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Neal v. Pentagon Federal Credit Union

United States District Court, D. Maryland

August 27, 2019

TIFFANY NEAL Plaintiff,
v.
PENTAGON FEDERAL CREDIT UNION, Defendant.

          MEMORANDUM OPINION

          ELLEN L. HOLLANDER UNITED STATES DISTRICT JUDGE.

         In this case, the Court considers whether a federal credit union was entitled to recoup approximately $3, 500 in overdue loan payments from its depositor by withdrawing funds from the customer's deposit account. The funds in the account derived from “Veterans disability benefits” paid to the depositor to “compensate [her] for [her] impaired earning capacity . . . .” ECF 13, ¶ 1.

         Plaintiff Tiffany Neal, a disabled veteran, filed a class action suit against Pentagon Federal Credit Union (“PenFed”), defendant. ECF 1. In a “First Amended Class Action Complaint” (ECF 13, “Amended Complaint”), Neal alleges that PenFed unlawfully withdrew disability benefits from her PenFed account to offset Neal's overdue loan payments.[1]

         The Amended Complaint contains eleven causes of action, [2] of which two remain: “Breach of Contract” under Maryland law (Count II), and “Violation of the Electronic Funds Transfers Act (‘EFTA') 15 U.S.C. § 1693 et seq.” (Count IX).[3]

         PenFed has filed an “Amended Answer and Counterclaim.” ECF 23 (the “Counterclaim”).[4] The Counterclaim contains four counts: “Breach of Contract-Overdrafts” (Count I); “Breach of Contract-Credit Card” (Count II); “Breach of Contract-Personal Loan” (Count III); and “Attorney Fees” (Count IV). Id. ¶¶ 15-23. In sum, PenFed alleges that Neal has defaulted on her repayment obligations and owes PenFed a total of $45, 102.67, plus attorney's fees and costs. Id. at 17.

         Now pending is PenFed's pre-discovery motion for summary judgment, filed with respect to plaintiffs' claims in Counts II and IX, and as to Counts I through III of the Counterclaim. ECF 24 (the “Motion”). The Motion is supported by several exhibits. ECF 24-2 - ECF 24-11. These include the Declaration of John Dorn (ECF 24-2, “Dorn Declaration”), who is employed by PenFed as Vice President of Collections. Id. ¶ 3. Dorn attests that as a result of his position, he has access “to PenFed's files related to accounts” held by Neal. Id. ¶ 4. The files are appended as exhibits to Dorn's Declaration.[5] Plaintiff opposes the Motion (ECF 29, “Opposition”), and has submitted one exhibit. ECF 29-1 (Plaintiff's Declaration). PenFed has replied. ECF 30 (“Reply”).

         No. hearing is necessary to resolve the Motion. See Local Rule 105.6. For the reasons that follow, I shall grant the Motion (ECF 24) with respect to Counts II and IX of the Amended Complaint. And, I shall grant in part and deny in part the Motion with respect to Counts I, II, and III of the Counterclaim.

         I. Factual Background

         Neal is a 100% disabled, honorably discharged veteran of the United States Army. ECF 13, ¶ 10. PenFed is a “United States federal credit union headquartered in McClean, Virginia, chartered and regulated under the authority of the National Credit Union Administration.” Id. ¶ 11. It provides loans, savings and deposit accounts, credit cards, and other financial services to veterans. Id. ¶ 12.

         In September 2002, while Neal was on active duty, she opened an account with PenFed. ECF 29-1, ¶ 2; ECF 13, ¶ 14. Since then, “Neal has maintained several accounts” with PenFed, including two deposit accounts. ECF 13, ¶ 15. One account ends in “8016, ” and is a “Regular Share account.” Id. The other account ends in “8029” and is referred to as a “PenCheck Access” account. Id.

         Whie Neal was on active duty, she received her wages by direct deposit to her PenFed deposit account. ECF 29-1 (Neal Affidavit), ¶ 3. Thereafter, Neal's Veteran disability benefits were deposited into the PenFed account ending in 8016. ECF 13, ¶ 16. As of June 2017, the monthly benefit was about $3, 282.00. Id. ¶ 23.

         Neal also has two loan accounts with PenFed. Id.¶ 18. One is a “Signature loan account ending in 1702” and the other is “Thrifty Credit Service ending in 7776.” Id. ¶ 18.

