TITLE OF BILL:
An act to amend the uniform commercial code, in relation to clarifying
the relationship between article 4-A of the code and the federal
Electronic Fund Transfer Act and to clarify such article's
applicability to remittance transfers under the Electronic Fund
To amend section 4-A-108 of the Uniform Commercial Code to clarify the
relationship between Article 4A of the code and the federal Electronic
Fund Transfer Act ("EFT Act") and to clarify Article 4A's
applicability to remittance transfers under the EFT Act. This bill
will maintain all consumer protections afforded under federal and
SUMMARY OF PROVISIONS:
The bill would amend section 4-A-108 from the state Uniform Commercial
Code effective upon enactment.
Subdivision (1) keeps the current section 4-A-108 but makes the
application of the general rule subject to an exception as set out in
subdivision (2). Subdivision (2) provide that Article 4A applies to a
"remittance transfer" as defined in the EFT Act unless that remittance
transfer is also an "electronic fund transfer" as defined in the EFT
Act. Subdivision (3) makes it clear that that the protections afforded
consumers who send "remittance transfers" are preserved by stating
that if there is an inconsistency between an applicable provision of
Article 4A and an applicable provision of the EFT Act, the EFT Act
Article 4A was designed to provide a set of rules to govern wholesale
wire transfers-high-value commercial payments normally made
exclusively by businesses firms.(1) Article 4A was not intended to be
a consumer-protection statue; consumers were already protected by the
federal EFT Act, which covers a wide variety of electronic payments
used by consumers.(2) In order to ensure that there could be no
confusion, section 4-A-108 excluded from Article 4A's coverage any
funds transfer governed by the EFT Act.
The EFT Act, in turn, excluded from its definition of "electronic fund
transfer" any transfer of funds, other than those processed by
automated clearinghouse, made by a financial institution on behalf of
a consumer by means of a service that transfers funds held at either
Federal Reserve banks or other depository institutions and which is
not designed primarily to transfer funds on behalf of a consumer.(3)
The effect of section 4-A-108 was to make Article 4A and the EFT Act
"mutually exclusive,"(4) and it meant that funds transfers sent
through wholesale funds-transfer networks, such as the Federal Reserve
Banks' Fedwire funds-transfer service and the Clearing House Interbank
Payments System ("CHIPS")(5) would be governed by Article 4A even if
they involved consumers.
This balance was changed when Congress enacted the Dodd-Frank Wall
Street Refonn and Consumer Protection Act ("Dodd-Frank Act").(6)
Section 1073 of the Dodd-Frank Act amended the EFT Act 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
EFT Act.(7) 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;(8) section 1073 also provides procedures for the resolution of
disputes.(9) Rules implementing section 1073 have been adopted by the
Consumer Financial Protection Bureau ("CFPB") and take effect in
February 2013.(10) The effect of section 1073 was to include in the
EFT Act a certain class of funds transfers, even if such transfers are
sent through a wholesale funds-transfer network like CHIPS or Fedwire,
and thus by operation of U.C.C. § 4-A-108 to exclude those funds
transfers from Article 4A.
This creates a problem for operators and users of wholesale
funds-transfer networks. While the originator of a remittance transfer
is given certain protections under section 1073, there is no longer
any law to govern the relations between the banks that will
necessarily be part of the payments chain-no law to govern the
relationship of the originator's bank and an intermediary bank or the
beneficiary's bank. While a court might in the case of a dispute
"apply appropriate principles from Article 4A by analogy,"(11) it is
not clear that this will always be the case.
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 Electronic Fund Transfer Act..."(12) 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 which it
is not clear which legal principles apply.(13).
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 its belief that "the best mechanisms for resolving this
uncertainty rests with the states, which can amend their respective
versions of UCC Article 4A,..."(14)
The bill would amend New York's Article 4A to (i) continue the
traditional exemption from Article 4A electronic funds transfers as
defined in the federal EFT Act, but (ii) provide that remittance
transfers under section 1073 would not be excluded from Article 4A
unless they are also electronic fund transfers under the EFT Act.
