A Wire Transfer Agreement: What is it?
Bank wire transfers have been around for decades, and they still make up a good portion of banks’ wire transfer business as a customer’s most requested transaction. Wire transfers, however, do not come without risks, and banks use wire transfer agreements to outline their obligations to the customer, and the customer’s obligations to the bank. They are generally drafted to take advantage of the Uniform Commercial Code ("UCC") §4A provisions, which attempt to limit or shift risks to the customer. A wire transfer agreement may also contain contractual terms under the laws applicable in the state or jurisdiction where the wire transfer occurs and is governed by those laws (so long as the UCC §4A terms do not expressly exclude those terms). Bank wire transfer agreements will generally include terms such as:
• Service Description and Fee – This captures what services have been agreed upon between the bank and the customer (i.e., domestic payments only, international payments, etc.) and sets forth the fees for the services, including amounts and timing of payment.
• Funds Availability – Banks typically reserve the right to delay availability of funds. Such delay may be subject to UCC §4A-211 or other state commercial code provisions requiring payment of interest on delayed transfers. See UCC §4A-211 . Many times, the customer is relieved of this risk given that it is not uncommon for funds to be available within a few hours after the transfer is initiated.
• Security Procedures – These set forth the parties’ obligations with respect to both the customer’s and the bank’s security responsibilities. The agreement protects the bank against unauthorized transfers by holding the customer responsible if the bank executes a transfer that is a customer’s order, even if the transfer was not authorized. This also protects the bank for fraud as long as an accepted and commercially viable security procedure is utilized. UCC §4A-202.
• Liability – These are limitations on damages for breach of the transfer agreement, including attorneys’ fees and consequential damages incurred by the parties to the transaction, including any receiver of credit. Generally, the services provided by the Bank under the Wire Transfer Agreement are provided using commercially reasonable banking practices and applicable law; however, such services are provided based on the customer’s instruction and the Bank is not liable for errors made in the course of performing the services.
• Limitation of Actions – Limits the time a customer has to challenge a transaction or send a notice of error and the time a customer has to commence legal action against the bank. UCC §4A-501.
What to Include in a Wire Transfer Agreement
A wire transfer agreement is typically a multi-page document. While the language varies based on the provider, the following are some of the most essential elements that should be included in the agreement:
Parties
The parties that are entering into the contract should be clearly identified, defining the account owner and where the funds will be deposited, as well as the payment processor, such as a bank or credit union that will process the wire.
Transfer Limits
A wire transfer provider will often only allow account holders to send, to or from the same account, a certain amount of money per transaction. Any wire transfer agreement should limit the amount of funds that can be sent per transaction so that the risk of fraud or error can be reduced. Transfer limits may also be defined based on the amount of the wire or the period of time over which they are sent.
Fees
The receipt or transfer of funds is not free; banks and credit unions are in the money business. As such, wire transfers are often subject to fees that are charged by the payment processor. A wire transfer agreement should set forth the amount of each fee or the method by which the fee is calculated, and whether fees will be deducted from the account during the transfer.
Deadlines
The agreement should set deadlines for initiating transfers, or receiving them based on the transfer type. These are generally met before a pre-set cut-off time, which allows time for processing the transfer.
Compliance
Any wire transfer agreement should set forth the recipient and sender’s responsibilities with regard to compliance with federal and local regulations.
How to Create a Wire Transfer Agreement
A wire transfer agreement should contain certain key elements for it to be valid and enforceable. All the parties in the agreement will need to take the time to carefully read through the terms and conditions so they are fully aware of the extent of liability they have. Here are some of the main considerations that should be kept in mind when drafting your wire transfer agreement.
For something of this magnitude, it’s crucial to have all personal information correctly listed. If it is listed incorrectly, this could hold up the process.
It may be necessary for the individual to appear in person before the agent to sign the agreement. The notary public the agent used should then sign the document, completing it, and then provide the sender with a copy of all documentation supporting the parties who appeared before him or her. In certain cases, the money transmitter may need to keep copies of supporting documents, such as proof of identity, driver’s license numbers, social security numbers, money transmitter’s copy, signature card and signed addendum (if applicable).
Every attempt should be made to make sure nothing is missing from the agreement. If there’s any doubt, the transaction should not take place.
All of the parties involved in the wire transfer agreement should understand the following:
• The sender has no expected right to cancel a payment request once the payment is fully executed.
• The payment request must be accepted by the requested payee in order to complete the payment.
• The sender is under no obligation to execute a payment request unless the payment request clearly manifests an intention to be bound upon acceptance.
• To cancel a payment request, the sender must notify the person or organization to whom the payment request was sent no later than 12:00 p.m. noon of the banking day before the day of execution.
• The payment request may not be canceled if the bank agrees to execute or the bank has executed the payment request.
• The sender does not have any expected right to cancel the payment or request a refund of the payment once fully executed.
Knowing your rights as well as your limitations is crucial in this area. Taking the time to draft a wire transfer agreement that covers all parties, is accurate, and equals what you are expecting will go a long way toward making sure you know your rights going forward.
