BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 708| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ UNFINISHED BUSINESS Bill No: SB 708 Author: Corbett (D) Amended: 8/16/12 Vote: 21 PRIOR VOTES NOT RELEVANT SENATE BANKING & FIN. INST. COMM. : 6-0, 8/23/12 (pursuant to Senate Rule 29.10) AYES: Vargas, Evans, Kehoe, Liu, Padilla, Walters NO VOTE RECORDED: Blakeslee 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: CONTINUED SB 708 Page 2 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 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. CONTINUED SB 708 Page 3 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 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 CONTINUED SB 708 Page 4 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 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 CONTINUED SB 708 Page 5 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. 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 8/23/12 Senate Floor Analyses CONTINUED SB 708 Page 6 SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED