A California federal court has found that a lender violated the Electronic Fund Transfer Act (EFTA) by requiring borrowers to use ACH (Automated Clearing House) network transfers to make loan payments, even though the lender allowed borrowers to opt out of ACH payment at any time.
In Eduardo De La Torre, et al. v. CashCall, Inc., the U.S. District Court for the Northern District of California found in favor of the plaintiffs on their class action EFTA claim, basing their ruling on clear evidence that the defendant selectively made loans to borrowers who agreed to repaying their loans through electronic funds transfers.
Section E of the EFTA prohibits lenders from making repayment by preauthorized electronic funds transfers a condition of the loan. Citing the 2013 decision by a South Dakota federal court in FTC v. Payday Financial LLC, the court rejected CashCall’s argument that it did not violate the EFTA because it provided borrowers with the option to cancel authorization, even before the first payment was made. In its ruling, the Court noted that CashCall’s “loan application and loan agreement forms do not state that a consumer need not consent to EFT to obtain a loan from CashCall or explain how a consumer could obtain a loan from CashCall without consenting to EFT. To the contrary, checking the EFT Authorization box was a mandatory prerequisite to obtaining a loan.”
In addition, the Court held that the statutory prohibition is clear and that an EFTA violation “occurs at the moment of conditioning—that is, the moment the creditor requires a consumer to authorize EFT as a condition of extending credit to the consumer.”
The Court granted summary judgment to the plaintiffs on the EFTA claim as well as a claim that CashCall had violated the Unfair Competition Law.
This latest ruling makes it clear that creditors should provide borrowers with repayment alternatives before or at the time of loan origination. While lenders can encourage the use of EFTs in making loan repayments, they cannot make it a condition of the loan.
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