District Court (Wash.) Says Reg. E/EFTA Does Not Require Bank to Provisionally Review Checking Account after Notice from Depositor

The implementing regulations of the Electronic Fund Transfer Act (“EFTA”), 15 U.S.C. § 1693, et seq., commonly known as “Regulation E,” broadly deal with the “basic rights, liabilities, and responsibilities of consumers who use electronic fund transfer and financial institutions that offer these services.” 12 C.F.R. § 205.1. The EFTA and Regulation E establish procedures that banks must follow in resolving transfer-related errors that are reported by consumers. See 15 U.S.C. § 1693f; 12. C.F.R. § 205.11. Under the EFTA, “any person who fails to comply with any provision of this subchapter with respect to any consumer, except for an error resolved in accordance with section 1693f of this title, is liable to such consumer.” 15 U.S.C. § 1693m(a). A transfer “error” includes an unauthorized or incorrect electronic fund transfer from the consumer’s account. See 15 U.S.C. § 1693f(f)(1)–(2); 12 C.F.R. § 205.11(a)(1)–(2).   Within 60 days of a transfer error being reflected in a consumer’s account statement, the consumer must provide the financial institution with either oral or written notification of the error. 12 C.F.R. § 205.11(b)(1). The notice must “[e]nable[ ] the institution to identify the consumer’s name and account number; and … indicate[ ] why the consumer believes an error exists and include[ ] to the extent possible the type, date, and amount of the error, except for requests described in paragraph (a)(1)(vii) of this section.” 12 C.F.R. § 205.11(b)(1)(ii)–(iii).  Upon receiving such notice, a financial institution:  “Shall investigate promptly and … shall determine whether an error occurred within 10 business days of receiving a notice of error. The institution shall report the results to the consumer within three business days after completing its investigation. The institution shall correct the error within one business day after determining that an error occurred.” 12 C.F.R. § 205.11(c)(1). A financial institution may also take up to 45 days to conduct its error investigation, provided that it “[p]rovisionally credits the consumer’s account in the amount of the alleged error (including interest where applicable) within 10 business days of receiving the error notice.” 12 C.F.R. § 205.11(c)(2)(A).  McClellon seems to allege that Capital One violated Regulation E by failing to provisionally credit his checking account after he informed it of the allegedly fraudulent transactions. (See generally Dkt. No. 11.) The amended complaint does not contain sufficient facts to support McClellon’s Regulation E claim. Contrary to McClellon’s assertions, a bank is required to provisionally credit a consumer’s account only if it is unable to complete its error investigation within 10 days. See 12 C.F.R. § 205.11(c)(2)(A). Simply providing notice of a transfer error, as McClellon allegedly did, did not necessarily obligate Capital One to provisionally credit his account, but only to conduct a timely investigation and correct the alleged error.  The amended complaint does not contain any allegations about whether Capital One conducted a timely investigation into the reported errors. (See generally Dkt. No. 11.) Nor does McClellon assert that Capital One failed to correct the alleged errors within the timelines outlined in Regulation E. (Id.) In other words, the amended complaint fails to allege facts demonstrating that Capital One was obligated to provisionally credit McClellon’s account. While McClellon asserts that Capital One had “honored and paid prior fraud claims,” the bank’s past conduct does not require it to provisionally credit McClellon’s under Regulation E. (Dkt. No. 11 at 3.)  For those reasons, the Court DISMISSES McClellon’s Regulation E claim without prejudice and with leave to amend. Dismissal without prejudice is appropriate because McClellon could potentially cure his claim by alleging additional facts demonstrating that Capital One is liable to him under the EFTA and Regulation E.