Humphrey v. Stored Value Cards, Case No. 1:18-CV-1050

• Court: United States District Courts. 6th Circuit. United States District Court of Northern District of Ohio
• Writing for the Court: JAMES S. GWIN, UNITED STATES DISTRICT JUDGE
• Citation: 355 F.Supp.3d 638
• Parties: Amber HUMPHREY, on Behalf of Herself and the Class, Plaintiff, v. STORED VALUE CARDS, d/b/a Numi Financial, et al., Defendants.
• Docket Number: Case No. 1:18-CV-1050
• Decision Date: 08 January 2019

355 F.Supp.3d 638

Amber HUMPHREY, on Behalf of Herself and the Class, Plaintiff,
v.
STORED VALUE CARDS, d/b/a Numi Financial, et al., Defendants.

Case No. 1:18-CV-1050

United States District Court, N.D. Ohio.

Signed January 8, 2019

355 F.Supp.3d 639

Matthew B. Ameer, Laribee & Hertrick, Medina, OH, Matthew A. Dooley, Ryan M. Gembala, Stephen M. Bosak, O'Toole McLaughlin Dooley & Pecora, Sheffield Village, OH, for Plaintiff.

Daniel S. Blynn, Mary M. Gardner, Gerald S. Sachs, Venable, Washington, DC, George F. Verschelden, Stinson Leonard Street, Kansas City, MO, Jeffrey S. Dunlap, Michael J. Charlillo, David D. Yeagley, Ulmer & Berne, Laura L.W. Schultz, Robert F. Ware, Thompson Hine, Cleveland, OH, for Defendants.

OPINION & ORDER [Resolving Docs. 44, 51]

JAMES S. GWIN, UNITED STATES DISTRICT JUDGE

355 F.Supp.3d 640

Plaintiff Amber Humphrey sues Defendants Stored Bank Cards, doing business as Numi Financial ("Numi"), and Republic Bank & Trust Company ("Republic"). With their complaint, Plaintiffs claim that Defendants violated the Electronic Funds Transfer Act ("EFTA") when the Defendants issued unsolicited debit cards. Plaintiffs say these unsolicited cards then charged fees that Plaintiffs had not agreed to. They allege that this unsolicited card issuance and Defendants' related fees violated EFTA and Ohio law. Defendants move to dismiss the complaint for failure to state a claim¹ and move for summary judgment.²

For the following reasons, the Court DENIES Defendants' motion to dismiss and GRANTS IN PART and DENIES IN PART Defendants' motion for summary judgment.

I. Background

A. Plaintiff Humphrey

In August 2017, Plaintiff Humphrey served a thirty-day drug paraphernalia possession sentence at the Lorain County Jail.³ When she entered the jail, she had sixty dollars cash.⁴ The jail took this money and placed Humphrey's money in an inmate trust account. During her incarceration, Humphrey used some of her inmate trust money to purchase food and hygiene items at the commissary.⁵

When Humphrey was released in September 2017, the jail gave Humphrey an already validated⁶ prepaid debit card with the inmate trust account balance.⁷ The card carried the Numi brand name and Humphrey's funds were put in a Republic bank account.⁸

At her deposition, Plaintiff testified that no one provided her with paperwork stating the card's terms and conditions.⁹

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Plaintiff Humphrey states that she used the card for purchases and then used it to withdraw cash from an ATM.¹⁰

B. Defendants' Prepaid Card Program

Defendant Republic Bank sponsored the prepaid card program. Republic oversees the program, sets the terms of service, and holds and controls the cardholder funds.¹¹ Defendant Numi manages the card program by servicing the cards and markets the program to correctional institutions.

Republic keeps Cardholder funds in a "pooled" operating account.¹² That is, each prepaid card is not connected to an individual account. Instead, a single bank account holds funds for thousands of released inmates.¹³ Individual card expenditures are tracked in a sub-ledger.¹⁴

The prepaid cards charge high fees for taking certain actions. For example, there is a $ 2.95 fee for using an ATM, and a $ 1.50 fee for performing an ATM balance inquiry.¹⁵ The cards also impose fees for inaction; if there is money remaining on the card five days after issuance, Republic charges a $ 5.95 monthly maintenance fee for sitting on the account holder's monies.¹⁶ A cardholder can request a paper check for the account balance at no charge but only if the request is made within the five days the card is issued.¹⁷

