A legal case concerning Citi’s handling of customer complaints related to wire transfer fraud has sparked a disagreement between the Consumer Financial Protection Bureau (CFPB) and various industry associations regarding the interpretation of the Electronic Fund Transfer Act (EFTA).
Citi is currently facing a lawsuit from the state of New York for its inadequate response to customers who promptly reported that scammers had stolen money by initiating wire transfers from their accounts online. New York Attorney General Letitia James asserts that because Citi enables wire transfers through its online and mobile banking platforms, the bank is obligated to reimburse fraud victims under the EFTA, akin to how banks compensate victims of electronic credit or debit card fraud.
Citi, however, contends that the EFTA does not apply in this situation, citing an exemption in the Act for transfers made “by means of” a wire service. They argue that since the scammers utilized a wire transfer to withdraw the funds, the bank is not liable under the EFTA.
Last week, CFPB General Counsel Seth Frotman contributed to the discussion by filing a Statement of Interest. He stated, “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.”
In response, multiple banking industry associations, including the American Bankers Association, the Bank Policy Institute, the New York Bankers Association, and The Clearing House Association, issued a statement claiming that the CFPB is straying from its previous guidance. They contend, “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.”