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Facts Matter: CFPB Attempts to Use a Blog Post to Rewrite a 46-year-old Payments Statute

Weston Loyd
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CFPB Asks a Court to Effectively Cancel Congressional Language and Then Uses Blog Post to Project General Applicability

In a recent blog post, the Consumer Financial Protection Bureau (CFPB) highlighted an amicus brief in New York v. Citibank, N.A., regarding the handling of consumer wire transfers that affected consumer accounts. Remarkably, the CFPB asks the court to rewrite the plain language of the Electronic Fund Transfer Act, and effectively reverse decades of settled law. By issuing the blog post, the CFPB presumably would apply this new “rule” to the industry at large. 

Key Findings 

  • The Electronic Fund Transfer Act and the implementing regulation, CFPB’s Regulation E, clearly excludes Wire Transfers.
  • Yet the CFPB now asserts that wire transfers initiated via electronic means are covered under Regulation E (rendering Regulation E’s exclusion meaningless).
  • The CFPB’s new interpretation of Regulation E would reverse decades of court decisions as well as the CFPB and Federal Reserve’s own prior regulatory filings. 
  • Attempting to stretch electronic payments laws beyond their bounds is not a viable solution to address scams and fraud. Scams and fraud are serious, interdisciplinary problems. The financial services industry is working with stakeholders across other private sector industries, but need the CFPB and other agencies to commit to collaborating thoughtfully and earnestly in order to reduce the risks consumers face from scams and fraud. 

It is well-established law, for decades, that wire transfers are not covered by the Electronic Fund Transfer Act. 

In the 1970s, Congress was concerned that consumer protections were necessary to encourage adoption of a new type of electronic payments recently created by the Federal Reserve Board and the banking industry: Automated Clearing House (ACH) payments. As the Federal Reserve Board explains, “[u]p to that point, cash and checks had been the principal methods for retail payments in the United States.” Accordingly, Congress passed the Electronic Fund Transfer Act, which created new consumer protections to encourage adoption of these new “Electronic Funds Transfers.” 

Wire transfers, by contrast, were not a new payment technology. In fact, the first wire transfers date back to the 1800s and were transmitted via telegraph. Accordingly, section 903(7)(B) of the Electronic Fund Transfer Act specifically excludes wire transfers from the definition of electronic fund transfers. To account for this distinction, the Uniform Commercial Code was amended in 1989 to include consumer protections for those transfers in Article 4A.  

The distinction between wire transfers and electronic funds transfers has been consistent across regulators and industry practices for decades. 

  • The CFPB’s Regulation E (12 C.F.R. § 1005.3(b)(3)), which implements the Electronic Fund Transfer Act, excludes "wire or similar transfers.” 
  • The CFPB says the same thing in its Supervisory Examinational Manual for Regulation E. 
  • Had CFPB thought these were covered by Regulation E, it would need to take proper legal and regulatory steps, including identifying these increased burdens in its regulatory filings. 
    • By law, the CFPB must establish the “regulatory burden” imposed by Regulation E in a filing with Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA). 
    • CFPB's Regulation E submission to OIRA (available here) does not contemplate the increased regulatory burden imposed by the growth of hybrid wire transfers consumers instruct via electronic means.  
  • The CFPB has previously made clear in regulatory actions that it is the UCC, not EFTA, that governs wires. In 2012 when the CFPB finalized amendments to Regulation E, for example, CFPB wrote that “[c]onsumers currently receive some protections under UCC Article 4A . . . in connection with an unauthorized transfer,” and also wrote that the EFTA was not applicable in those circumstances because “Congress had specifically structured the EFTA to exclude wire transfers.” The CFPB’s new brief tries to justify having flipped positions by saying that its published statements from 2012 were “imprecise.”
  • Courts universally have held that the Electronic Fund Transfer Act does not apply to wire transfers.
  • Including, in Wright v. Citizen's Bank of E. Tennessee, 640 F. App'x 401, 404 (6th Cir. 2016); Bodley v. Clark, No. 11 CIV. 8955 KBF, 2012 WL 3042175, at *4 (S.D.N.Y. July 23, 2012); Lusinyan v. Bank of Am., N.A., No. CV-14-9586 DMG (JCX), 2015 WL 12777225, at *3 (C.D. Cal. May 26, 2015); Chen v. Bank of Am., N.A., No. CV 19-6941-MWF-SK, 2019 WL 9633650, at *7 (C.D. Cal. Oct. 29, 2019); Fischer & Mandell LLP v. Citibank, N.A., 2009 WL 1767621, at *4 (S.D.N.Y. June 22, 2009).

