CFPB argues Reg E protects consumers from some wire transfer fraud

In a CFPB Blog article ("Banks' responsibility for scams")posted yesterday, CFPB General Counsel Seth Frotman described an ongoing case in which Citibank has been sued by the state of New York for failing to respond adequately when people promptly told the bank that scammers had stolen money by initiating wire transfers from the consumers’ accounts online. The losses New York alleges people have suffered are serious: for example, New York alleges that one person discovered that a scammer had changed her online banking password, transferred money from her savings to her checking account, and then stole $40,000 via wire transfer—all through Citibank’s online banking platform. And New York alleges that instead of complying with the Electronic Fund Transfer Act’s protections in circumstances like these, Citibank looked to a law that was intended to govern transactions between commercial entities which does not provide the same level of consumer protection to victims of scams.

Mr. Frotman reports that, in response to New York’s allegations, Citibank has argued that the Electronic Fund Transfer Act doesn’t apply because the scammers ultimately used a wire transfer to take the money, and the Act contains an exemption for transfers made by banks “by means of” a wire service. But the CFPB disagrees with Citibank's stance, as it explained in a Statement of Interest (amicus brief) submitted to the court. The Bureau's position is that 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.

Editor's Note: CFPB Blog articles are not official interpretations of law or regulations. The ABA and other industry associations have issued a statement opposing the CFPB's blog article, arguing that 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.”