Almon v. Conduent Bus. Servs.

• Decision Date: 25 March 2022
• Docket Number: SA-19-CV-01075-XR
• Parties: JOE ALMON, JON CARNLEY, CYNTHIA CLARK, JACKIE DENSMORE, JENNIFER KREEGAR, HAROLD MCPHAIL, JB SIMMS, KENNETH TILLMAN, on behalf of themselves and all others similarly situated Plaintiffs v. CONDUENT BUSINESS SERVICES, LLC, COMERICA, INC., COMERICA BANK, Defendants
• Court: U.S. District Court — Western District of Texas

JOE ALMON, JON CARNLEY, CYNTHIA CLARK, JACKIE DENSMORE, JENNIFER KREEGAR, HAROLD MCPHAIL, JB SIMMS, KENNETH TILLMAN, on behalf of themselves and all others similarly situated Plaintiffs v. CONDUENT BUSINESS SERVICES, LLC, COMERICA, INC., COMERICA BANK, Defendants

No. SA-19-CV-01075-XR

United States District Court, W.D. Texas, San Antonio Division

March 25, 2022

ORDER

XAVIER RODRIGUEZ, UNITED STATES DISTRICT JUDGE.

On this date, the Court considered (1) Defendant's motion for summary judgment (ECF No. 62); Plaintiffs' response in opposition (ECF No. 67) and Defendants' reply (ECF No 69); and (2) Plaintiffs' motion for class certification (ECF No. 56); Defendants' response in opposition (ECF No 61); and Plaintiffs' reply (ECF No. 66). After careful consideration, the Court issues the following order.

BACKGROUND

This action arises out of Defendants' administration of the Direct Express program, which provides prepaid debit cards to federal benefit recipients who receive their benefits electronically. Plaintiffs are current and former customers of Defendants Conduent Business Services LLC and Comerica Inc. who assert that unauthorized users withdrew funds from their Direct Express accounts and that Defendants failed to properly respond to the fraudulent transactions, thereby violating the Electronic Fund Transfer Act (“EFTA”), 15 U.S.C. § 1963, et seq., its implementing regulations (“Regulation E”), 12 C.F.R. § 1005.1, et seq., and the Terms of Use that constitute the contract between the parties.

I. The Direct Express Fraud-Reporting Framework

The Direct Express program allows millions of recipients of Americans to receive social security, disability, veterans', and other federal benefits electronically, through a prepaid debit card, rather than by paper check or direct deposit into a bank account. See ECF 56-2 (Direct Express FAQ); ECF No. 61-1, Declaration of Mitch Raymond (hereafter, “Raymond Decl.”) ¶ 5. Comerica, Inc. and Comerica Bank (collectively, “Comerica”) were awarded the contract for this program by the Bureau of the Fiscal Service-U.S. Department of Treasury in 2015 and again in 2020, and have been paid in excess of $415 million for heading the program. See ECF No. 66-1, Taylor Dep. at 38:20-39:24. Comerica, in turn entered into an agreement with Conduent Business Services, LLC (“Conduent”) to administer the Direct Express Program.^[1] ECF No. 56-5, Raymond Dep. at 37:9-18. Each month, Direct Express enrollees automatically receive their benefits via direct deposit to their debit cards.

A. EFTA and Regulation E - Statutory and Regulatory Requirements

Because the Direct Express program involves the use of a debit card that is used to make cashless transactions electronically, it is governed by EFTA and its related regulatory framework, known as “Regulation E”. See 15 U.S.C. § 1693a; 12 C.F.R. § 1005.1 (2016).^[2] Congress enacted the EFTA as part of the comprehensive Consumer Credit Protection Act (the “CCPA”), Pub. L. No. 95-630 § 2001, 92 Stat. 3641 (1978) (codified as amended at 15 U.S.C. § 1601 et seq.). The purpose of EFTA and Regulation E is to establish the rights, liabilities, and responsibilities of participants in electronic fund transfer systems. 15 U.S.C. § 1693(b). “The primary objective of EFTA, however, is the provision of . . . consumer rights.” Id. Accordingly, “[t]he EFTA, like the [Truth in Lending Act (“TILA”)] and other CCPA provisions, is a remedial statute accorded “a broad, liberal construction in favor of the consumer.” Begala v. PNC Bank, Ohio, Nat'l Ass'n, 163 F.3d 948, 950 (6th Cir. 1998) (citations omitted).

The statute provides that the customer must, orally or in writing, notify the institution of any errors relating to electronic fund transfers within 60 days of the customer's receipt of the bank statement or other document detailing the alleged erroneous electronic fund transfer. 15 U.S.C. § 1693f(a). Once the institution is properly notified, the institution is required to “investigate the alleged error, determine whether an error has occurred, and report or mail the results of such investigation and determination to the consumer within ten business days.” Id.

