EFTA’s Bona Fide Error Defense Reaches Factual Investigation Errors and Shields § 1693f/§ 1693g Claims Brought via § 1693m (Second Circuit Summary Order)

EFTA’s Bona Fide Error Defense Reaches Factual Investigation Errors and Shields § 1693f/§ 1693g Claims Brought via § 1693m (Second Circuit Summary Order)

Case: Sari E. Newman v. JPMorgan Chase Bank, N.A., No. 24-1914-cv (2d Cir. Nov. 13, 2025) (summary order)

Court: United States Court of Appeals for the Second Circuit

Panel: Parker, Lee, and Kahn, JJ.

Disposition: Affirmed (summary judgment for Chase)

Note: This is a summary order under FRAP 32.1 and Local Rule 32.1.1; it has no precedential effect but may be cited as persuasive authority.

Introduction

This consumer-banking dispute under the Electronic Fund Transfer Act (EFTA), 15 U.S.C. § 1693 et seq., addresses when a financial institution can avoid civil liability after mishandling an unauthorized-transfer claim. Plaintiff-Appellant Sari E. Newman alleged a series of unauthorized ACH debits totaling $46,975 from her Chase savings account to an account at Aspiration Financial LLC. Chase provisionally credited a portion, later denied Newman’s claim after receiving an ACH authorization with a purported e-signature, and ultimately reimbursed the remaining balance with interest after she filed suit.

The core legal issue on appeal was whether Chase could invoke the EFTA’s “bona fide error” defense, § 1693m(c), to defeat Newman’s private damages action premised on alleged violations of EFTA’s error-resolution (§ 1693f) and reimbursement/consumer-liability provisions (§ 1693g). Newman also urged the court to recognize emotional-distress damages under the EFTA. The Second Circuit affirmed the district court’s grant of summary judgment to Chase based on the bona fide error defense and declined to reach the question of emotional-distress damages.

Summary of the Opinion

  • Facts and posture: After 25 unauthorized ACH transfers totaling $46,975, Chase initially issued a provisional credit of $38,975 but withheld $8,000 tied to transactions occurring more than 60 days after the first account statement reflecting them (invoking the EFTA’s 60‑day rule in § 1693g(a)(2)). During its investigation, Chase received an ACH authorization form from Aspiration bearing a purported electronic signature for Newman and—based on that—denied her claim. Aspiration then returned $14,000, which Chase credited to Newman’s account. Newman sued under the EFTA.
  • Subsequent reimbursement: After suit was filed, Chase reimbursed the entire remaining outstanding balance ($32,975) plus interest, and acknowledged its earlier denial resulted from a deviation from Chase’s standard expectations and policies.
  • District court ruling: The district court granted summary judgment to Chase, concluding the bank satisfied the EFTA’s bona fide error defense in § 1693m(c).
  • Issues on appeal: Newman argued the district court focused on § 1693f procedures and overlooked § 1693g’s reimbursement obligation; and that emotional-distress damages should be available. She did not challenge the district court’s factual findings that Chase met the elements of the bona fide error defense.
  • Holding: The Second Circuit affirmed. Because Newman’s private cause of action is brought under § 1693m(a), § 1693m(c)’s bona fide error defense applies to her alleged violations (of §§ 1693f and 1693g), shielding Chase from damages liability. The court rejected the argument that the defense is confined to “clerical” mistakes, citing Jerman v. Carlisle to confirm it extends to factual errors. The panel expressly declined to decide whether § 1693m(c) could absolve a bank from an ultimate reimbursement obligation under § 1693g and did not reach whether emotional-distress damages are available.

Numeric note: The order contains an apparent typographical discrepancy when describing the “remaining balance” denied; the subsequent paragraph clarifies Chase later reimbursed the full remaining $32,975 plus interest. The arithmetic is consistent with an outstanding balance of $32,975 before that reimbursement.

