CUs Come Out Against Electronic Fund Transfer Legislation Changes

The cost of fraud continues to rise, unsurprisingly. While lawmakers try to come up with new ways to protect consumers, their ideas could end up costing credit unions. One recent move in Congress to combat fraud is to update the Electronic Fund Transfer Act (EFTA) with amendments that would shift the losses over to financial institutions, including credit unions.

Officials at America’s Credit Unions raised their objections to any such move on Monday.

In letters to lawmakers in both the House of Representatives and the Senate, America’s Credit Unions President/CEO Jim Nussle wrote the proposed changes to the EFTA in H.R. 9303 and S. 4943 are too radical and would be a significant imposition to credit unions.

According to Nussle’s letter, the proposed changes would amend the EFTA “to define an unauthorized transfer as one that includes a fraudulently induced transfer, requiring credit unions and other financial institutions to reimburse consumers for this type of fraud.” The letter continued, “It would also define merchant charges for undelivered goods as errors along with misdirected payments resulting from information a consumer initially provided. The EFTA’s current carveout for wire transfers would also change, with the bill treating remittance transfers the same as other electronic fund transfers subject to the EFTA’s framework for error resolution and consumer reimbursement.”

To those changes, Nussle wrote, “Collectively, these radical changes to the EFTA’s careful delineation of financial institution responsibility would impose severe costs on credit unions and dramatically alter their ability to absorb future losses. Moreover, the bill’s failure to address the root causes which have perpetuated criminal activity and left consumers vulnerable would mean a greater share of cooperative resources are directed towards covering fraud that proliferates outside the domain of credit union control. In this regard, the bill embraces an unsustainable and unfair strategy: shifting losses to credit unions and other financial institutions that are spending more money than ever to fight fraud and protect consumers.”

According to America’s Credit Unions, to expand financial institution liability under the EFTA to further encompass fraudulently induced transfers “neither prevent fraud nor incentivize coordination between regulators, law enforcement and companies outside the financial sector who can help improve American resilience to scams,” Nussle wrote.

In a report published in April by LexisNexis Risk Solutions called “The True Cost of Fraud Study,” the organization found all financial services segments in North America “now lose nearly an extra dollar for every $1 of fraud loss compared to last year: $4.45 in 2023 versus $3.49 in 2022, representing a 28% increase on average. U.S. investment firms and credit lenders reported a 9% year-over-year increase, which was notably higher than U.S. banks and mortgage lenders.”

Currently, the proposed bills in the House and Senate sit idle as lawmakers are in recess until after Labor Day.