ASSEMBLY, No. 2761

STATE OF NEW JERSEY

INTRODUCED FEBRUARY 27, 1997

By Asssemblymen GREGG, WEINGARTEN, Garrett, Augustine, Zecker, Russo, Suliga, Jones, DeCroce, Assemblywoman Murphy, Assemblymen DeSopo and Kelly

An Act limiting liability for the unauthorized use of certain financial institution account access devices and supplementing P.L.1983, c.466 (C.17:16K-1 et seq.).

    Be It Enacted by the Senate and General Assembly of the State of New Jersey:

    1. As used in this act:

    "Accepted access device" means an access device when the customer to whom the access device has been issued has requested and received or signed and used, or authorized another to use, the access device for the purpose of transferring money between accounts, or obtaining money, property, labor or services.

    "Access device" means a card, code or other means of access to a customer's account, or any combination thereof, that may be used by the customer for the purpose of initiating electronic fund transfers.

    "Account" means a customer asset account, other than an occasional or incidental credit balance in an open end credit plan as defined in the federal Truth in Lending Act, 15 U.S.C.§1602(i) , held either directly or indirectly by a financial institution, which is established for business purposes. "Account" does not include an account established primarily for personal, family or household purposes.

    "Business day" means any day on which the offices of the customer's financial institution involved in an electronic fund transfer are open to the public for carrying on substantially all of its business functions.

    "Customer" means any corporation, partnership, association, government or governmental subdivision or agency, trust, individual or other entity.

    "Electronic fund transfer" means any transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, that is initiated through an electronic terminal, telephonic instrument or computer or magnetic tape for the purpose of ordering, instructing or authorizing a financial institution to debit or credit an account. The term includes, but is not limited to, point-of-sale transfers, automated teller machine transfers, direct deposits or withdrawals of funds and transfers initiated by telephone. The term does not include:

    (1) any check guarantee or authorization service which does not directly result in a debit or credit to a customer's account;

    (2) any transfer of funds, other than those processed by automated clearinghouse, made by a financial institution on behalf of a customer 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 customer;

    (3) any transaction the primary purpose of which is the purchase or sale of securities or commodities through a broker-dealer registered with or regulated by the Securities and Exchange Commission;

    (4) any automatic transfer from a saving account to a demand deposit account pursuant to an agreement between a customer and a financial institution for the purpose of covering an overdraft or maintaining an agreed upon minimum balance in the customer's demand deposit account; or

    (5) any transfer of funds which is initiated by a telephone conversation between a customer and an officer or employee of a financial institution which is not pursuant to a prearranged plan and under which periodic or recurring transfers are not contemplated.

    "Financial institution" means a state or federally chartered bank, savings bank, savings and loan association or credit union, or any other person who, directly or indirectly, holds an account belonging to a customer in an office located in this State. The term also includes any person who issues an access device and agrees with a customer to provide electronic fund transfer services.

    "Government agency" means any federal, State, or local unit of government or any agency or instrumentality thereof.

    "Preauthorized electronic fund transfer" means an electronic fund transfer authorized in advance to recur at substantially regular intervals.

    "Supervisory agency" means the New Jersey Department of Banking and Insurance and any other state or federal agency which has statutory authority to examine the financial condition or business operations of a particular financial institution.

    "Unauthorized electronic fund transfer" means an electronic fund transfer from a customer's account initiated by a person without actual authority to initiate the transfer and from which the customer receives no benefit, but the term does not include any electronic fund transfer (1) initiated by a person who was furnished with the card, code or other means of access to the customer's account by the customer, unless the customer has notified the financial institution involved that transfers by that other person are no longer authorized, (2) initiated with fraudulent intent by the customer or any person acting in concert with the customer, or (3) which constitutes an error committed by a financial institution.

