According to a WSJ report, the CFPB is preparing to release new guidance that would require banks to make refunds to victims of scammers who defraud consumers into sending money to a third party using an online money-transfer platform. The WSJ indicates that the CFPB’s possible action is being driven by an increase in consumer complaints to the CFPB about such scams.
Under the Electronic Fund Transfer Act (EFTA) and Regulation E, an unauthorized electronic fund transfer (EFT) is an EFT from a consumer’s account initiated by a person other than the consumer without actual authority to initiate the transfer and from which the consumer receives no benefit. The existing Official Staff Commentary specifically states that an unauthorized EFT includes a transfer initiated by a person who obtained the access device from the consumer through fraud or robbery, stopping well short of covering transactions initiated by the consumer as the result of fraud.
Under the EFTA and Regulation E, consumers who provide a bank with timely notice of an error that the bank determines to be an unauthorized EFT are entitled to EFTA/Regulation E liability protection. Based on the WSJ article, the new guidance, in conflict with the statutory text, would require banks to treat fraudulently induced transactions as unauthorized EFTs even when they are initiated by the consumer with the result that banks would be required to repay the amount of such transactions to consumers.
The WSJ article also reports that banks and industry trade groups have reacted critically to such an interpretation by the CFPB, for reasons that include the potential for abuse through “friendly fraud.” In addition, banks could find it unduly risky to offer money transfer services, thereby reducing consumer access to such services.
The issuance of such an interpretation would represent a significant change in the application of EFTA/Regulation E liability protections. Accordingly, such a change should be the subject of notice-and- comment rulemaking procedures, either as an amendment to Regulation E or to the Official Staff Commentary, or both.