9th Cir. Cancels rejection of EFTA’s claim for unauthorized charges, maintains privacy notice created without substantive rights

The United States Court of Appeals for the Ninth Circuit recently overturned the dismissal of a consumer’s allegation that a bank violated federal electronic funds transfer law by failing to reimburse it in full for losses suffered at the result of fraudulent transfers from his account.

In that decision, the Ninth Circuit found that although the consumer did not report the unauthorized withdrawals within 60 days after his bank sent monthly statements reflecting the withdrawal, as required, the trial court committed an error in neglecting the additional requirement to hold the consumer responsible for such transfers. only if the bank establishes that these transfers “would not have taken place without the failure of the consumer” to timely report the prior unauthorized transfer reflected on their bank statement.

However, the Ninth Circuit upheld the rejection of the state law breach of consumer contract and the breach of the implied commitment of good faith and fair use. Here, the Ninth Circuit rejected the consumer’s claim that the bank had violated the confidentiality notice attached to the deposit account agreement, finding that the confidentiality notice did not impose any substantial obligation on the bank, but simply explained its policies and a consumer’s ability to limit the sharing of personal information.

A copy of the notice in Widjaja v. JPMorgan Chase Bank, NA is available at: Link to Opinion.

A foreign consumer who resided primarily outside the United States but had a residence in California (“Consumer”) had multiple bank accounts with a bank in the United States (“Bank”).

Allegedly unidentified individuals gained access to the consumer’s checking account in October 2017 and began making unauthorized withdrawals without his knowledge, first of a nominal amount of less than $ 2 to another bank, followed by a transfer of $ 29,000 to the same bank two days later. Suspecting fraudulent activity, the bank receiving the transfers contacted the fraud department of the Consumer Bank. The two banks jointly determined that the transaction was fraudulent and refunded the money to the consumer’s account.

The Consumer Bank has not informed the Consumer of this fraudulent activity and has taken no further action to protect his account against other unauthorized withdrawals. Subsequently, the same people allegedly made more than 100 unauthorized withdrawals from the consumer’s current account between November 2017 and March 2019, when the consumer reported the fraudulent activity to his bank when examining his statements. account on his return to California.

The consumer was reimbursed by her bank for some of the unauthorized withdrawals as part of its internal dispute resolution process, but the bank refused to reimburse her for $ 300,000 for the losses she suffered, citing her failure to report initial unauthorized withdrawals within 60 days of their appearance. on his bank statements, as required by EFTA. See 15 USC §§ 1693f (a), 1693g (a); 12 CFR § 1005.6 (b) (3).

The consumer brought an action against the bank, bringing forward claims for (1) alleged violation of EFTA or, failing that, the Californian EFTA counterpart, Cal. Comm. Code § 11101 and following; (2) breach of contract; (3) violation of the implied commitment of good faith and fair dealing; and (4) negligence.

The Bank requested that the consumer’s complaint be dismissed for lack of declaration. The Court of First Instance upheld the Bank’s motion for dismissal, ruling that EFTA had excluded the consumer’s claims due to its inability to report the withdrawals in question on time, and dismissed the consumer’s claims relating to EFTA and State law with prejudice. The consumer appealed in a timely manner.

On appeal, the Ninth Circuit was tasked with interpreting EFTA § 1693g which limits a consumer’s liability for unauthorized electronic fund transfers to $ 50 in most cases, subject to two exceptions.

The first exception raises the cap to $ 500 when unauthorized transfers occur due to the loss or theft of an access device (such as an ATM card) and the consumer does not notify their bank within two business days after discovery of the lost device. or stolen. 15 USC § 1693g (a); see 12 CFR § 1005.6 (b) (2).

The second exception, relevant here, provides that the liability limit will be lifted if: (1) an unauthorized transfer appears on the monthly statement that banks are required to send to consumers under 15 USC § 1693d (c); (2) the consumer fails to report the unauthorized transfer to his bank within 60 days of sending the statement; and (3) the bank can establish that unauthorized transfers made after the 60 day period would not have occurred without the consumer’s failure to notify the prior unauthorized transfer in a timely manner. 15 USC § 1693g (a).

In the latter scenario, the consumer’s liability for unauthorized transfers that occur within the 60-day period cannot exceed $ 50 or $ 500 (depending on the circumstances), but the consumer incurs unlimited liability for the transfers. unauthorized occurring outside the 60 day period. See 12 CFR § 1005.6 (b) (3); 12 CFR pt. 1005, Supp. I, 6 (b) (3). The bank is responsible for proving that the liability conditions set out in the aforementioned paragraphs have been met. 15 USC § 1693g (b).

Here, the consumer did not dispute the fact that she did not report the unauthorized withdrawals within the 60-day deadline set by EFTA, but argued that she was exempt from the obligation to report 60 days because: (1) her limited access to bank records and extended international travel constituted “extenuating circumstances” under section 1693g (a), and (2) she was not required to report unauthorized withdrawals because the Bank was already aware of the first fraudulent transfers due to its communications from the bank it received.

The Ninth Circuit agreed that the trial court correctly rejected these arguments, noting that Section 1693g (a) clearly requires “the consumer” – and not a third party – to timely report an unauthorized withdrawal to avoid ” face potentially unlimited liability for subsequent withdrawals occurring after this period.

However, the Ninth Circuit noted that although EFTA requires a consumer to notify their bank of unauthorized transfers within the prescribed 60-day period, a consumer who does not do so is not automatically responsible for all subsequent losses – responsibility rests with the consumer for unauthorized transfers occurring after the 60 day period only if the bank establishes that such transfers “would not have taken place without the consumer’s failure” to timely report the non-transfer prior authorization reflected on their bank statement. 15 USC § 1693g (a).

The trial court’s analysis overlooked this requirement, and the Ninth Circuit determined that its error was not harmless.

Here, the Ninth Circuit noted that the consumer’s claims that her bank had taken no further action to protect her account after learning of the first fraudulent transfers strongly prompted the bank to take immediate corrective action, regardless. the source of his opinion. fraudulent activity, and giving rise to a reasonable inference that the Bank would not have taken steps to prevent subsequent losses even if it had reported the initial unauthorized withdrawals within the 60-day period.

Thus, the Court of Appeal concluded that the consumer had discharged her pleading burden to survive a motion to dismiss by plausibly suggesting that even though she had reported an unauthorized transfer within the 60-day period, subsequent unauthorized transfers for which she is claiming reimbursement would still have happened. See Nayab v. Capital One Bank (United States), NA, 942 F.3d 480, 495–97 (9th Cir. 2019) (holding in a similar context that the plaintiff must allege facts giving rise to a reasonable inference that an affirmative statutory defense does not apply not).

With respect to the consumer’s remaining state claims for alleged breach of contract and breach of implied good faith and fair use commitment raised on appeal, which the trial court found dismissed due to the consumer’s omission to provide an opinion within the 60-day EFTA period, the Court of Appeal upheld the dismissal but on different grounds.

The Ninth Circuit rejected the consumer’s claim that the bank violated the confidentiality notice attached to the deposit account agreement (DAA), finding that it did not place any substantial obligation on the bank, but simply explained its policies and a consumer’s ability to limit the sharing of personal information. The Ninth Circuit further ruled that the consumer’s claim for breach of the implied commitment of good faith and fair use had failed because the DAA expressly authorized the bank to close the consumer’s accounts.

In summary, since the Ninth Circuit concluded that the trial court erred in dismissing the consumer’s EFTA claims, but correctly dismissing the state court claims, the dismissal was partially overturned and upheld. in part, and remitted to the lower court for further processing.

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