Electronic Fund Transfer Act
Michigan First Credit Union v. T-Mobile USA Inc.
Date: July 16, 2024
Issue: Whether the district court erred in holding that Michigan First Credit Union failed to state a claim for indemnification or contribution under the Electronic Fund Transfer Act (EFTA) or the Michigan Electronic Transfer Act (MEFTA).
Case Summary: In a 3-0 decision, a Sixth Circuit panel affirmed a Michigan federal court’s dismissal of Michigan First’s lawsuit against T-Mobile, concluding it failed to state a claim for indemnification or contribution under EFTA or MEFTA.
A “SIM-swap” cellphone scam victimized several T-Mobile customers who bank at Michigan First. A SIM-swap occurs when a scammer contacts T-Mobile and falsely claims a subscriber’s mobile device was lost, damaged or stolen. The scammer asked T-Mobile to activate a new SIM card associated with the subscriber’s device when the card was located on the scammer’s device. The scammer exploits this by accessing the subscriber’s private information, including bank details, to make unauthorized financial transactions. Under the EFTA, Michigan First was required to reimburse customers for the unauthorized transactions.
Michigan First sued T-Mobile to hold it liable for the reimbursed funds. In its amended complaint, Michigan First raised claims for indemnification and contribution under EFTA, MEFTA and Michigan common law. T-Mobile moved to dismiss, arguing EFTA does not provide for indemnification or contribution, EFTA expressly preempts MEFTA, and EFTA preempts any state common-law claim for indemnification or contribution. The district court agreed and dismissed the case, ruling Michigan First failed to state a claim for indemnification or contribution under EFTA or MEFTA.
On appeal, the Sixth Circuit affirmed. The panel rejected Michigan First’s argument that EFTA implies a right to indemnification or contribution. A right to indemnification arises when one party’s wrongful act causes another party to be held liable. This entitles the latter party to restitution for any losses. A right to contribution arises when two or more parties cause a loss, requiring each party to pay a proportionate share. While EFTA does not contain an express right to indemnification or contribution, the panel focused on whether EFTA provides an implied remedy. To determine whether EFTA provides for an implied right to indemnification or contribution, the panel analyzed four factors: the statutory text, the legislative history, the purpose and structure of the statute’s scheme, and the likelihood Congress intended to supersede or supplement existing state remedies.
The panel concluded each factor proved EFTA does not provide for an implied right to indemnification or contribution. Examining the statutory text and purpose, the panel determined EFTA’s plain text shows that Congress enacted the statute to benefit consumers, not financial institutions like Michigan First. The panel also determined EFTA’s legislative history is silent about whether Congress intended indemnification or contributions rights for financial institutions. Finally, the panel determined Congress intended EFTA to supersede inconsistent state remedies while supplementing consistent state remedies.
The panel also rejected Michigan First’s argument that it could sue for indemnification or contribution under MEFTA. According to the panel, EFTA empowers the Consumer Financial Protection Bureau (CFPB) to preempt state laws “inconsistent” with the Act’s provisions. If the CFPB declares a state law “inconsistent” with EFTA, financial institutions incur no liability “for a good faith failure to comply” with the state law. The panel declared MEFTA is inconsistent with EFTA because MEFTA imposes liability on customers for unauthorized transactions if the financial institution can show “the customer’s negligence substantially contributed to the unauthorized use” of their account. Further, EFTA is unrelated to a customer’s negligence and instead depends on a consumer’s promptness. Accordingly, the court concluded EFTA preempts Michigan First’s MEFTA claim. The panel added that this alone defeats Michigan First’s claim because a plaintiff does not have a right to indemnification or contribution if the plaintiff is not liable for the judgment in the underlying action under Michigan law.
Finally, the panel rejected Michigan First’s argument that EFTA does not preempt its state common-law indemnification claim. The panel reiterated that EFTA preempts state law to the extent that those laws are inconsistent, and financial institutions do not have a right to indemnification under EFTA. Further, allowing financial institutions to seek indemnification under state law for liability incurred under EFTA is inconsistent with federal law. The panel thus concluded EFTA preempts Michigan First’s state-law indemnification claim.
Bottom Line: As of Aug. 1, Michigan First has not filed an en banc (full panel) petition for rehearing.
Documents: Opinion