         Plaintiff alleges that, due to “sudden health emergencies, ” she “ended up defaulting on her monthly payments to PenFed on the loan accounts.” Id. ¶ 21. However, she claims that she never “[s]pecifically authorize[d] electronic funds transfer and/or assignment of her disability benefits” to defendant “in the event of a default . . . .” Id. ¶ 20.

         When Neal opened her first account with PenFed in 2002, she signed and submitted a “Membership Application/Signature Card” to PenFed. ECF 24-3 (“Membership Application”). Above the signature line, the Membership Application stated, in pertinent part: “I hereby make application for membership in the Pentagon Federal Credit Union. I have read the attached Membership and Account Agreements and, if accepted, I agree to comply with these terms and any amendments thereto, and to subscribe to at least one share.” ECF 24-3 at 3.

         Significantly, the attached “Membership Disclosures” (ECF 24-4) provided, in relevant part, id. at 4:

The following disclosures are applicable to all share accounts and to any individual having access to any share or loan account. These terms are subject to change upon written notice. The words “i, ” “me, ” “myself, ” mean each person signing the membership application/signature card including anyone who has access to the account(s).
* * *
i. Indebtedness. Pentagon Federal is authorized, at any time, to charge against the funds in my account(s) any indebtedness or charge owing to it by any owner. If I have pledged funds in an account as security for a loan, these funds may not be withdrawn.

         Neal submitted a credit card application to PenFed in May 2015 for an account with a number ending in 2135. ECF 24-2, ¶ 12; ECF 24-9 (Credit Card Data). On May 6, 2015, PenFed approved the application, with a credit limit of $14, 000. ECF 24-2, ¶ 12; ECF 24-9 at 6.

         Dorn avers that PenFed provided Neal with a Cardholder Agreement of an unspecified date (ECF 24-10), “pursuant to its routine practice of sending copies of all cardholder agreements and disclosure statements to all of its cardholders before they become effective.” ECF 24-2, ¶ 13. However, Neal maintains that she never received a copy of the Cardholder Agreement. ECF 29-1, ¶ 22.

         According to defendant, the Cardholder Agreement stated, in relevant part, ECF 24-10 at 2-3 (emphasis added):

1. AGREEMENT.
We agree to extend credit to you and advance amounts up to your credit limit, but transaction limits may apply. . . . You agree to pay us for credit extended for the use of the Card by you or any other cardholder, along with all applicable finance charges, fees and insurance, if any apply. By signing, using or permitting others to use the Card, you agree to the terms and conditions contained in the Agreement, on the Card, on any charge slip resulting from authorized use of the Card, on any authorized cash advance slip, and to accept responsibility for all actions taken with the Card.
* * *
7. DEFAULT.
You will be in default if you fail to make any payment on time, if you exceed the credit limit established for the Account, . . . . Subject to law, if you default on this Agreement, we can, without giving anyone notice, demand immediate payment of the remaining balance due including but not limited to any unpaid finance charges, late fees and any other charges due under this Agreement.
* * *
16. LIEN.
You hereby appoint PenFed as your agent under a special power of attorney as well as give your express consent to enable use to charge against any balance in any of your accounts, including accounts on which you are a joint owner, to include any otherwise statutorily protected funds that may not otherwise be available by legal process, to pay any indebtedness or other outstanding obligation owed by you or any person who is listed as a joint owner on your accounts, including a deceased joint owner. . . . We may take such action without further notice to you or any joint owner. In regard to those funds that have a statutory protection, you understand that you may withdraw the special power of attorney and consent for PenFed to apply such funds to pay any such indebtedness by notifying us in writing. If your agency appointment or consent is withdrawn, PenFed may in its sole discretion terminate any and all services that you have with the credit union.

         On May 27, 2015, PenFed extended a loan to Neal in the sum of $25, 000 (account number ending in 1702), for which Neal executed a Promissory Note. ECF 24-2, ¶ 10; ECF 24-8 at 2 (“Promissory Note”).[6] Above the signature line, the Promissory Note provided, in pertinent part, ECF 24-8 at 2 (emphasis added):

To protect you if I default on this loan I pledge all my shares, deposits, payments and dividends which may be received, whether held jointly or individually, up to the amount of my loan balance. . . . You may take all shares needed by you to repay the loan. If it is necessary to take all my shares for the payment of this note I understand my membership in the credit union may end. I agree that PenFed has the right pursuant to its statutory lien and further, I give my express consent to enable PenFed to charge against any balance in any of my PenFed accounts, including accounts on which I am a joint owner, to include any otherwise statutorily protected funds that may not otherwise be available by legal process, to liquidate any PenFed indebtedness or other outstanding financial obligation owed by me or any person who is listed as a joint owner on my accounts, including a deceased joint owner. PenFed may take such action without further notice to me or any joint owner. In regard to those funds that have a statutory protection I understand that I may withdraw my express consent for PenFed to apply such funds to any such indebtedness by notifying PenFed in writing. If my consent is withdrawn, PenFed may in its sole discretion terminate any and all services that I have with the credit union.
DEFAULT. I will be in default if I fail to pay any installment on time, . . . Subject to law, if I default on this note you can demand immediate payment of the remaining balance due on this note without giving anyone notice. You may also use any of your other legal rights. . . .

