Unauthorized EFT?

This is why I love my job.  A member called with an interesting issue.  We don't know the answer, and we don't know that there is an answer.  But it is fascinating, in a compliance kind of way.

The situation. A member opens a joint account with her minor child.  The credit union has a policy whereby they will not issue a debit card to a minor.  Therefore, they issue a debit card just to the mother.  The mother now reports that the daughter has withdrawn $500 at an ATM, and she'd like the credit union to reimburse her via Regulation E's unauthorized EFT provisions.  Regulation E does not really address this situation.

Here are some observations:

• The daughter is joint, so she has a right to all the money.  So where is the harm?
• Is the joint relationship an implicit authority for the daughter to use the card?
• The account is a joint account, not a UTMA.
• The mother is adamant that the transaction was unauthorized.
• How did the daughter get the PIN?

So what's a credit union to do?  I'd love to hear your thoughts.

Comments

[Janice French]

If the Mother gave the card and the PIN to the daughter, it was an authorized EFT. But more to the point, the account is joint and one of the owners withdrew the funds.

[The Compliance Guy]

Mom is claiming that she did not authorize the ATM transaction.

[Dan Veasey]

This is pretty fascinating.

Was there video surveillance at the ATM? Maybe you could see the mother in the background dropping the child off? Our CU caught the person who ran a car into our ATM this way and the video poked several holes in her story.

She could have gotten the PIN from where the mother had written it down in her purse or somewhere like that. Lot's of people don't know their PIN, I'm one of them. Maybe Mom gave child the PIN for an earlier transaction that was authorized?

While it's unfortunate for Mom, I agree with Janice, an owner of the account made a withdrawal. The child could have simply gone inside and requested it without having to "borrow" the ATM card and PIN.

[DJ]

At this point, isn't Mom's only option to press charges against the daughter if she wants the money returned?

[pw]

Yeah that is a hard one. Reg. E's definition of unauthorized EFT focuses on the cardholder (my word, not the Reg) but here CLEARLY state law would allow the joint owner access to the funds. If the duaghter had gone into the branch and asked for $500, she would have gotten it (presuming no two signature requirement or other limitation). I think the only way out would be the Mom's giving or neglegently leaving the card and PIN out or somehow the Mom benfitted from the transaction (another exception making it "authorized").

However, this case does point out the Catch-22 nature of the definition of an unauthroized EFT on joint accounts. Maybe there is language in the account agreement/contract that might help.

[Janice French]

Since the credit union knows who received the funds, they could debit the daughter's account and credit the mother's account.

[C McCreery]

To aid in determining where to go with this dilema, we need to look at how Reg E defines an authorized transaction to understand an unauthorized transaction. Reg E specifically defines an EFT as any transfer of funds that is initiated through an electronic terminal. It further defines that an access device becomes an accepted access device when the consumer requests and receives, or signs, or uses (or authorizes another to use) the access device to transfer money between accounts or to obtain money, property, or services.

If we are to only refer to Reg E's definition of an authorized transaction when deciding whether the daughter rightfully withdrew funds from her account, Reg E says it was an unauthorized transaction because the mother claims she never gave authorization for the card to be used in an ATM transaction. This is further supported by the FI's denial to issue the under-aged daughter a card. You cannot hold an under-age contractuably liable, therefore, the daughter had not agreed to any terms for use of the card and wouldn't be authorized as an account owner from the start. Therefore, the FI must pursue error resolution in the mother's favor.
However, the FI can then follow up with the daughter as joint owner of the account and collect their loss from her under unauthorized use of an ATM card charges. I have found that parents rarely pursue to the end when they realize their child will end up with deeper problems.