NEWS: The League has completely rewritten its Funds Transfer Agreement and Notice form (WCUL #81043, Rev. 2/26). Credit unions that currently subscribe to this form will automatically receive the new version in their email soon. A sample of the newly revised form can be downloaded here.
Husch Blackwell, The League’s outside counsel, worked with us to revamp the form. Its fundamental purpose has not changed: It sets the terms and conditions for account holders’ (business or consumers) funds transfers that are not governed by Reg. E or the law of checking accounts. It applies to internal account transfers, wire transfers, and certain ACH credit transfers. However, by expanding the form from one to three pages, we added more detailed provisions, strengthened the protections for credit unions, and simplified the language.
This Courier highlights the key changes.
Security procedures
A fundamental reason to use a funds transfer agreement is to address the use of security procedures.
Under Wis. Stats. Chap. 410 – our state’s version of Uniform Commercial Code (UCC) Article 4A – if a credit union offers a “commercially reasonable” security procedure to verify that a payment order is from an authorized account holder, then that account holder is bound by any payment order, even if not actually authorized by them, provided the credit union accepted it in good faith and followed its security procedures.
“Security procedure” means a procedure established by agreement between an account holder and a credit union to verify that a payment order (or a communication amending or canceling a payment order) is that of the account holder or to detect error in the transmission or the content of the payment order. A security procedure may require the use of algorithms or other codes, identifying words or numbers, encryption, callback procedures, or similar security devices. Importantly, comparing the signature on a payment order or communication with an authorized specimen signature of the account holder is not, by itself, a security procedure. Wis. Stats. §410.201.
If the account holder refuses a reasonable security procedure, they are liable for unauthorized transfers. If a credit union does not follow agreed-upon, commercially reasonable security procedures, it may be liable for resulting losses. See Wis. Stats. §410.205.
Paragraph 9 of the new agreement form bolsters the older form’s language on security procedures. For example, it now includes this clause, distinguishing between verifying data vs. errors in payment instructions (like a member giving you the wrong account number for the intended recipient): “You understand and agree that the purpose of any security procedure implemented in accordance with this Agreement or instituted by us is used to verify the authenticity of data and not to detect errors in payment order requests or Transfer transmissions. Further, there is no agreed upon security procedure for detecting such errors between the Credit Union and you.”
Note, however, that our Funds Transfer Agreement and Notice form does not establish a credit union’s security procedures. It is up to each credit union to decide what “commercially reasonable” security procedures it needs, to put systems in place to implement them, to obtain account holders’ agreements to them, and to train staff to use them consistently.
Liability for refunding payments
Another key change to the form appears in paragraph 11. We added a provision that requires account holders to notify the credit union of any unauthorized or mistaken transfers on their accounts within 15 days after they receive an account transfer notice or periodic statement detailing the transfer. It will help ensure that account holders exercise “ordinary care” to check their accounts for problems and promptly notify the credit union.
If account holders do not notify the credit union in time, the form spells out the consequences: “Unless otherwise required by applicable law, if you fail to timely notify us of any unauthorized or erroneous Transfer within this 15-day period, you will not be entitled to a refund for the unauthorized or erroneous Transfer, and we will have no further liability to you regarding that Transfer.”
This language mirrors wording in The League’s Your Account Agreement forms (WCUL #83005 & 83006), which give account holders 15 days to check their statements for errors.
Statutory provisions on refunds
To understand how Paragraph 11 work, two sections in Wis. Stats. Chap. 410 are important:
- Section 410.203(1)(a) lets a financial institution limit its rights to enforce or retain payment of a transfer where the transfer is not “authorized” but is otherwise enforceable because authenticity was verified by a commercially reasonable security procedure and accepted in good faith and in compliance with the security procedure.
- Section 410.204(1) requires the financial institution to pay interest on refundable amounts unless the member provides timely notice (the deadline for which may be set by agreement) after the date the member “received notification from the bank that the order was accepted or that the account was debited with respect to the order.”
Our goal in revising the form was to limit the credit union’s liability to pay interest under the second bullet point above, without expanding liability to refund payments under the first bullet point. The language saying that the credit union will have no further liability to the member is aimed at limiting claims for interest on refunds.
