Compliance Bulletin

New Bill Clarifies Relationship Between EFTA and UCC Division 11
October 1, 2012

This CBA Regulatory Compliance Bulletin was prepared for CBA by Ted Kitada, Senior Company Counsel for Wells Fargo Bank and Chairman of the CBA Legal Affairs Committee.

Senate Bill 708 (Chapter 392), enacted in Sacramento during this legislative year, clarifies the relationship between UCC Article 4A and the federal Electronic Fund Transfer Act (the “Act”) and confirms Article 4A’s applicability to remittance transfers under the Act.

The Act and amended Regulation E cover “electronic fund transfers,” an electronic payment initiated by or on behalf of a consumer to debit or credit a consumer’s account. Generally, UCC Article 4A governs “funds transfers,” such as a wholesale wire transfer originated on behalf of a business enterprise. Article 4A governs the rights and responsibilities among commercial parties to a wire transfer, including payment obligations among the parties and allocation of risk of loss.

In California, UCC Article 4A is designated as UCC Division 11. UCC § 11108 provides that Division 11 does not apply to a funds transfer any part of which is governed by the Act. By virtue of § 11108, funds transfers governed by the Act and funds transfers governed by UCC Division 11 are clearly separated by this statutory firewall.

Section 1073 to the Dodd-Frank Act amended the Act to add a new section 919 governing “remittance transfers.” A remittance transfer includes a wire transfer originated by a consumer to send funds to a designated recipient located in a foreign country. Pursuant to the Consumer Financial Protection Bureau’s amendments to Regulation E, effective February 7, 2013, a wire transfer sent on a consumer’s behalf that is a remittance transfer will be governed by the Act. Consequently, to the extent some funds transfers, such as an international wire transfer originated by a consumer, are remittance transfers under Regulation E, the transfers are governed by the Act, even if they are not electronic fund transfers as defined in the Act.

Thus, § 1073 changes current law. If UCC § 11108 remains unchanged, effective February 7, 2013, the effect of current § 11108 is to make funds transfers that are remittance transfers (but not electronic fund transfers) fall outside the coverage of Division 11, leaving the rights and responsibilities among providers of international funds transfers, such as international wire transfers, unregulated by Division 11. The amendment to § 11108 under SB 708 makes such remittance transfers subject to Division 11 as long as the transfers do not fall within the definition of an electronic fund transfer and such coverage is not inconsistent with the Act.

In summary, SB 708 would continue the firewall between the Act and Division 11. Therefore, the rights and responsibilities among providers of international funds transfers, including international wire transfers, would continue to be regulated by Division 11. Further, the consumer’s rights and protections afforded under the Act and Regulation E to such remittance transfers would continue to be available to consumers, as the Act will be the governing law as between the consumer sender and the remittance transfer provider.

The information contained in this CBA Regulatory Compliance Bulletin is not intended to constitute, and should not be received as, legal advice. Please consult with your counsel for more detailed information applicable to your institution.

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