    2. a. The terms and conditions of electronic fund transfers involving a customer's account shall be disclosed at the time the customer contracts for an electronic fund transfer service. Such disclosures shall be in readily understandable language and shall include to the extent applicable:

    (1) the customer's liability for unauthorized electronic transfer, and at the option of the financial institution, notice of the advisability of prompt reporting of any loss, theft or unauthorized use of an access device;

    (2) the telephone number and address of the person or office to be notified in the event the customer believes that an unauthorized transfer has been or may be effected;

    (3) the type and nature of electronic fund transfers which the customer may initiate, including any limitations on the frequency or dollar amount of those transfers, except that the details of those limitations need not be disclosed if their confidentiality is necessary to maintain the security of an electronic fund transfer system;

    (4) any charge for electronic fund transfers or for the right to make those transfers;

    (5) the customer's right to stop payment of a preauthorized electronic fund transfer and the procedure to initiate a stop payment order;

    (6) the customer's right to receive documentation of electronic fund transfers pursuant to section 3 of this act;

    (7) a summary of the error resolution provisions of section 5 of this act and the customer's rights thereunder. The financial institution shall submit this summary to the customer at least once per calendar year;

    (8)  the financial institution's liability to the customer under section 7 of this act; and

    (9) the circumstances under which the financial institution will, in the ordinary course of business, disclose information concerning the customer's account to third persons.

    b. A financial institution shall notify a customer in writing at least 21 days prior to the effective date of any change in any term or condition of the customer's account required to be disclosed under subsection a. of this section if the proposed change would result in greater cost or liability for the customer or decreased access to the customer's account. A financial institution may, however, implement a change in the terms or conditions of an account without prior notice if the change is necessary to maintain or restore the security of an electronic fund transfer system or a customer's account. Subject to paragraph (3) of subsection a. of this section, if a change is made permanent, the financial institution shall provide subsequent notification of the change.

    c. For any account of a customer made accessible to electronic fund transfers prior to the effective date of this act, the information required to be disclosed to the customer under subsection a. of this section shall be disclosed not later than the earlier of (1) the first periodic statement required by section 3 of this act after the effective date of this act, or (2) 30 days after the effective date of this act.

    3. a. For each electronic fund transfer initiated by a customer from an electronic terminal, the financial institution holding the customer's account shall, directly or indirectly, at the time the transfer is initiated, make available to the customer written documentation of the transfer. The documentation shall clearly set forth to the extent applicable:

    (1) the amount involved and date the transfer is initiated;

    (2) the type of transfer;

    (3) the identity of the customer's account with the financial institution from which or to which funds are transferred;

    (4) the identity of any third party to whom or from whom funds are transferred; and

    (5) the location or identification of the electronic terminal involved.

    b. For a customer's account which is scheduled to be credited by a preauthorized electronic fund transfer from the same payor at least once in each successive 60-day period, except where the payor provides positive notice of the transfer to the customer, the financial institution shall elect to provide promptly either positive notice to the customer when the credit is made as scheduled, or negative notice to the customer when the credit is not made as scheduled.

    c. A financial institution shall provide each customer with a periodic statement for each account of the customer that may be accessed by means of an electronic fund transfer. Except as provided in subsection d. of this section, the statement shall be provided at least monthly for each monthly or shorter cycle in which an electronic fund transfer affecting the account has occurred. The statement, which may include information regarding transactions other than electronic fund transfers, shall clearly set forth:

    (1) with regard to each electronic fund transfer during the period, the information described in subsection a. of this section, which may be provided on an accompanying document;

    (2) the amount of any fee or charge assessed by the financial institution during the period for electronic fund transfers or for account maintenance;

    (3) the balances in the customer's account at the beginning of the period and at the close of the period; and

    (4) the address and telephone number to be used by the financial institution for the purpose of receiving any statement inquiry or notice of account error from the customer. Such address and telephone number shall be preceded by the caption "Direct Inquiries To:" or other similar language indicating that the address and number are to be used for such inquiries or notices.

    d. In the case of a customer's account, other than a passbook account, which may not be accessed by electronic fund transfers other than preauthorized electronic fund transfers crediting the account, the financial institution may provide a periodic statement on a quarterly basis which otherwise complies with the requirements of subsection c. of this section.

    e. In any action involving a customer, any documentation required to be given to the customer by this section which indicates that an electronic fund transfer was made to another person shall be admissible as evidence of that transfer and shall constitute prima facie proof that the transfer was made.

    4. a. A preauthorized electronic fund transfer from a customer's account may be authorized by the customer only in writing, and a copy of the authorization shall be provided to the customer when made. A customer may stop payment of a preauthorized electronic fund transfer by notifying the financial institution orally or in writing at any time up to three business days preceding the scheduled date of the transfer. The financial institution may require written confirmation to be provided to it within 14 days of an oral notification if, when the oral notification is made, the customer is advised of the requirement and the address to which the confirmation should be sent.

    b. In the case of preauthorized electronic fund transfers from a customer's account to the same person which may vary in amount, the financial institution or designated payee shall, prior to each transfer, provide reasonable advance notice to the customer of the amount to be transferred and the scheduled date of the transfer.