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
Subdivision (3) of the bill explicitly recognizes the operation of the
Supremacy Clause of the U.S. Constitution would ensure that the
protections that Congress has accorded to U.S. consumers who initiate
remittance transfers will be unaffected by New York's change to
This amendment has been drafted in coordination and support from the
National Conference of Commissioners on Uniform State Laws ("ULC") and
the American Law Institute ("ALI"), the sponsors of the Uniform
Commercial Code, and with the Federal Reserve Bank of New York. The
staff of the Board of Governors of the Federal Reserve System has also
been consulted in the drafting process.
OFFICIAL COMMENTS: The ULC and ALI supply each section of the UCC with
an Official Comment to explain the provision and give examples of how
it would operate. Although the New York legislature does not adopt
these comments as part of the New York UCC, members of the Senate and
Assembly may find the new Official Comment for 4-A-108 useful in
understanding the revision to this section. The Official Comment is
attached as Annex A.
(1) See U.C.C. § 4A-102, cmt.
(2) See U.C.C. § 4A-108, cmt
(3) 15 U.S.C. § 1693a(6)(b). The automated clearinghouse ("ACH") is a
funds-transfer system that is often used to make consumer credit
debit payments, such as direct deposit of payroll or direct debits
for mortgage or insurance payments.
(4) U.C.C. § 4A-108, cmt.
(5) CHIPS is owned and operated by The Clearing House Payments Company
L.L.C., which is headquartered and has its primary operations
in New York.
(6) Pub. L. No. 111-203, 124 Stat. 1376 (Jul. 21, 2010).
(7) 15 U.S.C. § 16930-1(g).
(8) Id. § 16930-1(a).
(9) Id. § 16930-1(d).
(10) 77 Fed Reg. 6194 (Feb. 7, 2012).
(11) U.C.C. § 4A-108, cmt
(12) 77 Fed. Reg. 21,845 (Apr. 12, 2012). Regulation J adopts Article
as the law governing Fedwire funds transfers. 12 C.F.R.
(13) While private-sector systems may amend their rules to provide
Article 4A's principles will continue to govern all of their
transactions, it is not clear how effective such rules would be.
CHIPS has amended its rules to provide that as between the banks
that send and receive CHIPS payment messages, the Article 4A
continue to apply.
(14) 77 Fed Reg. at 6212.
1. The Electronic Fund Transfer Act (EFTA), implemented by Regulation
E, 12 C.F.R. Part 1005, is a federal statute that covers aspects of
electronic fund transfers involving consumers. EFTA also governs
remittance transfers, defined in 15 D.S.C. Sec. 16930-1, which
involve transfers of funds through electronic means by consumers to
recipients in another country through persons or financial
institutions that provide such transfers in the normal course of their
business. Not all "remittance transfers" as defined in EFTA, however,
qualify as "electronic fund transfers" as defined under the EFTA, 15
D.S.C. Sec. 1693a(7). While Section 4A-108(a) broadly states that
Article 4A does not apply to any funds transfer that is governed in
any part by EFTA, subsection (b) provides an exception. The purpose of
Section 4A-I08(b) is to allow this Article to apply to a funds
transfer as defined in Section 4A-104(a) that also is a remittance
transfer as defined in EFTA, so long as that remittance transfer is
not an electronic fund transfer as defined in EFTA. If the resulting
application of this Article to an EFTA-defined "remittance transfer"
that is not an EFTA-defined "electronic fund transfer" creates an
inconsistency between an applicable provision of this Article and an
applicable provision of EFTA, the provision of EFTA governs to the
extent of the inconsistency. Section 4A-108(c).
2. The following examples are not exhaustive, but illustrate the
relationship between EFTA and this Article pursuant to Section 4A-108.
Example 1. A commercial customer of Bank A sends a payment order to
Bank A, instructing Bank A to transfer funds from its account at Bank
A to the account of a consumer at Bank B. The funds transfer is
executed by a payment order from Bank A to an intermediary bank and is
executed by the intermediary bank by means of a clearinghouse credit
entry to the consumer's account at Bank B (the beneficiary's bank).