         Neal acknowledges that “the signature on the Promissory [N]ote is [her] signature.” ECF 29-1, ¶ 18. But, she states that “without being provided a copy of [her] loan agreements, ” she does “not recall if it was the actual agreement that [she] signed.” Id.

         John Dorn, defendant's Vice President of Collections, avers that prior to January 2017, PenFed provided Neal with an updated version of the Membership Disclosures, effective in January 2017. ECF 24-2, ¶ 7; ECH 24-5 (January 2017 Membership Disclosures).[7] The January 2017 Membership Disclosures included, inter alia, the following provision, ECF 24-5 at 10-11 (emphasis in original):

STATUTORY LIEN AGREEMENT
My account agreements with PenFed include a provision that allows PenFed to apply funds I have available in any of my PenFed accounts to offset indebtedness I have incurred to PenFed. This provision has not been applicable in the past nor is it applicable in the future to my individual retirement accounts (IRA). PenFed is therefore clarifying the provision, as highlighted below, to read as follows.
STATUTORY LIEN.
I agree that PenFed has the right pursuant to its statutory lien and further, I hereby appoint PenFed as my agent under a special power of attorney as well as give my express consent to enable PenFed to charge against any balance in any of my accounts, including accounts on which I am a joint owner, to include any otherwise statutorily protected funds that may not otherwise be available by legal process, to pay any indebtedness or other outstanding financial obligation owed by me or any person who is listed as a joint owner on my accounts, including a deceased joint owner. This provision does not include my individual retirement account (IRA) or any other account for which this provision is not permitted under Internal Revenue Code. PenFed may take such action without further notice to me or any joint owner. In regard to those funds that have a statutory protection, I understand that I may withdraw the special power of attorney and consent for PenFed to apply such funds to pay any such indebtedness by notifying PenFed in writing. If my agency appointment or consent is withdrawn, PenFed may in its sole discretion terminate any and all services that I have with the credit union.
In addition, the January 2017 Membership Disclosures stated, ECF 24-5 at 23, 26:
2. I agree that PenFed has the right pursuant to its statutory lien and further, I give my express consent to enable PenFed to charge against any balance in any of my PenFed accounts, including accounts on which I am a joint owner, to include any otherwise statutorily protected funds that may not otherwise be available by legal process, to liquidate any PenFed indebtedness, owed by me or any person who is listed as a joint owner on my accounts with PenFed, including a deceased joint owner. This provision does not include my IRA account or any other account for which this provision is not permitted under Internal Revenue Code. PenFed may take such action without further notice to me or any joint owner. In regard to those funds that have a statutory protection I understand that I may withdraw my express consent for PenFed to apply such funds to pay any such indebtedness by notifying PenFed in writing. If my consent is withdrawn, PenFed may in its sole discretion terminate any and all services that I have with the credit union.
* * *
8. Periodic statements will be sent by PenFed to me at the last address or in accordance with the last instructions I have given in writing. I agree to keep PenFed informed of my current address. I will carefully review the statement. Any objection which I may have regarding an item or any unauthorized debit or transaction shown on a periodic statement of this account shall be waived unless it is made orally or in writing to PenFed before the expiration of 60 days after the statement has been mailed or transmitted. If the objection is made orally, PenFed may also require me to provide it in writing within ten (10) business days.

