Recently, the U.S. Court of Appeals for the Sixth Circuit entered an opinion affirming a district court’s dismissal of a credit union’s lawsuit against a cellphone carrier. In this case, the plaintiff’s customers who were subject to a cellphone scam faced unauthorized electronic fund transfers, which the plaintiff reimbursed as required by the EFTA. The plaintiff claimed the defendant inadequately safeguarded its customers and was therefore liable to the plaintiff for indemnification and contribution. The district court dismissed the plaintiff’s complaint, finding it failed to state a claim for indemnification or contribution under the EFTA or state law.

On appeal, the plaintiff presented three arguments for its indemnification and contribution claims: (i) the EFTA implicitly provided these rights; (ii) the Michigan Electronic Funds Transfer Act (MEFTA) supported these claims because it was not preempted by the EFTA; and (iii) the EFTA did not preempt state common-law indemnification claims.

The 6th Circuit held that Congress enacted the EFTA to benefit consumers, not financial institutions, and did not mention a right to indemnification or contribution for financial institutions. Furthermore, the court stated, “the EFTA creates a cause of action for consumers, not financial institutions,” and sometimes allows consumers to seek treble damages. The court, quoting the U.S. Supreme Court, wrote that “[t]he very idea of treble damages reveals an intent to punish past, and to deter future, unlawful conduct, not to ameliorate the liability of wrongdoers.” The court also stated that the plaintiff selectively cited portions of the EFTA to suggest that Congress intended to establish a right for financial institutions to seek indemnification or contribution but failed to identify any specific provisions, structural elements, or legislative history of the EFTA that demonstrated Congress’s intent to do so.

Finally, the 6th Circuit held that the CFPB determined that the EFTA preempted the relevant portions of the MEFTA, which made customers liable for unauthorized transactions due to their negligence. Because the plaintiff was not liable under MEFTA, the court found that it had no claim for state law indemnification or contribution.