    5. a. If, within sixty days after having transmitted to a customer documentation pursuant to subsections a. or c. of section 3 of this act or notification pursuant to subsection b. of section 3 of this act, a financial institution receives oral or written notice in which the customer:

    (1) sets forth or otherwise enables the financial institution to identify the name and account number of the customer;

    (2) indicates the customer's belief that the documentation, or, in the case of notification pursuant to subsection b. of section 3 of this act, the customer's account, contains an error and the amount of that error; and

    (3) sets forth the reasons for the customer's belief, where applicable, that an error has occurred,

    the financial institution shall investigate the alleged error, determine whether an error has occurred, and report or mail the results of that investigation and determination to the customer within 10 business days. The financial institution may require written confirmation to be provided to it within 10 business days of an oral notification of error if, when the oral notification is made, the customer is advised of that requirement and the address to which the confirmation should be sent. A financial institution which requires written confirmation in accordance with this subsection need not provisionally recredit a customer's account in accordance with subsection c. of this section, nor shall the financial institution be liable under subsection e. of this section if the written confirmation is not received within the 10-day period referred to in this subsection.

    b. If the financial institution determines that an error did occur, it shall promptly, but in no event more than one business day after that determination, correct the error, subject to section 6 of this act, including the crediting of interest if applicable.

    c. If a financial institution receives notice of an error in the manner and within the time period specified in subsection a. of this section, it may, in lieu of the requirements of subsections a. and b. of this section, within 10 business days after receiving the notice provisionally recredit the customer's account for the amount alleged to be in error, subject to section 6 of this act, including interest if applicable, pending the conclusion of its investigation and its determination of whether an error has occurred. The investigation shall be concluded not later than forty-five days after receipt of notice of the error. During the pendency of the investigation, the customer shall have full use of the funds provisionally recredited.

    d. If the financial institution determines after its investigation pursuant to subsection a. or c. of this section that an error did not occur, it shall deliver or mail to the customer an explanation of its findings within three business days after the conclusion of its investigation, and, upon request of the customer, promptly deliver or mail to the customer reproductions of all documents which the financial institution relied on to conclude that the error did not occur. The financial institution shall include notice of the right to request reproductions with the explanation of its findings.

    e. If in any action under section 11 of this act, the court finds that:

    (1) the financial institution did not provisionally recredit a customer's account within the 10-day period specified in subsection c. of this section, and the financial institution (a) did not make a good faith investigation of the alleged error, or (b) did not have a reasonable basis for believing that the customer's account was not in error; or

    (2) the financial institution knowingly and willfully concluded that the customer's account was not in error when such conclusion could not reasonably have been drawn from the evidence available to the financial institution at the time of its investigation, then the customer shall be entitled to treble damages determined under section 11 of this act.

    f. For the purpose of this section, an error consists of:

    (1) an unauthorized electronic fund transfer;

    (2) an incorrect electronic fund transfer from or to the customer's account;

    (3) the omission from a periodic statement of an electronic fund transfer affecting the customer's account which should have been included;

    (4) a computational error by the financial institution;

    (5) the customer's receipt of an incorrect amount of money from an electronic terminal;

    (6) a customer's request for additional information or clarification concerning an electronic fund transfer or any documentation required by this act; or

    (7) any other error described in regulations promulgated pursuant to this act.

    6. a. A customer shall be liable for any unauthorized electronic fund transfer involving the account of the customer only if the access device was an accepted access device and if the issuer of the access device has provided a means whereby the user of the access device can be identified as the customer authorized to use it, such as by signature, photograph, or fingerprint or by electronic or mechanical confirmation. In no event, however, shall a customer's liability for an unauthorized electronic fund transfer exceed the lesser of:

    (1) $50; or

    (2) the amount of money or value of property or services obtained in the unauthorized electronic fund transfer prior to the time the financial institution is notified of, or otherwise becomes aware of, circumstances which lead to the reasonable belief that an unauthorized electronic fund transfer involving the customer's account has been or may be effected. Notice under this paragraph is sufficient when the steps have been taken as may be reasonably required in the ordinary course of business to provide the financial institution with the pertinent information, whether or not any particular officer, employee, or agent of the financial institution does in fact receive the information.