- Inconsistent language in other documents: This new language will prevail over any inconsistent language in a credit union’s other account opening forms. Paragraph 19 of the new form makes it clear that if its terms differ from terms in other agreements or account terms, then this form will take precedence (except in the case of separate wire transfer agreements, as explained later in this Courier).
- Other kinds of notices: The revised agreement starts the 15-day clock running when the member receives “an Account Transfer notice or periodic statement detailing the Transfer.” Credit unions may want to add references to other kinds of notices, such as online banking or text alerts, depending on the credit union’s operations.
- Savings clause: The new form language quoted earlier says, “Unless otherwise required by applicable law,” account holders are not entitled to refunds if they do not notify the credit union in time. That language is needed to cover some situations where a credit union cannot deny liability. In certain instances, a credit union may not be entitled to enforce or retain payment even if the member gives notice after 15 days. See Wis. Stats. §410.203(1)(b) and §410.204(1).
- Interest calculation: If a credit union is required to pay an account holder interest, because of a delay or error in processing their transfer, then paragraph 16 of the revised form says: “… we will pay interest at the lowest rate we were paying on any of our accounts during that period, based on your account type.” This gives credit unions more flexibility in calculating interest than earlier versions of the form did.
- Reg. E claims: Article 4A governs funds transfers that are not based on the law of checks and not covered by Reg. E. Therefore, the liability and refund rules explained in this Courier do not apply when Reg. E. covers an unauthorized transaction claim. For a summary of the credit union’s responsibilities to investigate Reg. E claims and the rules limiting consumers’ liability under that regulation, please see The League’s ii Release No. 0120.
Other changes
Several other revisions to the form are worth noting:
- Paragraph 1 of the new agreement form explicitly tells account holders that it governs all payment orders and funds transfers, including internal account transfers, wire transfers, and ACH credit transfers. This was less clear in earlier versions. (As explained earlier, this form does not apply to transfers that are governed by Reg. E or the law of checking accounts.)
- Paragraph 3 tells account holders that any joint account holders or other authorized person on the account can initiate one-time or recurring transfers, and they can amend or cancel pending transfers.
- Paragraph 4 makes clear that account holders will be liable for giving the credit union transfer instructions that are inaccurate, incomplete, or do not have current information, as well as for transfers attempted when their account has insufficient funds. Earlier versions of the form had less robust language that did not address, for example, account holders’ potential liability for fees or penalties assessed by third parties because of such mistakes.
- Similarly, paragraph 5 says that the credit union and other parties involved in transfers may rely solely on the beneficiary’s name and account number that an account holder provides to initiate a transfer. If that information is wrong, the form now says that “Your obligation to pay the amount of the transaction to the Credit Union is not excused … and you agree to hold us harmless from any fee or loss you may incur.” Earlier versions of the form had similar, but less forceful, language.
- Like earlier versions, the revised agreement form includes a blank field (in paragraph 6) where credit unions need to insert their daily “cut-off time” for the receipt of transfer instructions, amendments, or cancellations. But we have added more details to that paragraph, along with protections for the credit union, like this: “We reserve the right to change the Cut-Off Time at any time in our sole and absolute discretion, without prior notice to you.”
- Paragraph 7 is new and gives account holders more information about their ability to cancel transfers. For example, it says that a request for a one-time transfer that is not future dated and that is received before the cut-off time will be processed immediately and cannot be cancelled. It goes on to give credit unions a blank field they must complete related to cancellations: “To cancel or amend future-dated and recurring Transfers, you or any Authorized Person must notify us within ________ Business Days before the scheduled Transfer date to give us enough time to process the request.”
- Paragraphs 8 and 10 are new. They spell out a credit union’s right to temporarily suspend the processing of a transfer to allow time “for greater scrutiny and verification in accordance with applicable law.” This might include, for example, OFAC checks. These paragraphs also spell out a credit union’s right “to restrict or refuse to process any Transfer request, amendment, or cancellation that we believe, in our sole and absolute discretion, will expose the Credit Union to liability
or loss.” They also say that the credit union will not be liable for such refusals. - Paragraph 14 is new. It allows a credit union to setoff accounts to recover certain losses it incurs when making transfers, saying: “If any payment from the Account … has failed and the credit side of such Transfer has been released and cannot be collected, or if any refund of overpayment or provisional credit is due and the Account does not have sufficient funds to reverse the overpayment or provisional credit, we reserve the right, and you hereby authorize us to debit any account you hold with us to satisfy any such deficiency, to include an ACH return item fee.”
