Electronic Fund Transfer Act
Mohamed v. Bank of America N.A.
Date: Feb. 16, 2024
Issue: Whether Bank of America violated the Electronic Fund Transfer Act (EFTA) by failing to provide adequate fraud prevention and investigation for recipients of unemployment benefits cards.
Case Summary: In a 3-0 decision, a Fourth Circuit panel revived a proposed class action alleging BofA failed to protect unemployment benefits for recipients of unemployment benefits cards.
The EFTA generally governs the electronic transfer of funds to and from consumer accounts. Under Regulation E—the EFTA’s implementing regulation—the term “account” includes a “prepaid account,” which is defined in four categories introduced by the capital letters A, B, C and D. Subsection A covers “payroll card accounts.” Subsection B covers “government benefit accounts,” which are defined as accounts established by a government agency for distributing government benefits to a consumer electronically. Subsections C and D cover accounts used to conduct transactions with “multiple, unaffiliated merchants for good or services” or accounts that can be used at ATMs.
Yagoub Mohamed alleged BofA violated the EFTA by failing to provide adequate fraud prevention and investigation for recipients of prepaid debit cards it issued for Maryland’s Department of Labor. Mohamed received a Pandemic Unemployment Assistance benefits card after losing his shop at the height of the COVID-19 pandemic. He discovered his prepaid debit card was emptied of more than $14,000 before he received it, prompting him to file a fraud claim with BofA. Mohamed alleged BofA did not resolve his claim and put an improper freeze on his account. Mohamed sued on behalf of a proposed class of Maryland benefits cardholders alleging BofA failed to reimburse him for the stolen funds as required by the EFTA.
BofA argued the EFTA did not apply because Mohamed received pandemic unemployment assistance rather than traditional unemployment insurance. BofA further argued the EFTA’s definition of a “account” excludes various types of prepaid accounts, including those established by a bank and loaded with “qualified disaster relief payments.” BofA moved to dismiss Mohamed’s complaint for failure to state a claim.
A Baltimore federal judge granted BofA’s motion to dismiss. The court determined the EFTA did not apply because Mohamed’s account contained exception for “qualified disaster relief payments.” The court reasoned the pandemic was categorized as a “federally qualified disaster” and thus excluded Mohamed’s account from the EFTA’s definition of a covered account.
On appeal, a Fourth Circuit panel reversed, ruling Mohamed stated a claim under the ETFA because his account qualified as a “government benefit account” under Subsection B. Regulation E defines “government benefit account” as “an account established by a government agency for distributing government benefits to a consumer electronically.” The panel emphasized the ultimate question was whether Mohamed’s account was brought into existence through the “agency or instrumentality of a government agency.” BofA contended it “established” the account, which relieves it from responsibility under the EFTA exception for banks issuing prepaid debit cards. The panel acknowledged that BofA issued the cards and controlled the day-to-day operations of the attached account. However, the panel opined BofA “acted solely at the instigation of—and through its contract with the state of Maryland.” As a result, the panel concluded the state of Maryland established the account.
The court rejected BofA’s argument the “larger regulatory context” confirms Mohamed’s account is not a government benefit account. BofA emphasized an adjacent regulatory provision declares that “a government agency that undertakes certain actions is deemed to be a financial institution for purposes of the act.” According to BofA, this shows the bank, rather than the agency, established Mohamed’s account. However, the panel reasoned the regulation BofA cites does not provide that a government agency must be considered a financial institution before establishing an account. Instead, a government agency must also “directly or indirectly issue an access device to a consumer for use in initiating an electronic fund transfer of government benefits from an account.”
Bottom Line: As of March 1, 2024, BofA has not specified if it will petition for a full panel (en banc) rehearing.
Documents: Opinion
