Consumer Wire Transfers and New Liability Claims

In the 1870s, Western Union created a system to collect money from a sender; send a telegraphic message based on instructions from the sender regarding the dollar amount, recipient, and location; and then at the receiving telegraph station, decode the message and give the funds to the recipient. The wire transfer was created. Were any of those payments sent under threats and duress? Was there fraud on one end or another related to any of them? Probably. The various wire transfer systems in place today are more sophisticated, but in simplest form still require the same process, just with better technology and controls. However, fraud and errors can still occur. If your bank offers consumer wire transfers, you may want to rethink doing so.

Historically, most fraud related to wire transfers (commercial or consumer) fell on the sender unless there was a clear error related to not following the sender’s instructions. However, despite decades of guidance and case law to the contrary, the New York Attorney General (NYAG) and the Consumer Financial Protection Bureau (CFPB) now claim for consumer wire transfers that the sender’s bank is liable to the sender. This is contrary to existing law and regulation, but at least one court has agreed with the NYAG. In New York v. Citibank, N.A., January 21, 2025, the court determined that the Electronic Fund Transfer Act (EFTA) applied to the instruction to a consumer’s bank to send a wire transfer and the movement of funds related to that instruction, and any loss under the EFTA will be the bank’s.

Under what theory is the new claim being made, and should I be concerned? In order to answer, you need to understand a few laws and rules:

First, the EFTA was passed by Congress and focused on consumer rights, including protection from fraud related to certain electronic fund transfers. The EFTA, however, explicitly excluded wire transfers. In 1996, the Federal Reserve Board (FRB) started the confusion when it stated that if funds received by a bank via Fedwire or similar network to credit a consumer’s account were transferred to the consumer’s account by ACH, that transfer was covered by the EFTA and Regulation E.

Second, the Uniform Commercial Code, Article 4A, was specifically drafted to cover transactions such as wire transfers because some case law held that there was no existing law covering them. In an effort to avoid confusion, the drafters included a provision excluding from Article 4A a transfer any portion of which was covered by the EFTA. Article 4A was designed to exclude certain consumer transactions but specifically include consumer transactions made wholly using systems typically used for commercial transactions (i.e., wire transfers).

Third, Regulation J is an FRB regulation that governs transfers sent via Fedwire. The FRB created further confusion when it stated in an EFTA staff interpretation that:

The Board’s Regulation J … specifies the rules applicable to funds handled by Federal Reserve Banks. To ensure that the rules for all fund transfers through Fedwire are consistent, … Article 4A, applies to all fund transfers through Fedwire, even if a portion of the fund transfer is governed by the EFTA. The portion of the fund transfer that is governed by the EFTA is not governed by subpart B of Regulation J .... (emphasis added).

Finally, as part of the Dodd-Frank Act, Congress amended the EFTA to create special requirements for one form of wire transfers — remittance transfers. No change was made to clarify any other type of consumer wire transfer coverage. The overall exception for wire transfers remained. In other words, Congress chose to require a specific type of wire transfer be covered by the EFTA and not disturb the exclusion related to any other type of wire transfer.

Answer. The Citibank case argues that the sender instruction and subsequent money debited from the consumer’s account is a separate “portion” of a wire transfer and as a result is not part of the wire transfer exclusion. In May 2024, the CFPB filed a Statement of Interest in Support of the Plaintiff which supported the NYAG’s interpretation.

The NYAG and court say the customer asking for the transfer and subsequent debit of the consumer’s account is separate from the bank’s sending of the wire to another bank. Ignoring decades of guidance case law and industry practice, the court found that the EFTA applies to a portion of outgoing consumer wire transfers and that the case could proceed consistent with that ruling. In March 2025, the CFPB filed a motion to withdraw its May 2024 filing. The court and NYAG continue to mesh together the separate but confusing statements in different laws and rules and ignore what they don’t like.

In February 2025, Citibank moved to certify the earlier ruling as well as stay the case pending the appeal. On April 22, 2025, the judge in the case certified the earlier ruling and stayed the case. There is good reason for the decision to be overturned on appeal. In the meantime, if you offer consumer wire transfers, you should evaluate your past consumer wire related fraud complaints to determine if the risk is worth continuing to offer them to consumers at this time. In addition, you should consult your internal and external experts before denying a claim.

This article has been updated since its original print version.