The transfer into the consumer's account is an electronic fund
transfer as defined in 15 U.S.C. Sec. 1693a(7). Pursuant to Section
4A-108(a), Article 4A does not apply to any part of the funds transfer
because EFTA governs part of the funds transfer. The funds transfer is
not a remittance transfer as defined in 15 D.S.C. Sec. 16930-1
because the Originator is a not a consumer customer. Thus Section
4A-108(b) does not apply.
A court might, however, apply appropriate principles from Article 4A
by analogy in analyzing any part of the funds transfer that is not
subject to the provisions of EFTA or other law, such as the obligation
of the intermediary bank to execute the payment order of the
Example 2. A consumer originates a payment order that is a remittance
transfer as defined in 15 D.S.C. Sec. 16930-1 by providing the
remittance transfer provider (Bank A) with cash in the amount of the
transfer plus any relevant fees. The fund transfer is routed through
an intermediary bank for final credit to the designated recipient's
account at Bank B. Bank A's payment order identifies the designated
recipient by both name and account number in Bank B, but the name and
number provided identify different persons. This funds transfer is
not an electronic fund transfer as defined in 15 U.S.C. Sec. 1693a(7)
because it is not initiated by electronic means and is not from a
consumer's account. Both Article 4A and EFTA apply to the funds
transfer. Section 4A-108(a), (b). Article 4A's provision on mistakes
in identifying the designated beneficiary, Section 4A207, would apply
as long as not inconsistent with the governing EFTA provisions.
Example 3. A consumer originates a payment order from the consumer's
account at Bank A to the designated recipient's account at Bank B
located outside the United States. Bank A uses the CHIPS system to
execute that payment order. The funds transfer is a remittance
transfer as defined in 15 U.S.C. Sec. 16930-1. This transfer is not an
electronic fund transfer as defined in 15 U.S.C. Sec. 1693a(7) because
of the exclusion for such types of transfers in 15 U.S.C. Sec.
1693a(7)(B). Under Section 4A-108(b), both Article 4A and EFTA apply
to the funds transfer and EFTA, as federal law, will prevail to the
extent of any inconsistency between EFTA and Article 4A. Section
4A-108(c). For example, Suppose the consumer subsequently exercised
the right to cancel the remittance transfer under the light given
under EFTA and obtain a refund. Bank A would be required to comply
with the EFTA rule concerning cancellation even if Article 4A prevents
Bank A from cancelling or reversing its payment order it sent to its
receiving bank. Section 4A-211.
Example 4. A person fraudulently originates an unauthorized payment
order from a consumer's account through use of an online banking
interface. This transaction is an electronic fund transfer as defined
in 15 U.S.C. Sec. 1693a(7) and would be governed by EFTA and not
Article 4A. Section 4A-108(a). Whether the funds transfer also
qualifies as a remittance transfer under 15 U.S.C. Sec. 169.30-1 does
not matter to the application of Article 4A.
Example 5. A person fraudulently originates an unauthorized payment
order from a consumer's account at Bank A through forging written
documents that are provided in person to an employee of Bank A. This
funds transfer is not an electronic fund transfer as defined in 15
U.S.C. Sec. 1693a(7) because the fund transfer is not initiated by
electronic means. Article 4A will apply to this funds transfer
regardless of whether the funds transfer also qualifies as a
remittance transfer under 15 U.S.C. Sec. 169.30-1. If the funds
transfer is not a remittance transfer, the provisions of Section 4A108
are not implicated because the funds transfer does not fall under
EFTA, and the general scope provision of Article 4A governs. Section
4A-102. If the funds transfer is a remittance transfer, and thus
governed by EFTA, Section 4A-108(b) provides that Article 4A also
3. Regulation J, 12 C.F.R. Part 210, of the Federal Reserve Board
addresses the application of that regulation and EFTA to fund
transfers made through Fedwire. Fedwire transfers are further
described in Official Comments 1 and 2 to Section 4A-107. In
addition, funds transfer system rules may be applicable pursuant to