The paragraph goes on to say: “If any information you or any Authorized Person provide is untrue, incorrect, erroneous, incomplete, or inaccurate, we reserve the right to recover from you any costs or losses incurred by us as a direct or indirect result of such information …” - Paragraph 17 is new and includes the account holder’s agreement to let the credit union record oral or verbal transfer requests.
- Paragraph 21 is new. It says that account holders agree to comply with all appliable laws and regulations, including OFAC requirements and Nacha Operating Rules & Guidelines. If they violate the laws or rules, they agree to reimburse the credit union for any fines, fees, charges, or costs, including reasonable attorneys’ fees, that are imposed.
- At the end of the form, credit unions will need to fill in the credit union’s contact information, including an address and telephone number that account holders can use. Earlier versions of the form did not provide space for this.
- Note that account holders should be given a copy of the completed form for their records.
Wire transfer agreements and request forms are necessary
The League’s Funds Transfer Agreement and Notice sets important ground rules for various kinds of transfer requests, including internal account transfers, wire transfers, and ACH credit transfers. But that is not all a credit union needs. The League strongly recommends using additional forms to 1) spell out the credit union’s security procedure and other details and 2) provide details for specific transfer requests.
TruStage has two well-designed forms, which credit unions should consider using in addition to The League form, to help protect credit unions under UCC Article 4A:
- Their Fund/Wire Transfer Request form may be used for fund/wire transfers initiated by both consumer and businesses (except for remittance transfers). It documents the details of a fund/wire transfer request. It can be used for one-time, in-person transfer requests, as well as for recurring transfer requests that are submitted via remote channels (e.g., phone, fax, email, or internet).
- Their Fund/Wire Transfer Agreement is intended to be signed before accepting fund/wire transfer requests via remote channels (e.g., phone, fax, email, or internet). It sets the terms and conditions for such transfers, and it documents security procedures, validation processes, and related information. This agreement may be used for both consumer and business member relationships.
If your credit union is interested, visit the TruStage Compliance Solutions document resources webpage (login needed) or call 800-356-5012 for more information. If you work with other forms vendors, contact them directly.
The League’s Funds Transfer Agreement and Notice form anticipates the use of additional agreements specific to wire transfers. It says: “… if you have entered into a separate wire transfer agreement with us, the terms and conditions of the most recently approved Wire Transfer Agreement are incorporated by reference herein and made a part hereof. In the event of an inconsistency between a provision of the Wire Transfer Agreement and this Agreement, the provisions of the Wire Transfer Agreement shall prevail.”
Forms 101
League forms are only available in .pdf format, by annual subscription. Other than a few fillable fields, League forms are not customizable. Credit unions must review the forms to make their own determinations of whether the forms are suitable for their use, consistent with their own policies and procedures. Accuracy is important. If any WCUL form is not suitable, the credit union should utilize the services of one of the national form companies that have some ability to customize their forms.
Please be sure that one person, authorized by your credit union, reviews the current Credit Union Forms Terms & Conditions and submits an acknowledgment electronically as soon as possible.
Current subscribers to the updated WCUL forms will automatically receive the new versions in the coming weeks as part of their annual maintenance license agreement.
Credit unions that are not currently subscribed to these forms may purchase them from The League online at theleague.coop > Solutions > Credit Union Forms. Please review the instructions on how to purchase & download new forms on the storefront page. To avoid errors, you must log into our website with your member credentials before trying to make any purchase(s). Prices for each form are shown in your shopping cart at the time of purchase.
Descriptions and samples for all League forms are available on our website and in the online store. A summary listing of all League forms and their latest revision dates can be downloaded here.
For questions about use of the forms, please call The League’s Compliance Hotline at (608) 640-4050 or email the Compliance Mailbox. For questions or issues with purchasing and downloading the forms on our website, please contact Jeff Bonk.
Compliance Roundtable – February 18 (Webinar)
Join a member of The League’s compliance team as they lead a discussion on the latest changes in regulations and need to know information to keep your credit union in compliance. You can find more information or register on our website.