4th Cir.: Mohamed v. Bank of America- Electronic Funds Transfers Act

Summary:

Mohamed sued Bank of America alleging violations of the EFTA, particularly regarding unauthorized electronic fund transfers.

The case centered on whether Bank of America properly provided notice of the right to cancel preauthorized electronic fund transfers, as required by the EFTA. Mohamed argued that the bank's notice did not comply with the law.

The Court of Appeals found in favor of Mohamed, ruling that Bank of America's notice did not adequately inform consumers of their rights under the EFTA  and by failing to provide adequate fraud prevention and investigation. Further,  a "covered account" under the EFTA  includes a prepaid account, including one loaded with unemployment assistance related to the pandemic such as a government benefit account.

Commentary: 

Some of the main protections under the EFTA include:

1. Disclosure Requirements: Financial institutions must provide consumers with clear and comprehensive disclosures regarding the terms and conditions of electronic fund transfer services, including fees, liability for unauthorized transactions, and procedures for resolving errors.
2. Limits on Liability for Unauthorized Transfers: The EFTA limits a consumer's liability for unauthorized electronic fund transfers, provided the consumer promptly reports the unauthorized activity to the financial institution. Typically, the consumer's liability is capped at $50 if the report is made within two business days of discovering the unauthorized transfer.
3. Error Resolution Procedures: Financial institutions are required to establish procedures for consumers to report errors related to electronic fund transfers, such as incorrect amounts or unauthorized transactions. Upon receiving a report, the institution must investigate and resolve the error promptly.
4. Right to Stop Payments: Consumers have the right to stop preauthorized electronic fund transfers by notifying the financial institution at least three business days before the scheduled transfer date.
5. Prompt Crediting of Deposits: Financial institutions must promptly credit electronic deposits, such as payroll direct deposits or electronic benefit transfers, to the consumer's account on the day the funds are received.
6. Fair Treatment of Consumers: The EFTA prohibits unfair or deceptive practices by financial institutions in connection with electronic fund transfer services, ensuring consumers are treated fairly and transparently.These protections may apply in Chapter 13 cases, potentially in regard to electronic payments to Chapter 13 trustee but perhaps also in electronic transfers made by Chapter 13 Trustees,  as the definition in the EFTA of a consumer's account  could also include money that the Trustee holds, the definition of a financial institution  could include Trustees themselves and the phrase preauthorized electronic fund transfer  arguably includes those authorized under a voluntary Chapter 13 repayment plan.  

Could this mean that  the EFTA  apply and  provides Chapter 13 debtors some degree of continuing control to stop payments?  Similarly,  does the EFTA  require prompt crediting of payments received,  again either from the debtor to the Chapter 13 trustee or from the Chapter 13 Trustee to a creditor?

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