BILL ANALYSIS Ó
SB 708
Page 1
SENATE THIRD READING
SB 708 (Corbett)
As Amended August 16, 2012
Majority vote
SENATE VOTE : 32-1
BANKING & FINANCE 11-0
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|Ayes:|Eng, Achadjian, Charles |
| |Calderon, Fletcher, |
| |Fuentes, Gatto, Harkey, |
| |Roger Hernández, Lara, |
| |Morrell, Torres |
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SUMMARY : Clarifies the relationship between the Uniform
Commercial Code (UCC) and federal law relating to provisions
governing electronic fund transfers (EFTs).
EXISTING LAW : The federal Electronic Fund Transfer Act (EFTA)
(15 United States Code (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 country
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
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transfer, the exchange rate (if the recipient is to receive
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 EFTA 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
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viewed as "governed by" the EFTA and therefore not
governed by Regulation J.
To avoid a gap in coverage for Fedwire funds transfers, the
Board proposed to amend Section 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
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Reserve Regulation J providing the same legal protections to
users and operators of private-sector
funds-transfer systems.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081
FN: 0004792