Citibank Must Face Lawsuit Regarding Whether Wire Transfers are Exempt from Regulation E

By Alex Wade

February 5, 2025

On January 20, 2024, New York Attorney General Letitia James (“NYAG”) filed a complaint against Citibank, N.A. (“Citibank”) in the Southern District of New York, Case No. 1:24-cv-00659, alleging that Citibank violated the Electronic Fund Transfer Act (“EFTA”) by failing to follow the statute’s requirements when customers fell victim to wire fraud schemes, among other claims[1].

Thereafter, Citibank moved to dismiss the complaint in its entirety on April 2, 2024, which was fully briefed by the parties.  As part of the motion to dismiss briefing, the NYAG alleged, in pertinent part, that Citibank failed to properly investigate unauthorized electronic fund transfers (“EFTs”) that were made ancillary to transfers on the wire networks, as well as to provisionally credit and reimburse consumers who were the victims of those EFTs.  In response, Citibank argued that the EFTA and the requirements thereunder did not apply to transfers from a consumer’s account made to pay for a wire transfer, since the EFTA exempts wire transfers from its coverage.

On January 21, 2025, a year after the complaint was filed, Judge Paul Oetken ruled on Citibank’s motion to dismiss, denying in part, Citibank’s motion (“Motion to Dismiss Order”).  Judge Paul Oetken noted that the disagreement between the NYAG and Citibank required the court to decide what parts of an electronic payment, initiated by a consumer and facilitated in part by an interbank wire, are regulated by the EFTA and even noted that the matter was a question of first impression. In sum, Judge Oetken held that Citibank misapplied the EFTA when denying consumers’ claims for reimbursement due to fraud, thereby allowing the NYAG’s lawsuit to continue.

Of particular note, although Judge Oetken agreed that bank-to-bank wire transfers on wire networks such as Fedwire were exempt under the EFTA, he found that the EFTA applied to the ancillary unauthorized EFTs made through Citibank’s online banking platform, even though the ancillary EFTs were part of a wire transaction as a whole.  Using rather strong words, Judge Oetken held that “the plain meaning of subsection (7)(B) [the wire exemption[2]] does not apply to electronic transfers of funds between consumers and their financial institutions, even when made ancillary to an interbank wire. Even if the Court were faced with strong countervailing extrinsic evidence (which it concludes it is not), that subsection (7)(B)’s text is unambiguous would end the inquiry here.”[3]  With that, Judge Oetken reasoned that the applicable statutory wire exemption language in the EFTA was clear and that the statutory language would ultimately control, even citing to the recent Loper Bright Supreme Court case.[4]

Additionally, Judge Oetken pointed out that the court’s review was aided by amicus submissions from the American Bankers Association, New York Bankers Association, the Bank Policy Institute, and the Clearing House Association, as well as by the Consumer Financial Protection Bureau (“CFPB Amicus”).  That said, as part of his ruling, Judge Oetken referenced the CFPB Amicus seemingly agreeing with the CFPB’s view that “… ‘under EFTA and Regulation E, an electronic fund transfer generally encompasses the entire movement of funds from a sender to its ultimate recipient,’ and that that notwithstanding, ‘[w]here that movement of funds includes a transfer via a wire service, that bank-to-bank transfer is excluded, but the remainder of the transaction is covered by EFTA and Regulation E.’”[5]

With that, and importantly, Judge Oetken’s ruling goes against industry-standard practices that have long been recognized as satisfying applicable law.  For decades, it has been commonly understood that the phrase “transfer of funds” in the EFTA’s wire exemption encompasses the full wire transfer, including its interdependent components and ancillary EFTs. Tellingly, the CFPB took over rulemaking authority for the EFTA from the Federal Reserve in 2011; however, the CFPB has not given the slightest indication of the position it took in its amicus brief, including through any enforcement actions.  The CFPB’s silence (until recently), the statutory language and related guidance and the industry-standard practice of treating wire transfers as exempt under the EFTA serve as evidence that financial institutions (“FIs”) have been properly addressing wire fraud claims.

That said, based on the recent ruling in the New York v. Citibank case and the CFPB’s support, the application of the EFTA to the ancillary EFTs occurring as part of a wire transfer, is an area of the law that appears to be evolving and must be closely monitored.  The New York v. Citibank case is in the early stages, with a motion to dismiss being a low bar to overcome for the NYAG.  Since the ruling is in the Southern District of New York, it would not be binding authority in other jurisdictions, such as California and the Ninth Circuit; however, FIs in other jurisdictions should be on the lookout for copycat lawsuits.

We expect Citibank to appeal the Motion to Dismiss ruling and continue to aggressively deny the claims asserted by the NYAG.  In the meantime, given the uncertainty, FIs should do a preliminary review and evaluation of what changes would need to be made to their wire services and related disclosures if the New York v. Citibank case continues to gain more traction as it works its way through the legal system.  Of course, SW&M is here to help FIs navigate the various nuances in the EFTA, review wire services and disclosures and assist with a review and evaluation of changes that may need to be made to wire services to mitigate any potential exposure.

[1] Please note that although additional allegations were brought by the NYAG, this article will focus on the parties’ arguments and the court’s ruling related to the EFTA.

[2] The wire exemption states as follows: “[t]he term ‘electronic fund transfer’ . . . does not include . . . any transfer of funds, other than those processed by automated clearinghouse, made by a financial institution on behalf of a consumer by means of a service that transfers funds held at either Federal Reserve banks or other depository institutions and which is not designed primarily to transfer funds on behalf of a consumer.  See 15 U.S.C. § 1693a(7)(B).

[3] Motion to Dismiss Order at page 21.

[4] Motion to Dismiss Order at page 36, citing Loper Bright, 144 S. Ct. at 2266.

[5] Motion to Dismiss Order at page 14.

About the Author

Alex Wade

Alex Wade is a Senior Associate Attorney at SW&M and is part of the firm’s Regulatory Compliance and Litigation Management practice groups. Using his experience in consumer defense, complex business litigation, governmental liability, insurance entity defense and personal injury law, […]

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