YORKTOWN, Va.–The Supreme Court has declined to hear and allowed to stand a decision by the Fourth Circuit Court that a financial institution, in this case defendant1st Advantage FCU, is not liable for a fraudulent fund transfer if it had no “actual knowledge” of a mismatch between the beneficiary’s name and the account number receiving the funds.
In the March 2025 decision Studco Building Systems US LLC v. 1st Advantage Federal Credit Union, the Fourth Circuit found the credit union was not required to investigate discrepancies between the account name and number, upholding the principles of UCC Section 4A-207, which allows financial institutions to rely on account numbers to promote efficiency and certainty in fund transfers.
E-Mail Scam
The case involved a company, Studco, that was tricked by a business email compromise scam into sending ACH payments to a fraudulent account at 1st Advantage FCU.
The fraudulent email instructed Studco to send payments to a new account, listing the correct business name but providing a fraudulent account number, according to court documents.
Studco subsequently sued the credit union, alleging it failed to follow basic security procedures and should have rejected the transfers due to the name-number mismatch.
The Fourth Circuit’s Ruling
The court reversed a lower court’s decision, ruling that 1st Advantage was not liable for the fraudulent transfers, saying the key factor was the lack of “actual knowledge” by the credit union of the mismatch between the account name and number.
According to one legal analysis, the court stressed that this is a “subjective knowledge” standard, meaning it requires an individual to have actual knowledge of the discrepancy, not merely constructive or imputed knowledge from internal systems.
The court affirmed that financial institutions are not required to manually verify every payment for name-account number mismatches to avoid liability, relying on Uniform Commercial Code (UCC) Section 4A-207, which governs wire transfers and payment orders.
