the EFTA because it lacked sufficient online security measures to protect against scammers and unlawfully refused to reimburse them for fraud losses from wire transfers. Under the EFTA, consumers may dispute outgoing electronic payments and receive refunds for unauthorized withdrawals. According to the N.Y. attorney general, the bank did not use strong enough data security measures to protect consumer financial accounts, respond appropriately to red flags, or limit theft by scam. NYAG also claimed Citi reacted ineffectively to fraud alerts, misled consumers and summarily denied their claims. Citibank moved to dismiss, arguing the EFTA does not apply because Article 4A of the Uniform Commercial Code governs wire transfers.
In its brief supporting Citibank, ABA made three main arguments. First, ABA argued NYAG’s position sidesteps UCC Article 4A and the universally accepted understanding of consumer wire transfers. According to New York’s AG, consumer wire transfers consist of three “independent” transfers of funds: a transfer the payor’s bank executes to pay itself for a payment order by debiting the payor’s account; a transfer between the payor’s bank and the payee’s bank; and a transfer by the payee’s bank into the payee’s account. NYAG theorized Article 4A only covers transfers between the payor’s bank and the payee’s bank, while the other transfers are non-wire EFTs covered by the EFTA. ABA claimed NYAG’s theory was incorrect because Article 4A treats a consumer wire transfer as a united whole.
Second, ABA argued both courts and regulators have confirmed Article 4A governs consumer wire transfers, not the EFTA. ABA noted every federal and state court that examined EFTA’s coverage exemptions has ruled Article 4A governs wire transfers. ABA asserted Article 4A “was enacted to provide a comprehensive body of law that defines the rights and obligations that arise from wire transfers.” ABA also highlighted that the Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and Financial Crimes Enforcement Network have repeatedly made clear the EFTA does not apply to wire transfers other than remittances.
Finally, ABA argued adopting NYAG’s theory would upend settled expectations at great cost to consumers. ABA reiterated legislators, courts, and regulators have offered a consistent message to financial institutions: wire transfers are outside EFTA’s purview. Financial institutions have priced their services and structured their agreements, compliance systems, and procedures to align with Article 4A’s framework. If the court adopts NYAG’s position, the availability of affordable and convenient consumer-initiated wire transfers would be at risk. Financial institutions would need to: reconsider their agreements; review existing commercially reasonable security procedures; revisit the fees they charge consumers for wire transfers; and reassess whether to offer online or mobile consumer wire transfers at all.
Bottom Line: Citibank’s reply brief is due June 18, 2024.
Documents: Brief
