InfoBytes Blog
9th Circuit partially reverses unauthorized EFTs action
On December 20, the U.S. Court of Appeals for the Ninth Circuit affirmed in part and reversed in part a district court’s dismissal of an action under the EFTA against a national bank related to alleged unauthorized electronic fund transfers. The plaintiff, a foreign national who resided primarily outside the U.S., held several accounts with the defendant, including the checking account at issue. According to the plaintiff, “through unknown means, unidentified individuals gained access to her [] checking account in October 2017 and began making unauthorized withdrawals without her knowledge.” A separate bank flagged a large transfer from the plaintiff’s account and reached out to the defendant’s fraud department. That bank ultimately refunded the plaintiff’s money; however, according to the opinion, the defendant allegedly did not change the plaintiff’s account number and password, freeze her account, or inform her of the unauthorized transfer. From November 2017 through March 2019, more than 100 additional unauthorized withdrawals were made. The plaintiff acknowledged that she did not report any of these unauthorized transactions until March 2019, claiming she had been overseas with “‘very limited or no’ internet access to check her bank statements.” While some of the unauthorized withdrawals were reimbursed through the defendant’s internal dispute-resolution process, the defendant allegedly “refused to reimburse her for $300,000 of the losses she suffered, citing her failure to report the initial unauthorized withdrawals within 60 days of their appearance on her bank statements, as the EFTA ordinarily requires.” The plaintiff sued, claiming that the defendant violated the EFTA or, alternatively, California’s EFTA counterpart, and asserting various other state law claims. The district court granted the defendant’s motion to dismiss, ruling that because the plaintiff “failed to report the withdrawals at issue” within the required time frame, “the EFTA bars her claim as a matter of law.”
On appeal, the 9th Circuit determined that the plaintiff plausibly alleged sufficient facts under the EFTA to suggest that “the subsequent unauthorized transfers for which she sought reimbursement would still have occurred.” While the plaintiff did not dispute that she failed to report any of the unauthorized withdrawals to the defendant within EFTA’s 60-day reporting period, she argued that her compliance was excused based on her limited access to her banking records and that the defendant “was already aware of the initial $29,000 withdrawal in November 2017[.]” The appellate court agreed with the district court that the plaintiff failed to “plausibly explain how someone with [her] financial means lacked adequate internet access to view her banking records for more than a year.” The 9th Circuit also rejected the plaintiff’s argument that she did not need to report the unauthorized withdrawals by virtue of the defendant’s communications with the other bank, agreeing that the EFTA “says nothing about a bank receiving notice from third-party sources unaffiliated with the consumer”
However, the 9th Circuit disagreed with the district court’s decision to dismiss the EFTA claim or its California counterpart, after concluding that the plaintiff satisfied her pleading burden by alleging facts “plausibly suggesting that even if she had reported an unauthorized transfer within the 60-day period, the subsequent unauthorized transfers for which she [sought] reimbursement would still have occurred.” The panel emphasized that a consumer may be held liable for unauthorized transfers occurring after the 60-day period only where the bank establishes that those transfers “‘would not have occurred but for the failure of the consumer’” to report the earlier unauthorized transfer within the 60-day period. The district court “overlooked this requirement, and the error was not harmless,” the appellate court explained.