As highlighted in other installments of this series, a consumer whose money was stolen via an electronic funds transfer (“EFT”) probably has a better claim against their financial institution than a consumer whose money was stolen via a wire transfer. This is because the Electronic Fund Transfer Act (“EFTA”) governs EFTs and allows several remedies, including the recovery of attorneys’ fees and sometimes treble damages. Unauthorized wire transfers, on the other hand, are governed by state law, which—while not completely devoid of relief to victims—is distinctly less consumer friendly.
But what happens if your money is stolen through some combination of EFTs and wire transfers? For example, what happens if the fraudster moves your money from your savings account to your checking account and then wires it out? Or what if the fraudster moves your money from your personal account to a linked business account before wiring it to him- or herself?
These multi-step schemes happen because fraudsters want your money in a place (that is, an account) with wire transfer capabilities. Wire transfers, of course, are instant and functionally irreversible. Thus, fraudsters will make predicate “internal” transfers if it makes the external transfers easier to execute.
Banks typically characterize these kinds of schemes strictly as wire transfers, which allows them to claim that they have no obligation to reimburse consumers under applicable law. But are the banks’ self-serving decisions correct?
We believe the answer is a resounding “no.” In the business account context, the loss to the consumer is realized as soon as the money leaves the consumer’s account. The business is not the consumer even if their accounts are linked by an online banking login. The loss to the consumer, in other words, happens before the money is transferred via wire, and the predicate transfer is covered by the EFTA and the EFTA only.
The analysis involving a predicate savings-to-checking transfer differs, but the result is the same. There, a court would need to determine whether the predicate transfer was made for the consumer’s benefit. Of course, if it was made by the fraudster so that the fraudster could more easily steal the funds, it would not have been made for the consumer’s benefit, and the EFTA would apply. See, e g., Moore v. JPMorgan Chase Bank, N.A., 2022 WL 16856105, at *2 (N.D. Cal. Nov. 10, 2022) (“Plaintiffs are not bringing suit under the EFTA for the wire transfer; instead, the claim is limited to the savings to checking transfer. The unauthorized wire transfer is evidence that supports a plausible inference that Plaintiffs did not benefit from the savings to checking transfer.”).
Thus, consumers need to make sure that their rights have been assessed fairly by their financial institution before accepting the financial institution’s liability determination.
At Kelly Guzzo, we are committed to assisting consumers who have been subjected to EFTA violations. If you believe that your financial institution is holding you liable for an unauthorized transfer in violation of your rights under the EFTA, please do not hesitate to contact our office to receive a free consultation to see if you have a potential claim.