    b. Notwithstanding the provisions of subsection a. of this section to the contrary, reimbursement need not be made to the customer for losses the financial institution establishes would not have occurred but for the failure of the customer to report within 60 days of transmittal of the statement (or in extenuating circumstances such as extended travel or hospitalization, within a reasonable period of time under the circumstances) any unauthorized electronic fund transfer or account error which appears on the periodic statement provided to the customer under section 3 of this act. In addition, reimbursement need not be made to the customer for losses which the financial institution establishes would not have occurred but for the failure of the customer to report any loss or theft of an access device within two business days after the customer learns of the loss or theft (or in extenuating circumstances such as extended travel or hospitalization, within a longer period which is reasonable under the circumstances), but the customer's liability under this subsection in any case may not exceed a total of $500, or the amount of unauthorized electronic fund transfers which occur following the close of two business days after the customer learns of the loss or theft but prior to the notice to the financial institution, whichever is less.

    c. In any action which involves a customer's liability for an unauthorized electronic fund transfer, the burden of proof is upon the financial institution to show that the electronic fund transfer was authorized or, if the electronic fund transfer was unauthorized, then the burden of proof is upon the financial institution to establish that the conditions of liability set forth in subsection a. or b. of this section have been met and if the transfer was initiated after the effective date of this act, that the disclosures required to be made under this act have in fact been made in accordance with those requirements.

    d. If a transaction involves both an unauthorized electronic fund transfer and an extension of credit pursuant to an agreement between the customer and the financial institution to extend credit to the customer if the customer's account is overdrawn, the limitation on the customer's liability for that transaction shall be determined solely in accordance with this section.

    e. Nothing in this section imposes liability upon a customer for an unauthorized electronic fund transfer in excess of that customer's liability for that transfer under other applicable law or under any agreement with that customer's financial institution.

    f. Except as provided in this section, a customer incurs no liability from an unauthorized electronic fund transfer.

    7. a. Subject to subsections b. and c. of this section, a financial institution shall be liable to a customer for all damages proximately caused by:

    (1) the financial institution's failure to make an electronic fund transfer, in accordance with the terms and conditions of an account, in the correct amount or in a timely manner when properly instructed to do so by the customer, except where:

    (a) the customer's account has insufficient funds;

    (b) the funds are subject to legal process or other encumbrance restricting the transfer;

    (c) the transfer would exceed an established credit limit;

    (d) an electronic terminal has insufficient cash to complete the transaction; or

    (e) as otherwise provided in regulations promulgated pursuant to this act;

    (2) the financial institution's failure to make an electronic fund transfer due to insufficient funds when the financial institution failed to credit, in accordance with the terms and conditions of an account, a deposit of funds to the customer's account which would have provided sufficient funds to make the transfer; and

    (3) the financial institution's failure to stop payment of a preauthorized electronic fund transfer from a customer's account when instructed to do so in accordance with the terms and conditions of the account.

    b. A financial institution shall not be liable under paragraphs (1) or (2) of subsection a. of this section if the financial institution shows by a preponderance of the evidence that its action or failure to act resulted from:

    (1) an act of God or other circumstance beyond its control, that it exercised reasonable care to prevent such an occurrence, and that it exercised the diligence the circumstances required; or

    (2) a technical malfunction which was known to the customer at the time the customer attempted to initiate an electronic fund transfer or, in the case of a preauthorized electronic fund transfer, at the time the transfer should have occurred.

    c. In the case of a failure described in subsection a. of this section which was not intentional and which resulted from a bona fide error, notwithstanding the maintenance of procedures reasonably adapted to avoid the error, the financial institution shall be liable for actual damages proved.

    8. a. No person may issue to a customer any access device to the customer's account for the purpose of initiating an electronic fund transfer other than:

    (1) in response to a request or application therefor; or

    (2) as a renewal of, or in substitution for, an accepted access device, whether issued by the initial issuer or a successor. 

    b. Notwithstanding the provisions of subsection a. of this section, a person may distribute to a customer on an unsolicited basis an access device for use in initiating an electronic fund transfer from the customer's account, if:

    (1) the access device is not validated;

    (2) the distribution is accompanied by a complete disclosure, in accordance with section 2 of this act, of the customer's rights and liabilities which will apply if the access device is validated;

    (3) the distribution is accompanied by a clear explanation that the access device is not validated and how the customer may dispose of the access device if validation is not desired; and

    (4) the access device is validated only in response to a request or application from the customer, upon verification of the customer's identity.

    c. For the purpose of subsection b. of this section, an access device is validated when it may be used to initiate an electronic fund transfer.

