Question

4. Unauthorized Fund Transfers.

FACTS: Lawrence Kruser and his wife maintained a joint checking account with the Bank of America. The bank issued to each of them a “Versatel” card and separate personal identification numbers so that they could access funds in their account from automated teller machines (ATMs). The Krusers believed that Mr. Kruser’s card had been destroyed in September 1986. The December 1986 account statement mailed to the Krusers by the bank, however, reflected a $20 withdrawal of funds by someone using Mr.Kruser’s card at an ATM. Mrs. Kruser underwent surgery in December 1986 and was in the hospital for eleven days. She spent the following months recuperating from the surgery. She therefore failed to examine the December bank statement promptly and did not discover the unauthorized December withdrawal until August or September of 1987, at which time she reported it to the bank. In September 1987, the Krusers received bank statements for July and August of 1987, which reflected forty-seven unauthorized withdrawals, totaling $9,020, made from an ATM by someone using Mr. Kruser’s card. They notified the bank of these withdrawals within a few days of receiving the statements.

ISSUE: Is the bank liable to the Krusers for the unauthorized withdrawals? Discuss.

RULE/RESOLUTION: [Kruser v. Bank of America NT & SA, 230 Cal.App.3d 741, 281 Cal.Rptr. 463 (1991)] How did the court answer the questions? What did the court decide?

EXPLANATION/APPLICATION-Do you agree with the court? Why or why not? Can you change any facts to give a different result?

Answer 1

Stone, Associate Justice   The ultimate issue we address is whether, as a matter of law, the unauthorized $20 withdrawal which appeared on the December 1986 statement barred the Krusers from recovery for the losses incurred in July and August 1987. Resolution of the issue requires the interpretation of the EFTA and section 205.6 of Regulation E, one of the regulations prescribed by the Board of Governors of the Federal Reserve System in order to carry out the EFTA.

Section 205.6 of Regulation E mirrors [the EFTA] and in particular provides:

(b) Limitations on the amount of liability. The amount of a consumer's liability for an unauthorized electronic fund transfer or a series of related unauthorized transfers shall not exceed $50 or the amount of unauthorized transfers that occur before notice to the financial institution . . . whichever is less, unless one of the following exceptions apply:

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(2) If the consumer fails to report within 60 days of transmittal of the periodic statement any unauthorized electronic fund transfer that appears on the statement, the consumer's liability shall not exceed the sum of (i) The lesser of $50 or the amount of unauthorized electronic fund transfers that appear on the periodic statement during the 60-day period and (ii) The amount of unauthorized electronic fund transfers that occur after the close of the 60 days and before notice to the financial institution and that the financial institution establishes would not have occurred but for the failure of the consumer to notify the financial institution within that time.

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(4) If a delay in notifying the financial statements was due to extenuating circumstances, such as extended travel or hospitalization, the time periods specified above shall be extended to a reasonable time.

The trial court concluded the Bank was entitled to judgment as a matter of law because the unauthorized withdrawals of July and August 1987 occurred more than 60 days after the Krusers received a statement which reflected an unauthorized transfer in December 1986. The court relied upon section 205.6(b)(2) of Regulation E.

The Krusers contend the December withdrawal of $20 was so isolated in time and minimal in an amount that it cannot be considered in connection with the July and August withdrawals. They assert the court's interpretation of section 205.6(b)(2) of Regulation E would have absurd results which would be inconsistent with the primary objective of the EFTA—to protect the consumer. They argue that if a consumer receives a bank statement which reflects an unauthorized minimal electronic transfer and fails to report the transaction to the bank within 60 days of transmission of the bank statement, unauthorized transfers many years later, perhaps totaling thousands of dollars, would remain the responsibility of the consumer.

The result the Krusers fear is avoided by the requirement that the bank establish the subsequent unauthorized transfers could have been prevented had the consumer notified the bank of the first unauthorized transfer. Here, although the unauthorized transfer of $20 occurred approximately seven months before the unauthorized transfers totaling $9,020, it is undisputed that all transfers were made by using Mr. Kruser's card which the Krusers believed had been destroyed prior to December 1986. According to the declaration of Yvonne Maloon, the Bank's Versatel risk manager, the Bank could have and would have canceled Mr. Kruser's card had it been timely notified of the December unauthorized transfer. In that event Mr. Kruser's card could not have been used to accomplish the unauthorized transactions in July and August.

In the alternative, the Krusers contend the facts establish that Mrs. Kruser, who was solely responsible for reconciling the bank statements, was severely ill and was also caring for a terminally ill relative when the December withdrawal occurred. Therefore they claim they were entitled to an extension of time within which to notify the bank.

The evidence the Krusers rely upon indicates in late 1986 or early 1987 Mrs. Kruser underwent surgery and remained in the hospital for 11 days. She left her house infrequently during the first six or seven months of 1987 during which she was recuperating. Mrs. Kruser admits, however, she received and reviewed bank statements during her recuperation. Therefore, we need not consider whether Mrs. Kruser's illness created circumstances which might have excused her failure to notice the unauthorized withdrawal pursuant to the applicable sections. She in fact did review the statements in question.

Judgment for Bank of America affirmed.