The customer was a customer of the bank. Scammers, posing as prospective employers, tricked the customer into sending the scammers money via Zelle, a money transaction app. Rather than use the money to buy work equipment for the customer, as promised, the scammers kept the money for themselves. The customer informed the bank of this issue and requested that the bank reimburse her for they money the scammers stole from her, but the bank refused. The customer sued the bank asserting six claims: false advertising, both under California’s Unfair Competition Law (“UCL”) and False Advertising Law (“FAL”), breach of contract, negligence, unjust enrichment, and violation of The Electronic Fund Transfer Act (“EFTA”).
In Sanchez v. Navy Fed. Credit Union, No. EDCV23285JGBKKX, 2023 WL 6370235, 2023 U.S. Dist. LEXIS 142817 (C.D. Cal. Aug. 14, 2023) (opinion not yet released for publication), the court dismissed all the customer’s claims. Regarding the false advertising claims, the customer claimed that the bank’s advertising that Zelle transactions were “backed by the banks” falsely suggested that the bank would reimburse the customer for fraudulent transactions the customer made on Zelle. The customer also claimed that the bank’s claims that Zelle was “safe and secure” misled the customer into believing that Zelle was relatively free of scammers. Additionally, she alleged that the bank falsely advertised by failing to disclose the massive risk of fraud on Zelle. However, both these claims failed to make a claim for fraudulent advertising as a matter of law, the court concluded. The phrase “backed by the banks” meant that the service was supported or upheld by the banks. To believe that such a statement suggested that the bank would reimburse the customer was unreasonable as a matter of law. Regarding “safe and secure transactions,” the service worked as advertised: the customer safely and securely transferred money to the intended recipient. That the customer was deceived into sending money does not mean that the service was unsafe or unsecure. On the contrary, Zelle stressed that it was to be used only to transfer money to people the recipient knows. The customer’s improper use of the service did not mean that the bank misled the customer by advertising Zelle to be safe and secure.
Regarding the breach of contract claims, the customer argued that her contract with the bank included a provision in which the bank would reimburse the customer for “fraud losses incurred on debit-card linked Zelle transactions.” However, the contract only provided that the bank would reimburse the customer for “unauthorized” transactions. While the scammers had deceived the customer into authorizing the transaction, the customer did authorize the transaction.
Regarding the negligence claims, the court held that the customer could not recover due to the economic loss rule, under which courts bar claims for economic loss unaccompanied by physical injury. As the customer claims were purely economic in nature, she must sue using a contract claim, not a tort claim. The one negligence claim the customer made that may not have been included as a contract claim was a claim that the bank negligently failed to protect the customer’s information, which was dismissed due to a lack of evidence. The plaintiff also alleged the bank had been negligent under the EFTA, UCL, and FAL, but because the customer’s EFTA, UCL, and FAL claims failed, she could not recover under negligence under the aforementioned statutes.
Regarding the unjust enrichment claim, the court dismissed the claims for two reasons. One reason was that the customer claimed unjust enrichment under the EFTA. Because the customer’s EFTA claim failed, so did the customer’s unjust enrichment claim under the EFTA. Additionally, unjust enrichment causes of action are only valid in situations in which there is no valid contract between the parties. Because the customer and the bank had a valid contract, the customer could not recover under unjust enrichment.
Last, the customer’s EFTA claim was dismissed because the EFTA “imposes a general duty on financial institutions to take certain actions when a consumer reports an “error.”” An “error” under the EFTA refers to “incorrect” or “unauthorized” transactions. A transaction is incorrect when the amount sent or the recipient is wrong, while a transaction is unauthorized if it is performed without the account owner’s knowledge or consent. Because the customer’s transaction was to the intended recipient, in the intended amount, with the customer’s knowledge and consent, the transaction was neither incorrect or unauthorized.
By: The Editors