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Kibler Fowler & Cave’s Financial Services Litigation practice group defended a fintech bank against class allegations that it violated portions of the Electronic Fund Transfer Act, which regulate a financial institution’s response to unauthorized transactions reported by consumers. KF&C aggressively defended the bank against these allegations, twice moving to dismiss the case. Shortly after KF&C prevailed on a motion to dismiss—and before the class certification stage—the parties reached a confidential settlement.

In March 2022, a customer brought a class action lawsuit against Daylight, a digital bank, alleging that it failed to comply with the federal EFTA after he challenged a $500 charge by a hotel where he stayed as unauthorized. The customer alleged that in his case and others Daylight did not comply with EFTA’s Regulation E, which generally requires financial institutions to investigate consumer “error” reports (e.g., unauthorized transactions), notify consumers of the results of such investigations, and, in many cases, provisionally credit their accounts. The hotel alleged that the charge was authorized and necessary to cover extensive damage caused by a cat the consumer had smuggled into his room.

KF&C immediately moved to dismiss the plaintiff’s claims against Daylight. KF&C argued that the plaintiff failed to plausibly plead that the transaction was unauthorized and therefore could not have triggered Regulation E’s “error” report procedures. KF&C also pointed out that the plaintiff never disputed that the cat caused extensive damage to the hotel room. This motion prompted the plaintiff to amend the complaint. After amendment, KF&C again moved to dismiss the case on the same grounds.

In October 2022, the Honorable Fred W. Slaughter of the U.S. District Court for the Central District of California dismissed most of the plaintiff’s claims. In a highly technical 20-page ruling (see here), Judge Slaughter stated that the First Amended Complaint never “actually allege[d] [the plaintiff] or his feline companion did not cause the damage which the Transaction purportedly covers…,” concluding that “the FAC does not plausibly allege an ‘unauthorized’ transaction.”

Shortly after this favorable early ruling, Daylight and the plaintiff reached a confidential settlement. As for the plaintiff’s “feline companion,” it eluded the long paw of justice without a scratch.

The KF&C team includes Partner Matt Cave, Partner John Fowler, Associate Zien Halwani, Senior Litigation Paralegal Samantha Ahlheim, and Paralegal Praveeta Garcia.