Sample Wire Transfer Agreement
The last thing you need is to be embroiled in a legal dispute with your bank over an unauthorized wire transfer. It’s far more practical—and significantly more effective—to make sure your wire transfer agreement includes language that specifically protects the funds from that type of liability if the transaction involves a business account. The following example illustrates how a wire transfer agreement might work in a real-world example.
[Bank Name] and [Client Name] agree as follows:
1. Authorization for Wire Transfers
[Client Name] (the "Customer") authorizes [Bank Name] to debit the Customer’s account identified by the account number set forth at the bottom of this agreement (the "Account") to pay the Customer’s instruction for payment or transfer of money (a "Wire Transfer") from the Account and remit it to the person or entity (the "Payee") designated by the instructions .
2. Money Transfer Procedures.
The Customer shall initiate Wire Transfers by completing a "Transfer/signature form" for each Wire Transfer (Individually, a "Transfer") to be processed, specifying the amount to be transferred, the payment or transfer date, the Payee, the time for payment instructions made to the Bank, and all other information required on the Transfer. Each Transfer shall constitute an assignment and order by the Customer to draw upon the Account as provided in each Transfer. The Customer shall be liable to and shall indemnify [Bank Name] for the Client’s negligence, demise, incapacity, or lack of authority.
By signing below, and subject to the terms and conditions herein, the parties agree as follows:
Common Legal Problems with Wire Transfers
Wire transfers, while convenient, can be prone to a number of legal issues that parties should consider. Fraud risks are one of the earliest concerns that such clients may encounter. Wire transfer fraud includes phishing schemes, where fraudsters impersonate bank representatives in phone calls to clients, posing as potential fraud alerts. Fraudulent wire transfers may also result from business email compromise schemes, where scammers access executives’ business or personal email accounts and authorize money transfers as an insider.
Financial regulations and compliance issues are also common legal issues that regularly arise with wire transfers. The Bank Secrecy Act (BSA), for example, requires the reporting of transactions that exceed statutory limits, which extends to wire transfers. A failure to file a report can result in a fine of up to $100,000. Anti-money laundering regulations is another critical area, requiring that some financial firms keep records designed to detect money laundering. Anti-terrorism regulations also have some reporting requirements for suspected terrorist financing, which can include both wire transfers and other banking activity.
Enforcement of wire transfer agreements can also pose challenges. Some wire transfer agreements may include clauses that limit certain types of liabilities. For instance, while unauthorized transfers are usually the bank’s responsibility, contractual disclaimers in wire transfer agreements may put that responsibility on clients. Arbitration clauses, which are often found in these agreements, can also limit the remedies that clients may receive.
Another area for client concern includes damages claims for falsified wire transfers. It is frequently acceptable in financial markets and industries that involve developmental financing for an affected party to continue with the deal despite not having received a wire transfer. Such an acknowledgment, however, may reduce damages from a fraud situation. It may also limit a customer’s right to receive rescission of the contract if a fraudster took the money.
Using Wire Transfer Agreements: Best Practices
When designed and utilized correctly, wire transfer agreements can be a great tool for protecting your interests. Below are some best practices in utilizing wire transfer agreements:
Independent Counsel. A Wire Transfer agreement creates contractual rights and liability. You should require that the other party consult with independent counsel and provide evidence of such. Otherwise, it is unsafe to assume that the other party has consulted with counsel. If the other party has not had an opportunity to consult with counsel or alternatively, has not provided evidence on their ability to do so, they could later challenge the enforceability of the wire transfer agreement.
Meeting with Client. A Lawyer should meet with the client to review the agreement and, if necessary, make clarifications and modifications to the agreement on a case-by-case basis as circumstances so require. This can be particularly important in cases of repetitive or pre-existing contracts. For example, if a bank uses a standard form for a bank customer, there can always be certain scenarios in which the bank customer should have more legal protections than what is offered by the bank.
Use and Disclosure of Results of Legal Research. In most instances, it is inappropriate and even dangerous for an attorney to give the results of legal research , as opposed to an explanation of the law on a particular point, to a client, where the client may rely on the legal research in formulating an approach to a matter. Sometimes, of course, this is acceptable. For example, in the case of a bank customer, the union of the bank’s extensive material on a substantive area of law related to a transaction, including any legal research performed in house, can be useful. One must exercise well-formed judgment in accordance with Rules 1.1, 1.4, and 1.6 of the Model Rules of Professional Responsibility regarding the use and disclosure of legal research results.
Limitations on Liability. For some banks, it is common to have limitations of liability, which are often in conflict with other banks that do not have them. These limitations need to be carefully weighed on a case-by-case basis and given the severity with which certain areas of liability, such as negligence, may affect them. As a general rule, except in extreme situations, a legal team should work to object against such limitations rather than accept them.
Disclaimer of Advice. A Banking institution should disclaim against the giving of legal advice and advise the client to seek the advice of independent counsel, which is an area of contention that is not well-defined by law.