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Consumer Banking and Payments Law: 6.5.2.1 Introduction to Federal Protections for Remittances

In the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), Congress amended the Electronic Fund Transfer Act (EFTA) to create an entirely new regulatory regime for international remittance transfers originating in the United States.147 Remittances are now subject to disclosure requirements, error resolution procedures, and, particularly importantly, protections against loss through error or theft.

Consumer Banking and Payments Law: 6.5.2.2 Scope of Regulation E Protections and Definitions

The Regulation E protections for international remittances apply to any “remittance transfer,” defined as “the electronic transfer of funds requested by a sender to a designated recipient that is sent by a remittance transfer provider.”169 However, small dollar transactions—those for $15 or less—are excluded from the definition,170 as are securities and commodities.171 There are four components of the definition of

Consumer Banking and Payments Law: 6.5.2.4.1 Errors covered

While disclosures will be helpful to remittance senders in evaluating the cost of using different remittance providers, the error resolution procedures should be invaluable to senders whose funds are lost or not paid in full to the recipient. The types of error that are subject to the error resolution procedure include:

Consumer Banking and Payments Law: 6.5.2.4.2 Procedures required

The error resolution requirements are triggered by oral or written notice from the sender, within 180 days of the “promised date of delivery,” that an error occurred.272 The provider is required to investigate promptly and determine, within ninety days after receiving notice of the error, whether an error occurred and report all results to the sender.273 If an error is found to have occurred, the provider is required, within one business day of receiving the sender’s instructions regarding the a

Consumer Banking and Payments Law: 6.5.2.5 Effective Date

The original regulations were due to become effective on February 7, 2013.287 However, the CFPB first extended the effective date indefinitely288 and then set the effective date for October 28, 2013.289 The effective date for the amendments to the final rule issued in May 2020 was July 21, 2020.290

Consumer Banking and Payments Law: 6.5.3.2 State and Local Remittance Laws

Remittance providers are subject to state money transmitter statutes, except when those statutes are preempted by federal law.305 Money transmitter statutes primarily deal with matters such as licensing, bonding, and permissible investments rather than with the types of disputes which involve consumers, although some provide consumers with limited protection.306

Consumer Banking and Payments Law: 6.6.1 Overview

Many of the same services that are used to remit funds internationally can also be used to send money within the United States.318 In addition, a growing number of other services enable individuals to transfer money person-to-person (known as “P2P” transfers).319 PayPal, which owns Venmo, is the largest nonbank provider of P2P services.

Consumer Banking and Payments Law: 6.6.2 EFTA Application to P2P Services

The specific international remittance provisions of the EFTA do not apply to domestic remittances. However, the primary EFTA provisions governing electronic fund transfers will apply if the transaction meets the definition of an “electronic fund transfer” in the EFTA and Regulation E.321 That definition covers transfers to and from an account, which includes a “prepaid account,” such as a mobile wallet or money transfer service that can store funds.322

Consumer Banking and Payments Law: 6.6.4.4 Cancellations and Refunds of Funds Not Transmitted

In some states, such as California and Texas, the state money transmitter law requires funds to be refunded if they are not transmitted within ten days of receipt.393

Texas also permits a customer to cancel the currency transaction before leaving the premises of the currency transmission business, but not later than thirty minutes after the time the currency transmission was initiated, and not after the recipient of the transmission has received the currency or its equivalent.394

Consumer Banking and Payments Law: 6.7.1 Overview

Article 4A of the Uniform Commercial Code governs funds transfers between “banks” and other financial institutions.414 The definition of “funds transfer” is quite broad, but transfers that are covered by the Electronic Fund Transfer Act (EFTA) are excluded from UCC Article 4A.415 Most consumer funds transf

Consumer Banking and Payments Law: 6.7.2 Bank-to-Bank Wire Transfer Systems

There are three wire transfer systems that receive payment orders from financial institutions and transmit funds back to them in accordance with those orders. Fedwire is operated by the Federal Reserve banks and is used to transmit funds in U.S. dollars within the United States between banks that are in the Federal Reserve System.

Consumer Banking and Payments Law: 6.7.6.1 Each Party Responsible for Their Own Errors

Article 4A addresses two kinds of errors—(1) those caused by the originator (i.e., the consumer sending a wire transfer) and (2) those caused by others in the transfer chain. Errors can occur, for example, due to a mistaken or ambiguous description of the order by the originator or due to an inadvertent alteration of the order by the originator’s bank or by one of the subsequent banks or parties sending that order through the system.