Analysis

Precedents and Authorities Cited

  • Statutory framework:
    • 15 U.S.C. § 1693(b): States the EFTA’s purpose and framework.
    • § 1693m(a): Creates the private cause of action for noncompliance with the EFTA (“any person who fails to comply with any provision of this subchapter … is liable”).
    • § 1693m(c): Bona fide error defense: a defendant is not liable if it shows the violation was unintentional, resulted from a bona fide error, and occurred notwithstanding procedures reasonably adapted to avoid such errors, except as to claims under § 1693h.
    • § 1693f: Error-resolution duties, including investigation and timelines for provisional credit and final resolution.
    • § 1693g: Consumer liability for unauthorized electronic fund transfers; includes the 60‑day notice rule affecting liability for subsequent unauthorized transfers.
    • § 1693h: Carved out from § 1693m(c)’s defense; the plaintiff did not assert a claim under this section.
  • Supreme Court authority:
    • Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 559 U.S. 573, 594–95 (2010): While interpreting the Fair Debt Collection Practices Act’s similarly worded bona fide error defense, the Supreme Court distinguished between errors of law (not covered) and clerical/factual errors (covered). The Second Circuit invoked Jerman to reject Newman’s argument that § 1693m(c) is confined to clerical errors; factual investigation mistakes may qualify.
  • District court decisions cited by Newman (distinguished):
    • Daye v. Community Financial Service Centers, 233 F. Supp. 3d 946, 1016 (D.N.M. 2017): Bona fide error defense unavailable where a financial institution’s policies themselves violate the EFTA. The Second Circuit found those circumstances absent here.
    • Kelsey v. Pitsch Cos., 2015 WL 3604437, at *2 (W.D. Mich. June 8, 2015): Defense inapplicable where the defendant failed to show it satisfied the defense’s elements. Here, Newman did not challenge the district court’s factual findings that Chase did meet those elements.

Legal Reasoning

  1. Scope of the cause of action and defense under § 1693m:
    • The court emphasized that Newman’s private claim is brought under § 1693m(a), which encompasses any alleged violation of the EFTA, including §§ 1693f and 1693g, and which expressly contains the bona fide error defense in § 1693m(c).
    • Because § 1693m(c) applies to “any action brought under this section” except for claims under § 1693h (not alleged here), the defense is available to Chase for the asserted violations.
  2. Defense is not limited to “clerical” mistakes:
    • Rejecting Newman’s narrow reading, the panel noted § 1693m(c) does not use the word “clerical,” and the Supreme Court’s reasoning in Jerman recognizes the defense can extend to factual errors.
    • Here, the asserted error was a factual investigation mistake: the Chase investigator erroneously relied on an ACH authorization with a purported e-signature, leading to a wrongful claim denial. Such errors are not categorically excluded from § 1693m(c).
  3. Uncontested satisfaction of defense elements:
    • The district court found Chase had policies and procedures reasonably adapted to avoid the type of error at issue and that the violation was unintentional and the product of a bona fide error. On appeal, Newman did not challenge those factual findings, effectively conceding the record-supported basis for the defense.
  4. Addressing § 1693g’s “reimbursement obligation” argument:
    • Newman argued § 1693g independently imposes an “ultimate liability” obligation on financial institutions for unauthorized transfers that cannot be undone by § 1693m(c).
    • The panel focused on the procedural posture: Newman sought damages through § 1693m, and § 1693m(c) provides an affirmative defense to such actions. That defense therefore “shields Chase from liability for all of Newman’s claims.”
    • Importantly, the court expressly did not decide whether § 1693m(c) could ever relieve a bank from the ultimate statutory obligation to reimburse under § 1693g. That question was not presented because Chase had already reimbursed Newman during the case.
  5. Emotional-distress damages:
    • Given the disposition on the bona fide error defense, the panel did not reach whether emotional-distress damages are available as “actual damages” under § 1693m(a). The availability of such damages thus remains an open question in the Second Circuit after this order.

Impact and Implications

Although non-precedential, the order is a meaningful data point for EFTA litigation in the Second Circuit:

