A scam called "SIM Swap" victimized a telephone company, enabling scammers to access the data of numerous subscribers of the telephone company, including the subscribers’ bank details. The scammers used these bank details to make unauthorized financial transactions. As a result, the subscribers then contacted their banks to challenge the unauthorized charges. Under the Electronic Funds Transfer Act (EFTA), the bank had to reimburse numerous customers for unauthorized electronic fund transfers due to the SIM Swap scam. The bank filed a suit against the telephone company, claiming that it was entitled to indemnification and contribution from the telephone company, which had failed to safeguard its subscribers from the scam. In response, the telephone company moved to dismiss the claims, arguing that (1) neither indemnification nor contribution is permitted under the EFTA; (2) the Michigan Electronic Funds Transfer Act (MEFTA) is “expressly preempt[ed] by the EFTA; and (3) state common-law claims for indemnification or contribution are preempted by the EFTA. The district court granted the telephone company’s motion to dismiss. The bank appealed to the Sixth Circuit.
In Mich. First Credit Union v. T-Mobile USA, Inc., 108 F.4th 421 (6th Cir. 2024), the Sixth Circuit affirmed the district court's dismissal. The court reasoned that by looking at the plain language and purpose of the EFTA, it was clear that the EFTA does not contain an express or implied right to indemnification or contribution. Congress passed the EFTA to benefit and “protect individual consumer rights,” not financial institutions. Additionally, the court found no basis in federal common law to provide for an indemnification or contribution claim in an EFTA action. Next, the Consumer Financial Protection Bureau (CFPB), the entity responsible for making EFTA preemption determinations, already recognized that the EFTA preempts the provisions of the MEFTA that may impose liability on negligent customers for unauthorized transactions. Therefore, the bank was not liable for failing to comply with MEFTA due to the preemption. The court noted that this defeated the bank's claims since, under state law, a plaintiff has no right to indemnification or contribution if it is not liable in the underlying action. Finally, the court recognized that federal law preempts state law, and allowing the bank to pursue a state-law claim for liability suffered under federal law contradicted the EFTA's purpose and its existing comprehensive scheme.
By Faith Collins: [email protected]
Edited By Kristin Meurer: [email protected]
Edited By Ashley Boyce: [email protected]
Edited By Hayden Mariott: [email protected]