NY District Court Rules That EFTA Applies to Consumer Wire Transfers

The U.S. District Court for the Southern District of New York ruled—in an apparent question of first impression—that the Electronic Fund Transfer Act (EFTA) applies to consumer wire transfers.

The New York Attorney General filed an action under EFTA against a large national bank alleging that the bank failed to properly prevent and respond to situations where criminals made unauthorized or fraudulent wire transfers from customers’ accounts.  The bank moved to dismiss by asserting, in relevant part, that EFTA did not apply to consumer wire transfers since they were not “electronic fund transfers” governed by the statute.

Under EFTA, an “electronic fund transfer” is defined as “any transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, which is initiated through [an electronic system or computer] so as to order, instruct, or authorize a financial institution to debit or credit an account.”  However, the definition contains an exemption for transfers “made by a financial institution on behalf of a consumer by means of a service that transfers funds held at either Federal Reserve banks or other depository institutions and which is not designed primarily to transfer funds on behalf of a consumer.”

Based on the facts pleaded and the relevant statutory language, the Court denied the bank’s motion to dismiss the EFTA claim.  The Court explained that wire transfers involve a multi-step process where: 1) the sender requests their bank to transfer funds to a recipient; 2) the sender’s bank sends the funds to the recipient’s bank; and 3) the recipient’s bank credits the amount transferred to the recipient.  The Court ruled that the term electronic fund transfer cannot only refer to the entire “end-to-end” transfer process, but that the initial step of the sender requesting their bank to send the funds is itself an electronic fund transfer.  In contrast, the Court held that the exemption only applies to the bank-to-bank portion of the transfer process.  After further considering applicable legislative history and regulatory guidance, the Court held that the consumer wire transfers at issue were governed by EFTA.