  • Defense scope clarified: Banks can invoke § 1693m(c)’s bona fide error defense against private EFTA claims premised on § 1693f (investigation and provisional-credit duties) and § 1693g (consumer liability/recredit obligations), so long as the action is brought under § 1693m(a) and does not arise under § 1693h. This frames § 1693m(c) as a broad shield for unintentional, procedure-resistant factual errors.
  • Factual vs. clerical errors: The order confirms that categorically limiting § 1693m(c) to “clerical” mistakes is untenable; factual investigation mistakes can qualify, consistent with Jerman’s analysis of analogous statutory language.
  • Importance of compliance systems: The decisive point here was the unchallenged finding that Chase maintained procedures reasonably adapted to avoid the error. Institutions should document training, escalation paths, verification protocols (especially when third-party “authorizations” are presented), and timely remedial measures. Plaintiffs, by contrast, should directly challenge the adequacy of those procedures.
  • Unresolved questions preserved:
    • Ultimate reimbursement under § 1693g: The panel expressly left open whether § 1693m(c) could ever relieve a bank of the underlying statutory obligation to recredit funds under § 1693g. Future cases could confront this head-on when reimbursement has not occurred.
    • Emotional-distress damages: The court did not decide whether “actual damages” under § 1693m(a) include emotional distress. District courts have diverged; the issue remains unsettled at the circuit level.
  • Litigation strategy:
    • For plaintiffs: To defeat § 1693m(c), develop record evidence that the bank’s systems were not “reasonably adapted” to avoid the particular error, that the violation was intentional, or that the asserted error is legal (not factual/clerical) in nature. Consider whether claims may fit within § 1693h’s carveout (to which § 1693m(c) does not apply), where applicable.
    • For defendants: Proactively marshal detailed evidence of written policies, training, audits, technological controls, and post-incident remediation, and, where appropriate, cure monetary harm promptly to narrow the live controversy and moot collateral issues.

Complex Concepts Simplified

  • ACH transfers: Automated Clearing House debits electronically move money between bank accounts. Unauthorized ACH debits are those initiated without the account holder’s authorization.
  • Provisional credit: During an EFTA/Regulation E investigation, banks often issue a temporary credit while they investigate, subject to reversal if the bank ultimately determines no error occurred.
  • 60‑day rule (§ 1693g(a)(2)): If a consumer fails to notify the bank of an unauthorized EFT within 60 days after the bank transmits the statement showing the first unauthorized transfer, the consumer may bear losses from subsequent unauthorized transfers after that 60‑day window. This affects how much a bank must recredit.
  • § 1693f vs. § 1693g:
    • § 1693f imposes procedural duties: a timely investigation, reporting results, and, when applicable, provisional crediting.
    • § 1693g allocates liability for unauthorized transfers, including the consumer’s duties to promptly review statements and report errors to limit losses.
  • § 1693m(a) and (c): § 1693m(a) is the mechanism for private suits for EFTA violations. § 1693m(c) is the bona fide error defense: a defendant is not liable if it shows (1) the violation was unintentional, (2) resulted from a bona fide error, and (3) occurred despite procedures reasonably adapted to prevent the error. The defense does not apply to claims under § 1693h and does not cover mistakes of law (by analogy to Jerman), but can encompass clerical and factual mistakes.
  • Summary judgment: A court may grant judgment without trial when there is no genuine dispute of material fact and the movant is entitled to judgment as a matter of law. On appeal, unchallenged factual findings supporting a dispositive defense (as here) are typically conclusive.
  • Electronic signatures as authorization evidence: In unauthorized-transfer disputes, banks sometimes receive documents from counterparties purporting to show consumer authorization, including e-signatures. The adequacy of bank procedures to verify the authenticity and reliability of such documents can be outcome-determinative for the bona fide error defense.

Conclusion

This Second Circuit summary order confirms that the EFTA’s bona fide error defense under § 1693m(c) is robust and available to banks facing private actions premised on alleged violations of § 1693f and § 1693g, not just “clerical” missteps. Factual investigation errors may qualify for the defense where the bank demonstrates the violation was unintentional and occurred despite procedures reasonably adapted to avoid such errors. The court’s reasoning centers the cause of action in § 1693m, making § 1693m(c) the operative defense to most privately asserted EFTA violations other than those under § 1693h.

Two important questions remain open for a precedential future case: whether § 1693m(c) can ever absolve the ultimate statutory recredit obligation under § 1693g, and whether emotional-distress damages are available as “actual damages” under § 1693m(a). In the meantime, this decision underscores a practical message for institutions and consumers alike: robust, well-documented investigation procedures are pivotal, and the party who fails to develop the record on the bona fide error elements risks losing at summary judgment.

Case Details

Year: 2025
Court: Court of Appeals for the Second Circuit

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