Maryland Legal Alert for Financial Services
Fourth Circuit Holds Electronic Fund Transfer Act Applies to Prepaid Debit Cards for Unemployment Benefits
On February 16, 2024, the Fourth Circuit vacated a decision by a Maryland district court to dismiss a claim alleging a violation of the Electronic Fund Transfer Act (EFTA) and its implementing Regulation E. The EFTA requires financial institutions to adopt certain safeguards to protect against unauthorized electronic transfers. In this case, a self-employed mechanic alleged that the Bank’s failure to properly investigate unauthorized transactions relating to his pandemic unemployment relief funds violated his rights under the EFTA. The crux of the case rested on whether a government agency had established the account in question. The Fourth Circuit found that unemployment benefits disbursed via a prepaid debit card constituted a government benefit account under the EFTA. The funds were provided by the Pandemic Unemployment Assistance program and disbursement was authorized by the Maryland Department of Labor Division of Unemployment Insurance through contracts with local financial institutions. While the Bank issued the cards and controlled the day-to-day operations of the accounts, the Fourth Circuit explained that the Bank “acted solely at the instigation of—and through its contract with—the State of Maryland.” Thus, the court held that a Maryland agencies established the account, making the account subject to the EFTA and Regulation E.
Practical Pointer: Financial institutions should review error-claim procedures to ensure compliance with the EFTA and Regulation E. It is helpful to review CFPB’s 2018 article on key changes to Regulation E and Z for government benefit accounts.
For more information, please contact Christopher R. Rahl or Tamia J. Morris.