Banking and Finance Law Daily Return of inmate cash via debit card with fees may violate EFTA
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Tuesday, March 17, 2020

Return of inmate cash via debit card with fees may violate EFTA

By Nicole D. Prysby, J.D.

Returning incarcerated individuals’ confiscated cash by use of a prepaid debit card with fees may be a violation of EFTA.

A former inmate’s claim that returning cash confiscated upon incarceration with prepaid debit cards violates the Electronic Fund Transfers Act (EFTA) should go forward, held the Ninth Circuit Court of Appeals. The plaintiff alleged that the service fee for the debit cards, charged five days after activation, violates EFTA section 1693l-1, which prohibits charging service fees to "general-use prepaid cards" unless the card has not been used for 12 months. The court rejected the debit card distributor’s argument that section 1693l-1 does not apply because the release cards are not marketed to the general public. When the card distributor marketed the cards to the municipality, they indirectly marketed them to inmates who upon release enter the general public. The former inmate’s takings and state law claims for conversion and unjust enrichment should also go forward. Because the debit card deteriorates in value quickly and permanently, the district court was incorrect to conclude that the release card is the functional equivalent of cash or of a check (Brown v. Stored Value Cards, Inc., March 16, 2020, Gould, R.).

Multnomah County, Ore., contracted with Stored Value Cards (Numi) to manage cash confiscated by arrestees upon incarceration. The county keeps inmate funds in a trust account and when an inmate is released, the money in the inmate’s account is transferred to Numi’s partner bank and then the released inmate receives a prepaid debit card loaded with his funds. Numi earns revenue through charging cardholders a $5.95 monthly fee, beginning five days after the card is activated. It also charges fees for ATM withdrawals, balance requests, and customer service interactions. The plaintiff was arrested and the $30.97 in cash on her person was confiscated. Upon her release, she was given a Numi debit card loaded with $30.97 and was charged the $5.95 fee after five days and also charged additional fees. She filed a complaint against Numi on behalf of formerly incarcerated people who received Numi’s debit cards upon release and who paid fees associated with the use or maintenance of those cards. She alleged that Numi violated the EFTA, the Fifth Amendment Takings Clause, and is liable for conversion and unjust enrichment under Oregon state law. The district court granted summary judgment to Numi and the plaintiff appealed.

The Ninth Circuit held that the district court erred in dismissing the plaintiff’s claim under EFTA section 1693l-1, which prohibits charging service fees to "general-use prepaid cards" unless the card has not been used for 12 months and other requirements have been met. It rejected Numi’s argument that section 1693l-1 does not apply because the release cards are not marketed to the general public. The Consumer Financial Protection Bureau commentary acknowledges that a subset of the population may constitute the general public, and "marketing" includes indirect marketing. Numi markets the debit card program to municipalities and correctional facilities and Multnomah County does not give released inmates a choice of whether to accept the card. When inmates are released from jail or prison, they reenter the general public. And when Numi marketed the cards to Multnomah County, they indirectly marketed them to these released inmates. Because Numi marketed their cards to the general public, section 1693l-1 applies.

The court held that Numi was not entitled to summary judgment on the plaintiff’s takings claim or state law claims for conversion and unjust enrichment. The district court held that there was no per se taking (or conversion) because the release cards are the functional equivalent of cash or a check. But the lower court was mistaken in reasoning that the release card is the functional equivalent of cash, because cash would not have deteriorated in value in five days. Because the debit card deteriorates in value quickly and permanently, the district court was incorrect to conclude that the release card is the functional equivalent of cash or of a check.

The court also held that the district court should have granted the inmate leave to file a third amended complaint reinstating her EFTA claims under both section 1693i and section 1693l-1. The parties in this case and others would benefit from a decision by the district court on the merits as opposed to leaving the issue unresolved by denying leave to amend.

The case is No. 18-35735.

Attorneys: Karla Gilbride (Public Justice, PC) and Mark Adam Griffin (Keller Rohrback LLP) for Danica Love Brown. Eric Nystrom (Fox Rothschild LLP) for Stored Value Cards, Inc. d/b/a Numi Financial and Central National Bank and Trust Co.

Companies: Stored Value Cards, Inc. d/b/a Numi Financial; Central National Bank and Trust Co.

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