The power resides in Congress to change the longstanding law as it pertains to wire transfers, not the CFPB’s manipulation of a potential legal ruling that would usurp legislative statute. If the CFPB wanted to include “the consumer’s electronic instruction to send a wire transfer” in the scope of Regulation E, it would at least need to amend Regulation E under the procedures required by the Administrative Procedure Act. It cannot reinterpret a statute or reverse decades of well-settled law by making a new argument in a legal brief and then notifying the general public via a blog post. 

The CFPB's Interpretation of Electronic Fund Transfer Act would render the statute’s wire transfer exception meaningless. 

The CFPB seeks to establish a new "hybrid" form of EFT whereby part of the transfer may be an EFT and part a wire transfer if the consumer instructs the wire transfer via electronic means. In doing so, the CFPB appears to misunderstand or misrepresent how payment systems work.  However, this is not how payments systems work. 

In particular, if the exceptions for wire transfers in the Electronic Fund Transfer Act and Regulation E only cover the bank-to-bank portion of the transfer, then the wire transfer exceptions in the statute and regulation are unnecessary: All bank-to-bank transfers are already excluded because Regulation E (§ 1005.3(a)) only applies to a "debit … to a consumer's account." If you were to break apart a wire transfer the way the Bureau suggests, the bank-to-bank transaction does not actually debit a consumer's account. Banks settle the transactions separately from the consumer account debit and credits.

Scams and fraud are serious, interdisciplinary problems that require serious, interdisciplinary public-private coordination.

Banks work hard every day to prevent fraud and scams. But reducing the exposure of consumers to scammers and fraudsters and recovering the illicit gains of scammers and fraudsters requires coordination across industries and a range of government actors to effectively reduce the risks consumers face.

CBA has partnered with Nick Bourke, former Creator and Executive Director of the Consumer Finance and Housing Program at Pew Charitable Trusts to develop a series of public-private recommendations for reducing the scam and fraud landscape. CBA will release its findings and recommendations this summer. Ultimately, the financial services industry needs the CFPB to lead or at least participate in a comprehensive, coordinated anti-scam strategy to establish a coordinated federal approach to reduce the risk of scams and assist consumers once a scam has been perpetrated.

For instance: 

  • Regulators need to work with telecommunications companies and social media companies to help reduce the ability of scammers to trick consumers. It should be much harder for a scammer to “spoof” a government phone number or the name of a bank on Caller ID or to use social media to repeatedly sell the same “used car” in all fifty states multiple times to unwitting buyers.
  • Anti-money laundering regulators have worked successfully with private sector counterparts to create rapid response networks that can trace and recover illicit fund transfers tied to money laundering and illegal drug sales. The CFPB should develop similar rapid recovery efforts relating to scams and fraud. 
  • Law enforcement needs to be fully funded to successfully investigate and combat fraud. CFPB should coordinate with law enforcement in these instances.
  • Stopping fraud attempts before a criminal can cause harm should be everyone’s priority, educating and warning consumers about scams is an important part of keeping people and property safe.
  • Digital identification, like mobile driver’s licenses, can help increase trust in systems throughout our economy. Good standards are emerging, and banks will help implement them; but governments must play a role by funding the infrastructure that supports digital IDs. 

The Bottom Line 

The rate and scale of scams and fraud are deeply concerning. But law, appropriate process, and facts still matter. The CFPB is a key player in addressing these important issues. However, unilaterally usurping the role of Congress and the Courts to rewrite decades of precedent is not a tenable solution. 

Complex problems require thoughtful, coordinated solutions. The CFPB, other government agencies, and the broader inter-industry private sector must work together thoughtfully and deliberately to appropriately protect consumers. As we have said in the past, the CFPB has a mission-related role to play in supporting consumers' education and helping them to avoid falling victim to fraud and scams. 

It is unfortunate the CFPB continues to promote politically-driven headlines instead of developing sound policy that would benefit the people we are all working to serve. 

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