Understanding EFTA Claims in Complex Fraud Scenarios (Unauthorized Transfers and Wire Fraud)

Unauthorized transfers of funds out of consumer accounts is a major problem in the United States. In 2023, nearly $2.7 billion in losses were reported related to imposter scams alone.¹ This figure suggests that unauthorized transfers, which often result from such scams, are a major financial threat to consumers. Furthermore, reports of ACH fraud have increased by 6% since 2021, which is significant considering that there are $30 billion in payments processed annually by the ACH network. And regarding wire transfer fraud, in a recent survey, managers at major banks and of wire transfer experts estimated that losses from wire transfer fraud would increase about 70% over the next 5 years.³

Consumers do have legal remedies available to them if they are victims of unauthorized transfers. The federal Electronic Fund Transfer Act (EFTA) provides robust protections for consumers whose money is stolen via electronic fund transfers (EFTs) and, based on recent clarifications in the law, unauthorized wire transfers (aka wire transfer fraud). Importantly, many banks count on consumers not knowing and exercising their rights, so understanding your protections under the EFTA is crucial, especially in cases involving multi-step fraud schemes.

Key points about EFTA

• The EFTA covers most electronic transactions, including ATM transfers, point-of-sale terminals, ACH systems, and remote banking.
• The EFTA applies to person-to-person (P2P) and mobile payments that meet the definition of an EFT (i.e. Zelle, Cashapp, Venmo, PayPal, Apple Pay, etc.).
• Credit-push P2P transfers initiated by fraudsters using stolen credentials are considered unauthorized EFTs.
• The coverage of the EFTA includes scenarios where consumers were tricked into providing access to their account to criminal actors.
• The EFTA covers unauthorized transactions at cryptocurrency exchanges.
• Based on new legal developments, the EFTA can also cover unauthorized wire transfers.
• The EFTA mandates specific disclosures from financial institutions about electronic transfers, including liability for unauthorized transactions and error resolution procedures.
• The EFTA limits consumer liability for unauthorized transactions based on reporting time: $50 if reported within two days, and up to $500 if reported within 60 days.
• There is a one-year statute of limitations for claims under the EFTA.

Application to Unauthorized Wire Transfers

The prevailing wisdom for years has been that only state law governs unauthorized wire transfers, despite the fact that the EFTA offers stronger protections for unauthorized EFTs compared to state laws, including because the EFTA provides for the potential recovery of attorney's fees and treble damages.

However, recent case law and new positions taken by the federal government have clarified that the EFTA can indeed cover unauthorized wire transfers.

First, fraudsters often employ multi-step schemes involving both EFTs and wire transfers. In cases where fraudsters move money between accounts before wiring it out, banks still attempt to characterize this two-step process as a “wire transfers” to avoid EFTA obligations. However, recent case law has confirmed that if the fraudster does move money from, say, a savings to a checking account, prior to a wire transfer out of the account, the savings to checking transfer is covered by the EFTA as long as the transfer does not “benefit” the consumer. See, Moore v. JPMorgan Chase Bank, N.A., No. 22-CV-01849-JSC, 2022 WL 16856105, at *2 (N.D. Cal. Nov. 10, 2022).

Second, the federal Consumer Financial Protection Board (“CFPB”) has recently clarified that the EFTA applies to unauthorized wire transfers due to process required in a wired transfer. That is, for a wire transfer, banks transfer consumer funds from the consumer’s account to a “pooled” account prior to the bank wiring the funds to an external bank. This transfer to a pooled account, if the initial request for a wire transfer was unauthorized, constitutes an unauthorized EFT under the EFTA. See The People of the State of New York v. Citibank, N.A., District Court for the Southern District of New York, Case No. 1:24-cv-00659-JPO, Docket No. 28-1.

What Are the Remedies Under the EFTA?

The EFTA provides a robust set of remedies designed to protect consumers:

1. Reimbursement: The primary remedy is reimbursement for the unauthorized transfer, potentially covering the full amount of the fraudulent transaction.

2. Attorney's Fees: The EFTA allows for the recovery of reasonable attorney's fees and costs. This provision enables consumers to pursue their rights without the burden of legal expenses.

3. Actual Damages: Consumers can recover any actual damages suffered as a result of the violation, which may include overdraft fees, late payment charges, or other financial losses directly related to the unauthorized transfer.

4. Statutory Damages: Even if no actual damages are proven, the EFTA provides for statutory damages ranging from $100 to $1,000 for individual actions.

5. Treble Damages: In cases where the financial institution fails to provisionally credit the consumer's account within 10 business days of receiving notice of an error (if the error is later confirmed), the court may award three times the amount of actual damages.

6. Class Action Potential: The EFTA allows for class action lawsuits, with potential damages up to $500,000 or 1% of the defendant's net worth, whichever is less.

7. Equitable Relief: Courts may grant appropriate equitable relief, such as injunctions to prevent future violations.

These comprehensive remedies make the EFTA a powerful tool for consumer protection in cases of electronic fund transfer fraud. By providing for both monetary compensation and the means to pursue legal action, the EFTA ensures that consumers have recourse when their rights are violated, and it incentivizes financial institutions to comply with the law's requirements.

We Can Help You if You Have an EFTA Claim

If there is an unauthorized transfer in your bank or cryptocurrency account, it is crucial that you report the unauthorized transfer as soon as possible to the financial institution. Furthermore, when the financial institution responds, you should carefully scrutinize the financial institution's liability determination before accepting it. If you suspect that your financial institution is improperly holding you liable for an unauthorized transfer, you should seek legal consultation to fully understand your rights under the Electronic Fund Transfer Act (EFTA).

Kronenberger Rosenfeld represents victims of unauthorized transfers and wire fraud, against banks and cryptocurrency exchanges. If you have been victimized, we encourage you to contact us through our online web form or by calling us at 415-955-1155, ext. 120.