The EFTA includes mandatory requirements in 15 U.S.C. § 1693f and the applicable regulation-12 C.F.R. § 1005.11-including several provisions related to timing. First, Defendants are required to investigate promptly and determine whether an error occurred within ten business days of receiving notice from the cardholder. See 12 C.F.R. § 1005.11(c)(1). Second, if they are unable to complete the investigation within ten business days, they may take up to 45 days to investigate, provided a provisional credit is issued in the amount of the alleged error. Id. at (c)(2). Third, if the error involves an electronic funds transfer that was not initiated within the United States, 90 days are allowed. Id. at (c)(3)(ii). Collectively, these are referred to as the “10/45/90 requirements.”

The financial institution may require written confirmation to be provided to it within ten business days of an oral notification of error if, when the oral notification is made, the consumer is advised of such requirement and the address to which such confirmation should be sent. If the written confirmation is not received within the ten-day period, the financial institution need not provisionally recredit a consumer's account and cannot be held liable for treble damages. See 15 U.S.C. § 1693f(a). If a provisional credit is issued, the consumer is entitled to full use of the provisional funds during the pendency of the investigation. 15 U.S.C. § 1693f(c).

Where the financial institution determines that an error did occur, the EFTA requires that it credit the consumer's account, with interest, within “one business after such determination.” 15 U.S.C. § 1693f(b). Conversely, if after investigation the financial institution determines that an error did not occur, “it shall deliver or mail to the consumer an explanation of its findings within [three] business days after the conclusion of its investigation, and upon request of the consumer promptly deliver or mail to the consumer reproductions of all documents which the financial institution relied on to conclude that such error did not occur.” 15 U.S.C. § 1693f(d).

The institution's failure to comply with these rules gives rise to civil liability pursuant to 15 U.S.C. § 1693m. The EFTA additionally provides for treble damages where the financial institution fails to provisionally recredit a consumer's account within the ten-day period and either (A) did not make a good faith investigation of the alleged error, or (B) did not have a reasonable basis for believing that the consumer's account was not in error. 15 U.S.C. § 1693m(e)(1). A financial institution is also liable for treble damages if it knowingly and willfully concludes that the consumer's account was not in error when such conclusion could not reasonably have been drawn from the evidence available to the financial institution at the time of its investigation. 15 U.S.C. § 1693m(e)(2). Under its contract with Comerica, Conduent is evaluated on whether it complies with the 10-day, 45-day, and 90-day investigation requirements. ECF No. 56-5, Raymond Dep. at 39:17-23. Conduent and Comerica keep detailed records regarding whether Conduent has performed up to these standards. See ECF No. 56-15. B. Terms of Use - Applicable Contractual Provisions

When a debit card is issued through the Direct Express benefits program, it is accompanied by a “Terms of Use” agreement (the “Agreement”). The Agreement details what procedures cardholders should follow if they believe their card has been lost, stolen, or compromised through unauthorized or fraudulent charges. Specifically, the Agreement directs customers to “Call the Customer Service number below or write to us at the address described below as soon as you can if you think an error has occurred in your Card Account.” See ECF No. 31-1 at 2.

The Terms of Use also describe a claim-resolution process that tracks the requirements of the EFTA and Regulation E. Section 9 provides that, in case of errors or questions about transactions, cardholders should call the Customer Service number with the following information:

a. Your name and Card number.

b. Why you believe there is an error, and the dollar amount involved.

c. The approximate date when the error took place.

Id.; see 12 C.F.R. § 1005.11(b)(1)(i)-(iii) (setting forth notice requirements under Regulation E).

Section 8 limits a cardholder's liability with respect to fraudulent or unauthorized transactions on their accounts:

Tell us AT ONCE if you believe your Card or PIN has been lost or stolen. Telephoning us at the Customer Service number is the best way of keeping your possible losses down. You could lose all the money associated with your Card. If you tell us within two business days, you can lose no more than $50 if someone used your Card or PIN without your permission. If you do NOT tell us within two (2) Business Days after you learn of the loss or theft of your Card or PIN, and we can prove that we could have stopped someone from using your Card or PIN without your permission if you had told us, you could lose as much as $500.

If you can't telephone us, you can write to us at Direct Express, Payment Processing Services, P.O. Box 245998, San Antonio, TX 78224-5998. If you are a California resident you will not be liable for the $500 amount described above in any event. If you are a New York resident, your liability for the unauthorized use of the Card will not exceed $50.

ECF No. 31-1 at 2 (emphasis added).

II. Plaintiffs' Experiences with Conduent's Fraud-Reporting Process

Because the specific experiences of the named Plaintif...