    9. If a system malfunction prevents the effectuation of an electronic fund transfer initiated by a customer to another person, and the other person has agreed to accept payment by that means, the customer's obligation to the other person shall be suspended until the malfunction is corrected and the electronic fund transfer may be completed, unless the other person has subsequently, by written request, demanded payment by means other than an electronic fund transfer.

    10. No writing or other agreement between a customer and any other person may contain any provision which constitutes a waiver of any right conferred or cause of action created by this act. Nothing in this section prohibits, however, any writing or other agreement which grants to a customer a more extensive right or remedy or greater protection than contained in this act or a waiver given in settlement of a dispute or action.

    11. a. Except as otherwise provided by this section and section 7 of this act, any person who fails to comply with any provision of this act with respect to any customer, except for an error resolved in accordance with section 5 of this act, is liable to the customer in an amount equal to the sum of:

    (1) any actual damage sustained by the customer as a result of that failure;

    (2)(a) in the case of an individual action, an amount not less than $100 nor greater than $1,000; or

    (b) in the case of a class action, the amount the court may allow, except that (i) as to each member of the class no minimum recovery shall be applicable, and (ii) the total recovery under this subparagraph (b) in any class action or series of class actions arising out of the same failure to comply by the same person shall not be more than the lesser of $500,000 or 1 per cent of the net worth of the defendant; and

    (3) in the case of any successful action to enforce liability pursuant to paragraphs (1) and (2) of this subsection, the costs of the action, together with a reasonable attorneys' fees as determined by the court.

    b. In determining the amount of liability in any action under subsection a. of this section, the court shall consider, among other relevant factors:

    (1) in any individual action under subparagraph (a) of paragraph (2) of subsection a. of this section, the frequency and persistence of noncompliance, the nature of the noncompliance, and the extent to which the noncompliance was intentional; or

    (2) in any class action under of subparagraph (b) of paragraph (2) of subsection a. of this section, the frequency and persistence of noncompliance, the nature of the noncompliance, the resources of the defendant, the number of persons adversely affected, and the extent to which the noncompliance was intentional.

    c. Except as provided in section 7 of this act, a person may not be held liable in any action brought under this section for a violation of this act if the person shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid the error.

    d. No provision of this section imposing any liability shall apply to:

    (1) any act done or omitted in good faith in conformity with any rule, regulation or interpretation thereof by the department; or

    (2) any failure to make disclosure in proper form if a financial institution utilized an appropriate model clause issued by the department, notwithstanding that after an act, omission or failure has occurred, the rule, regulation, approval or model clause is amended, rescinded or determined by judicial or other authority to be invalid for any reason.

    e. A person has no liability under this section for any failure to comply with any requirement under this act if, prior to the institution of an action under this section, the person notifies the customer concerned of the failure, complies with the requirements of this act, and makes an appropriate adjustment to the customer's account and pays actual damages or, if applicable, damages in accordance with section 7 of this act.

    f. On a finding by the court that an unsuccessful action under this section was brought in bad faith or for purposes of harassment, the court shall award to the defendant attorneys' fees that are reasonable in relation to the work expended and costs.

    g. Without regard to the amount in controversy, any action under this section may be brought in any court of competent jurisdiction, within one year from the date of the occurrence of the violation.

    12. a. The Commissioner of Banking and Insurance shall enforce the provisions of this act.

    b. The Commissioner of Banking and Insurance shall promulgate regulations pursuant to the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.), necessary to effectuate the provisions of this act. The regulations promulgated by the commissioner shall be consistent with the federal regulations, 12 C.F.R. §205.1 et seq, promulgated under the federal "Electronic Fund Transfer Act," 15 U.S.C. §1693 et seq.

    13. Section 12 of this act shall take effect immediately and the remainder of this act shall take effect on the 180th day after enactment.

STATEMENT

    This bill provides persons having business accounts with financial institutions which can be accessed by means of a card or code or other means for purposes of an electronic fund transfer with the same limits on the liability for an unauthorized transfer of funds as is provided under the federal "Electronic Funds Transfer Act," 15 U.S.C. §1693 et seq, for consumer accounts. The bill does not require financial institutions to issue an access device in connection with a business account, but if one is issued, the protections for the customer will be the same as if it were a consumer account regulated under the federal law.

Limits liability for the unauthorized use of certain financial institution account access devices.