LEGAL EAGLE SPOTLIGHT By Spencer Fane LLP Wire transfer fraud continues to create significant losses for businesses, consumers and banks. Business email compromise, compromised online banking credentials, fraudulent vendor instructions and other schemes can result in hundreds of thousands — or even millions — of dollars being transferred before anyone realizes something has gone wrong. When that happens, one question quickly comes up: Who bears the loss? For banks, the answer often begins with Article 4A of the Uniform Commercial Code (UCC). Unlike many electronic transactions involving consumer accounts, wire transfers have traditionally been excluded from the federal Electronic Fund Transfer Act and Regulation E. Article 4A instead provides a comprehensive statutory framework governing the rights and obligations of parties to wire transfers. Security Procedure is Critical When a fraudulent wire is sent in the name of a bank customer, UCC § 4A-202 provides an important framework for determining whether the customer or the bank bears the resulting loss. A bank may generally shift the loss to its customer when four critical requirements are satisfied: (1) the bank and customer agreed to a security procedure; (2) the procedure was commercially reasonable; (3) the bank acted in good faith; and (4) the bank actually complied with the agreed security procedure. If those requirements are not satisfied, the bank may be unable to charge the customer’s account for the unauthorized wire and may be required to refund the payment, potentially with interest. This makes the bank’s wire transfer agreement more than routine documentation. Article 4A defines a “security procedure” as a Fraudulent Wire Transfers: Who Bears the Loss? 20 | The Show-Me Banker Magazine
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