BILL ANALYSIS Ó
SB 708
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Date of Hearing: July 2, 2012
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Mike Eng, Chair
SB 708 (Corbett) - As Amended: June 26, 2012
SENATE VOTE : Not relevant
SUBJECT : Funds Transfers.
SUMMARY : Clarifies the relationship between the Uniform
Commercial Code (UCC) and federal law relating to provisions
governing electronic fund transfers (EFTs). Specifically, this
bill :
EXISTING LAW
The Federal Electronic Fund Transfer Act (EFTA) (15 USC 1693 et
seq.) of 1978 is intended to protect individual consumers
engaging in EFTs. EFT services include transfers through
automated teller machines, point-of-sale terminals, automated
clearinghouse systems, telephone bill-payment plans in which
periodic or recurring transfers are contemplated, and remote
banking programs.
FISCAL EFFECT : None
COMMENTS :
This bill specifies that Article 4A of the UCC does not apply to
a remittance transfer that is not an EFT, and provides clarity
necessary because of changes to federal law.
Article 4A of the UCC was designed to provide a set of rules to
govern wholesale wire transfers-high-value commercial payments
normally made exclusively by businesses firms.
Section 1073 of the Dodd-Frank Act amended the EFTA to provide
protections for senders of "remittance transfers," which are
defined to include any electronic transfer of funds from a
consumer in the U.S. to a recipient located in a foreign county
regardless of whether the transfer is technically an "electronic
fund transfer" under the EFTA. These consumer protections
include disclosure requirements regarding the amount that the
recipient will receive, the fees charged for the remittance
transfer, the exchange rate (if the recipient is to receive
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funds in a different currency), and the promised delivery date;
section 1073 also provides procedures for the resolution of
disputes. Rules implementing section 1073 have been adopted by
the Consumer Financial Protection Bureau (CFPB) and take effect
in February 2013. The effect of section 1073 was to include in
the EFT Act a certain class of funds transfers.
Faced with this legal uncertainty, the Board of Governors of the
Federal Reserve System has adopted an amendment to its
Regulation J, which governs funds transfers by the Federal
Reserve Banks to clarify that "Regulation J continues to apply
to a Fedwire funds transfer even if the funds transfer also
meets the definition of 'remittance transfer under the EFTA"
While this works for Fedwire, private-sector systems do not have
the ability to issue federal regulations that have the effect of
overriding conflicting provisions of state law. Thus,
private-sector systems are left in the position of having to
process some payments for when it is not clear which legal
principles apply.
According to the Federal Reserve:
Prior to the adoption of the recently enacted Dodd-Frank
Wall Street Reform and Consumer Protection Act (Dodd-Frank
Act), the exclusion from Regulation J and Article 4A of
transactions governed by the EFTA did not create any gaps
or overlap because the EFTA was excluded from the
definition of ``electronic fund transfer'' wire transfers
over systems that are not designed primarily for consumer
transfers (such as Fedwire).
The Dodd-Frank Act, however, added new Section 919 to the
EFTA, which defines "remittance transfer" to include an
electronic transfer of funds requested by a U.S. consumer
sender through a remittance transfer provider, whether or
not the remittance transfer is also an electronic fund
transfer as defined in the EFTA. Therefore, a Fedwire funds
transfer could potentially be part of a remittance transfer
under the new section 919 of the EFTA. Consequently, under
Regulation J's current scope provision (Sec.
210.25(b)(3)), Fedwire funds transfers that meet the EFTA's
definition of "remittance transfer" could be viewed as
"governed by" the EFTA and therefore not governed by
Regulation J.
To avoid a gap in coverage for Fedwire funds transfers, the
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Board proposed to amend Sec. 210.25 of Regulation J to clarify
that Regulation J continues to apply to "remittance transfers"
as defined by the EFTA, to the extent there is not an
inconsistency between Regulation J and section 919 of the EFTA
(in which case section 919 would prevail). The proposed
clarification was intended to ensure that the provisions of
Regulation J, and therefore Article 4A of the UCC, apply to all
Fedwire funds transfers, except to the extent that section 919
of the EFTA and rules established thereunder apply.
The CFPB is very aware of this problem and understands that
there is no conflict between the consumer-protection provisions
of section 1073 and the interbank-liability rules of Article 4A.
Nevertheless, it declined to issue a rule that would have
adopted Article 4A to govern the aspects of remittance transfers
that do not affect consumers while incorporating the
consumer-protection provision of section 1073; the CFPB stated:
The Bureau recognizes that one consequence of covering
remittance transfers under the
EFTA could be legal uncertainty under the UCC for certain
remittance transfer providers.
Specifically, to the extent that providers of international
wire transfers were previously able to rely on UCC Article
4A's rules governing the rights and responsibilities among
the parties to a wire transfer, they may no longer be able
to do so. However, given the factors discussed above, the
Bureau believes that the best mechanisms for resolving this
uncertainty rests with the states, which can amend their
respective versions of UCC Article 4A, with the purveyors
of rules applicable to specific wire transfer systems,
which can bind direct participants in the system, and with
participants in wire transfers who can incorporate UCC
Article 4A into their contracts.
Importantly, the consumer protections afforded under section
1073 of the Dodd-Frank Act would not be impaired by this bill.
The consumer who sends a remittance transfer would still have
the full set of protections with respect to the institution
directly providing the remittance-transfer service. This bill
would simply be analogous to the recently amended Federal
Reserve Regulation J providing the same legal protections to
users and operators of private-sector
funds-transfer systems.
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REGISTERED SUPPORT / OPPOSITION :
Support
California Bankers Association (CBA) - Sponsor
Opposition
None on file.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081