Maryland Legal Alert for Financial Services
Maryland Legal Alert - March 2024
In This Issue
Fourth Circuit Holds Electronic Fund Transfer Act Applies to Prepaid Debit Cards for Unemployment Benefits
CFPB Proposes to Prohibit Fees on Instantaneously Declined Transactions
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.
Contact Christopher R. Rahl | 410-576-4222
Contact Tamia J. Morris | 410-576-4021
CFPB Proposes to Prohibit Fees on Instantaneously Declined Transactions
On January 24, 2024, the Consumer Financial Protection Bureau (CFPB) proposed a rule to forbid banks from charging non-sufficient fund fees on transactions that are declined with “no significant perceptible delay” to the consumer, as part of CFPB’s mission to reduce “junk fees” imposed on consumers.
The CFPB proposes to classify fees charged on these near-instantaneously declined transactions as an “abusive practice” under the Consumer Financial Protection Act. The prohibition would apply to banks, saving associations, credit unions, and other “covered financial institutions.” However, the rule is likely to have limited impact: The rule does not apply to overdraft fees, charged when the consumer does not have sufficient funds but the transaction is not declined; nor to transactions that are not declined immediately; and only a few financial institutions charge fees that fall within the scope of the proposed rule.
Practice Pointer: Financial institutions implicated under this proposed rule should update their policies to avoid charging the fees immediately after an instantaneously or near instantaneously declined transaction. The comment period for this rule ends March 25, 2024.
For more information, please contact Christopher R. Rahl or Natalie C. Gibson.