Banking and Finance Law Daily EFTA does not prohibit banks from charging stop-payment fees
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Friday, August 16, 2019

EFTA does not prohibit banks from charging stop-payment fees

By Nicole D. Prysby, J.D.

The EFTA grants consumers the right to stop recurring electronic fund transfers but does not prohibit banks from charging fees to stop payments, even if the fee charged exceeds the cost of processing the stop payment or impedes the right to stop payment.

The Electronic Fund Transfer Act (EFTA) requires that consumers be allowed to stop recurring electronic funds transfers (EFTs) but does not prohibit banks for charging a fee to implement the stop payment, held a federal district court in California. The statute contains no language discussing fees and should not be read to bar them. This is the case even if the stop-payment fees exceed the cost of processing the stop-payment order or the amount charged impedes, hinders, or delays a consumer’s right to stop payment. The EFTA and its legislative history say nothing about fees for stopping payment, much less how the reasonableness of any such fees should be determined (Foreman v. Bank of America, N.A., Aug. 13, 2019, Freeman, B.).

The two plaintiffs, James Foreman and Alvin Moody, each have accounts with Bank of America (BOA). BOA charges a $30 stop payment fee to stop recurring EFTs. Foreman paid the stop payment fee to stop payments on two predatory loans, while Moody is an indigent consumer who paid the stop payment fee to stop a recurring EFT to his insurance company. BOA failed to cancel the payment and then charged Moody a $35 overdraft fee because he had insufficient funds in his account for the transfer. The plaintiffs brought individual and putative class claims, alleging that BOA’s $30 stop-payment fee violates the EFTA, 15. U.S.C. § 1693, under three alternative theories: (1) stop-payment fees per se violate the EFTA; (2) stop-payment fees that exceed the bank’s costs of processing stop-payment orders violate the EFTA; and (3) stop-payment fees that impede and hinder a consumer’s exercise of the right to stop payment violate the EFTA. They also brought claims under California’s Unfair Competition Law (UCL).

Plaintiff has standing. The court rejected BOA’s argument that the plaintiffs have no standing. They have standing for the EFTA claims under the first two theories because an unlawful fee constitutes an economic injury sufficient to confer standing. In addition, Foreman has standing under the third theory because he alleged that BOA’s fee hindered him from stopping payment for several months and that he was trapped in an illegal predatory lending scheme as a result, therefore he suffered the harm of remaining in a predatory lending scheme.

EFTA claims largely fail. The court held that the EFTA does not prohibit stop-payment fees per se. Section 1693e of the EFTA grants consumers the right to stop preauthorized EFTs under certain conditions (written or oral notification three days prior to the scheduled transfer). Although it does not specifically authorize stop-payment fees, it does not prohibit them, and the statute’s silence on fees should be read not to bar them. Other sections in the EFTA contemplate that financial institutions may impose terms and conditions for stopping payment beyond the conditions set forth in § 1693e. And the legislative history of the EFTA demonstrates that Congress intended for consumers to have the right to stop payments, but not that Congress intended consumers to be allowed to stop payment for free. Because the consumers failed to allege under this theory that BOA’s $30 fee violated Section 1693e, they also have not alleged that Plaintiffs were forced to waive their rights to stop payment under Section 1693l of the EFTA.

The EFTA also does not prohibit stop-payment fees that exceed the cost of processing the stop-payment order. The EFTA and its legislative history say nothing about fees charged for stopping payment, much less how the reasonableness of any such fees should be determined—such as through proportion to the bank’s actual costs. The plaintiffs cited National Bank Act (NBA) regulations in support of this theory, but the plaintiffs did not bring an NBA claim and even under the NBA, banks are allowed to impose stop-payment fees so long as they comply with Office of the Comptroller of the Currency regulations. The UCL claim based on this theory also fails.

Finally, for similar reasons, the plaintiff’s third theory fails. The EFTA does not prohibit any fee that impedes, hinders, or delays a consumer’s right to stop payment. To the extent the theory rests on the idea that a $30 fee (as opposed to a $1, $5, or $29 fee) impedes everyone’s right to stop payment under the EFTA as a matter of law, this theory is rejected because the EFTA does not prohibit fees and provides no guidance on how to determine whether a certain fee charged under it is reasonable or unreasonable.

The court did conclude that Moody successfully pleaded an individual claim under the EFTA (15 U.S.C. §1693h) for BOA’s failure to cancel the payment after he paid the fee.

The case is No. 5:18-cv-01375-BLF.

Attorneys: Bryan Scott Gowdy (Creed and Gowdy, PA) for Alvin Moody. Danielle Nicole Oakley (O'Melveny and Myers LLP) for Bank of America, N.A.

Companies: Bank of America, N.A.

MainStory: TopStory CaliforniaNews ChecksElectronicTransfers

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