BILL ANALYSIS Ó
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UNFINISHED BUSINESS
Bill No: SB 708
Author: Corbett (D)
Amended: 8/16/12
Vote: 21
PRIOR VOTES NOT RELEVANT
ASSEMBLY FLOOR : 78-0, 8/20/12 - See last page for vote
SUBJECT : Funds transfers
SOURCE : California Bankers Association
DIGEST : This bill clarifies the relationship between the
Uniform Commercial Code (UCC) and federal law relating to
provisions governing electronic fund transfers (EFTs).
Assembly Amendments delete the Senate version of the bill,
which related to foreclosure procedures, and instead add
the current language.
ANALYSIS :
Existing law:
1. Specifies provisions of the Commercial Code governing
certain funds transfers, cited as the Uniform Commercial
Code - Funds Transfers, provide, among other provisions,
that a funds transfer is completed by acceptance by the
beneficiary's bank of a payment order for the benefit of
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the beneficiary of the originator's payment order.
2. Excludes from the provisions of the Uniform Commercial
Code - Funds Transfers those funds transfers governed by
the federal Electronic Fund Transfer Act of 1978.
Existing federal 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.
This bill:
1. Clarifies that the Uniform Commercial Code (UCC) shall
apply to a funds transfer that is a remittance transfer
as defined in Section 1693o-1 of Title 15 of the United
States Code, unless the remittance transfer is an
electronic fund transfer as defined in Section 1693a of
Title 15 of the United States Code.
2. Specifies if there is an inconsistency between the
applicable provision of the UCC and the federal act, the
applicable provisions of the federal act shall control
to the extent of the inconsistency.
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
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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 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
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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
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.
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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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 8/21/12)
California Bankers Association (source)
California Credit Union League
California Independent Bankers
ASSEMBLY FLOOR : 78-0, 8/20/12
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Charles Calderon, Campos,
Carter, Cedillo, Chesbro, Conway, Cook, Davis, Dickinson,
Donnelly, Eng, Feuer, Fletcher, Fong, Fuentes, Beth
Gaines, Galgiani, Garrick, Gatto, Gordon, Gorell, Grove,
Hagman, Halderman, Hall, Harkey, Hayashi, Hill, Huber,
Hueso, Huffman, Jeffries, Jones, Knight, Lara, Logue,
Bonnie Lowenthal, Ma, Mansoor, Mendoza, Miller, Mitchell,
Monning, Morrell, Nestande, Nielsen, Norby, Olsen, Pan,
Perea, V. Manuel Pérez, Portantino, Silva, Skinner,
Smyth, Solorio, Swanson, Torres, Valadao, Wagner,
Wieckowski, Williams, Yamada, John A. Pérez
NO VOTE RECORDED: Furutani, Roger Hernández
JJA:m 8/21/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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