Court Holds Payday Lender Violated EFTA By Requiring Preauthorization For Electronic Repayment

Payday Lending Class Action EFTA

On July 30, the U.S. District Court for the Northern District of California held that a payday lender whose loan agreements required borrowers to consent to electronic withdrawals of their scheduled loan payments violated the federal Electronic Fund Transfer Act’s prohibition on the conditioning of credit on a borrower preauthorizing electronic fund transfers (EFTs) for repayments. De La Torre v. CashCall, Inc., No. 8-3174, 2014 WL 3752796 (N.D. Cal. Jul. 30, 2014). The court previously certified a class seeking to recover actual and statutory damages under the EFTA. The class borrowers claim that the lender required borrowers to agree to electronic transfers of scheduled payments as a condition to obtaining their loans. The borrowers alleged those EFTs caused borrowers to incur insufficient fund fees on the accounts from which the loan payments were withdrawn. On summary judgment, the court rejected the lender’s argument that its promissory notes authorized, but did not require, payment by EFT, and that the EFTA only prohibits the conditioning of the extension of credit upon a requirement to make all loan payments by EFT. The court held that the plain meaning of the statute dictates that a violation of the EFTA occurs “at the moment of conditioning—that is, the moment the creditor requires a consumer to authorize EFT as a condition of extending credit to the consumer.” The court held that by extension, the borrowers also established that the lender violated the Unfair Competition Law. The court granted summary judgment in favor of the borrowers on both their EFTA and UCL claims. However, the court held that whether the EFTA violation caused borrowers to incur the insufficient fund fees is a disputed fact, which should be decided after liability is determined and with the borrowers’ claims for statutory damages and restitution.