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Financial Services Law Insights and Observations

Bank enjoined from administering prepaid debit cards for EDD benefits

Courts Debit Cards Prepaid Cards Class Action Covid-19 EFTA Regulation E

Courts

On June 1, the U.S. District Court for the Northern District of California issued a preliminary injunction enjoining a national bank from certain actions in administering prepaid debit cards to class member recipients of Employment Development Department unemployment or disability benefits. Under the terms of the preliminary injunction, the bank is prohibited from “considering the results of [its] initial automated fraud claims filter” when investigating or resolving any alleged unauthorized transaction error claims, or from closing claims or denying credit before conducting an investigation, pursuant to EFTA and Regulation E. Class members are also entitled to a written explanation of investigative findings before the bank can deny or close a claim. Additionally, the bank is, among other things, (i) prohibited from considering the results of its claim fraud filter as justification for freezing the card account of any class member; (ii) required to reopen any claims that were closed or denied “based solely” on results of its claim fraud filter if those claims have not already been paid or previously reopened and investigated; (iii) required to provide written notice to class members with blocked accounts explaining that their accounts will be unblocked if they authenticate their identity; and (iv) establish a process for handing class member claims.

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