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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: 6.5.2.3.1 Overview
Disclosures are required at two separate points in the process of sending an international remittance.
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: 6.5.3.1 Contract and UDAP Laws
Because of the paucity of statutes and regulations, many cases are decided based on the contract between the parties, common law, or general laws prohibiting unfair or deceptive acts or practices.291
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: 6.5.3.3 Bank Secrecy Act and Other Anti-Fraud and Anti-Money Laundering Laws
The federal Bank Secrecy Act mandates that many companies file Suspicious Activity Reports (SARs) if they become aware of activity that might indicate money laundering, tax evasion, or other criminal activities (including payment scams).
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: 6.6.3 FTC P2P Restrictions for Telemarketing Transactions
Many scams rely on the victim sending money to the scammer.323 While some scams use remotely created checks,324 ACH (electronic) payments from bank accounts,325 or credit card payments,326 other scammers use money transfer services that permit more anonymity. In particular, many payment scams use Western Union, MoneyGram, and other money transmitting services.
Consumer Banking and Payments Law: 6.6.4.2 Licenses and Unlicensed Activity
The state requirements for money transmitters vary somewhat by state.383 Generally, the laws require the provider to obtain a license.
Consumer Banking and Payments Law: 6.6.4.3 Disclosures
Some money transmitter laws contain disclosure requirements. For example, a money order may require a disclosure that it is not protected by FDIC insurance, if that is the case.
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: 6.6.4.5 Protections Against Theft or Insolvency of Money Transmitter
When a money transmitter licensee posts a bond, or another form of security is required to be held against claims, the security is expressly held in trust for the benefit of claimants.395 By operation of law, these sureties and bonds are held in trust for the benefit of the state and any individual to whom an obligation arising under the state statute is owed.
Consumer Banking and Payments Law: 6.6.4.6 Enforcement
The money transmitter laws of many states provide a private right of action for claims against the licensee’s security.
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: 6.7.3 Scope of UCC Article 4A Limited by EFTA Coverage
UCC Article 4A only applies to wire transfers that go from bank to bank.430 If Article 4A does not apply to a wire transfer, such as when a wire is transferred through a “closed network,” in which banks do not participate in sending and receiving funds, then typically a state money transmitter law will apply.
Consumer Banking and Payments Law: 6.7.4 The Wire Transfer Process and Key Terms
Article 4A applies only to “credit” transfers, which are transfers initiated by the person making a payment by sending money to another.441 “Debit” transfers—or transfers initiated by a person to charge the bank account of another person—are not covered.
Consumer Banking and Payments Law: 6.7.5.1 Consumer Generally Not Liable for Unauthorized Transfers
UCC Article 4A addresses transfers not authorized by the originator and how responsibility for fraud is allocated between the originator and the receiving bank (i.e., between the consumer and their bank). The general rule is that the consumer is not liable for a funds transfer that the consumer did not authorize.454
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.