Defendant Numi contracts with correctional facilities to distribute prepaid cards to inmates. These Numi correctional facility contracts include provisions requiring the jails provide cardholder terms when jails give the cards to inmates when the inmates are released.¹⁸ Officer Frank Machovina, a Lorain County Jail correctional officer who gave the prepaid cards to released inmates, states that while he does not recall Ms. Humphrey's case in particular, he usually gives the card terms and conditions to each inmate.¹⁹

II. Discussion

A. Legal Standard

Summary judgment is proper where the moving party has "show[n] that there is no genuine dispute as to any material fact and that [they are] entitled to judgment as a matter of law."²⁰ Where the nonmoving party bears the burden of proof at trial, Rule 56 requires plaintiffs "to go beyond the pleadings and by her own affidavits, or by the ‘depositions, answers to interrogatories, and admissions on file,’ designate ‘specific facts showing that there is a genuine issue for trial.’ "²¹ Summary judgment is appropriate where the moving party "point[s] out to the district court" that "there is an absence of evidence to support the nonmoving party's case."²²

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B. The Court Grants in Part and Denies in Part Defendants' Motion for Summary Judgment on Plaintiffs' EFTA Claim

Plaintiffs allege that the inmate prepaid debit card program violates two EFTA provisions: 15 U.S.C. § 1693i, which prohibits the unauthorized issuance of debit cards, and 15 U.S.C. § 1693l-1, which prohibits general-use prepaid card service fees. The Court addresses each claim in turn.

i. Unauthorized Issuance

Plaintiffs bring claims under 15 U.S.C. § 1693i. That provides that

[N]o person may issue to a consumer any card, code, or other means of access to such consumer's account for the purpose of initiating an electronic fund transfer other than-- (1) in response to a request or application therefor; or (2) as a renewal of, or in substitution for, an accepted card, code, or other means of access, whether issued by the initial issuer or a successor.²³

This provision stops the issuance of unsolicited but activated debit cards.

Defendants generally argue that its debit cards are not subject to EFTA's prohibition against the issuance of unsolicited debit cards. Defendant contend that because inmate funds were kept in a pooled account that EFTA does not apply to its card issuance.

EFTA defines "account" as "a demand deposit, savings deposit, or other asset account...as described in regulations of the Bureau, established primarily for personal, family, or household purposes."²⁴ The accompanying regulation, defines "account" as "a demand deposit (checking), savings, or other consumer asset account (other than an occasional or incidental credit balance in a credit plan) held directly or indirectly by a financial institution and established primarily for personal, family, or household purposes."²⁵

With their motions, Defendants argue that the pooled custodial account used for the Plaintiffs' cards is not a "consumer asset account" as defined in the regulation. They offer two arguments in favor of this view, one textual and one historical.

Defendants' textual argument is that an "other consumer asset account" must be an account that is kept for the benefit of a single consumer. Apparently, Defendants reason that "consumer" can only be one individual. Because Plaintiffs' funds were held in a pooled account shared by many inmate cardholders, Defendants contend that the regulation does not apply.

There is simply no textual basis to narrow the regulatory definition this way.²⁶ The adjectival function of the term "consumer" means to limit the account to accounts used for personal, rather than business, purposes.²⁷ The Court is unaware of any dictionary defining the term "consumer" to mean that the account must be held

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one held by a single individual rather than a number of persons.

Further, Defendants' reading is inconsistent with the ejusdem generis canon of statutory interpretation. The term "consumer" appears as a generic term in a series describing asset account types: "demand deposit (checking), savings, or other consumer asset account." When general terms follow specific ones in such a series, the canon dictates that "the general terms are construed to embrace only objects similar in nature to the objects enumerated by the preceding specific words."²⁸

Defendants' interpretation violates the canon because the first two terms in the series—checking and savings—are accounts that can be held jointly. Defendants' interpretation, which would only include individual accounts, makes the general term unlike the terms it follows. Thus, Defendants' textual argument fails.

Defendants' historical argument turns on the Consumer Financial Protection Bureau's ("CFPB") 2016 amendments to Regulation E, EFTA's implementing regulations. These regulations, that will become effective April 1, 2019, add a section to 12 C.F.R. § 1005.2(b) separately defining "prepaid account." Defendants contend that this amendment would be unnecessary if prepaid accounts already fell under...