         Moreover, Dorn asserts that prior to August 2017 PenFed provided Neal with yet another version of the Membership Disclosures, effective August 2017 (ECF 24-6), “pursuant to its routine business practice of sending copies of all current membership disclosure and accounts agreements to all of its members before they became effective.” ECF 24-2, ¶ 8. The August 2017 Membership Disclosures provided, in relevant part, ECF 24-6 at 10-11:

STATUTORY LIEN AGREEMENT
My account agreements with PenFed include a provision that allows PenFed to apply funds I have available in any of my PenFed accounts to offset indebtedness I have incurred to PenFed. . . .
STATUTORY LIEN.
I agree that PenFed has the right pursuant to its statutory lien and further, I hereby appoint PenFed as my agent under a special power of attorney as well as give my express consent to enable PenFed to charge against any balance in any of my accounts, including accounts on which I am a joint owner, to include any otherwise statutorily protected funds that may not otherwise be available by legal process, to pay any indebtedness or other outstanding financial obligation owed by me or any person who is listed as a joint owner. . . . PenFed may take such action without further notice to me or any joint owner. In regard to those funds that have a statutory protection, I understand that I may withdraw the special power of attorney and consent for PenFed to apply such funds to pay any such indebtedness by notifying PenFed in writing. . . .

         The August 2017 Membership Disclosures also included the following provisions, id. at 24, 27:

2. I agree that PenFed has the right pursuant to its statutory lien and further, I give my express consent to enable PenFed to charge against any balance in any of my PenFed accounts, including accounts on which I am a joint owner, to include any otherwise statutorily protected funds that may not otherwise be available by legal process, to liquidate any PenFed indebtedness, owed by me or any person who is listed as a joint owner on my accounts with PenFed, including a deceased joint owner. . . PenFed may take such action without further notice to me or any joint owner. In regard to those funds that have a statutory protection I understand that I may withdraw my express consent for PenFed to apply such funds to pay any such indebtedness by notifying PenFed in writing. If my consent is withdrawn, PenFed may in its sole discretion terminate any and all services that I have with the credit union.
* * *
7. Periodic statements will be sent by PenFed to me at the last address or in accordance with the last instructions I have given in writing. I agree to keep PenFed informed of my current address. I will carefully review the statement. Any objection which I may have regarding an item or any unauthorized debit or transaction shown on a periodic statement of this account shall be waived unless it is made orally or in writing to PenFed before the expiration of 60 days after the statement has been mailed or transmitted. If the objection is made orally, PenFed may also require me to provide it in writing within ten (10) business days.

         As indicated, Neal maintains that she never received or signed “updated copies” of the Membership Disclosures. ECF 29-5, ¶¶ 5, 22. However, at the very least, she would have seen the original Membership Disclosures, because she signed the credit union application indicating that she read the terms. See ECF 24-3.

         It is undisputed that Neal defaulted on her loan repayments to PenFed. As a result, PenFed initiated seven transactions by which it took funds from Neal's deposit account (Regular Share Account No. 8016) to offset Neal's past due loan amounts and related charges. In particular, PenFed transferred the following amounts: $49.66 and $559.26 on July 4, 2017; $550.65 on August 2, 2017; $552.03 on September 2, 2017; $1, 124.00 on September 28, 2017; and $59.05 and $551.59 on October 3, 2017. ECF 16-4 at 3-14. The monies, totaling $3, 453.47, were credited to Neal's Thrifty Credit Service Account, No. 7776; her Personal Loan, Account No. 1702; and her Credit Card, Account No. 2135. See ECF 24-2, ¶¶ 9, 14; ECF 24-7; ECF 24-11.

         Neal did not object to the transactions within 60 days of issuance of the relevant monthly statements. ECF 24 at 8. In July 2017, Neal attempted to submit a payment on her home mortgage using her PenFed deposit account ending in 8016. ECF 29-1, ¶ 8. She “was informed by the mortgage bank that there were insufficient funds” even though her “veterans disability benefits had just been sent to [her] deposit account by the veterans benefits administration on June 28, 2017.” Id. ¶ 9. According to Neal, only then did she learn that PenFed had “transferred veterans disability benefits from [her] deposit account to cover for loan delinquencies in . . . another account [she] had with PenFed.” Id. ¶ 10. And, in July 2017, Neal “objected to any further transfer of [her] veterans disability benefits by PenFed to cover for the loan delinquencies, ” but PenFed “told [her] there is nothing that [it] could do to stop it because [she] owed the money.” Id. ¶ 11.

         Neal asserts: “PenFed did not provide me [with a] written explanation for why they had transferred my veterans disability benefits without authorization and as to why they continued to make the unauthorized transfers of my veterans disability benefits.” Id. ¶ 23. According to Neal, PenFed informed her that she “had insurance on [her] credit card to cover any late payments” and that it would send her “a form to fill in order to be able to utilize the insurance function.” Id. ¶ 26. However, it never sent her the form. Id.

         Dorn avers that PenFed provided bank statements for Neal's deposit accounts “on a monthly basis between June and October 2017 pursuant to its routine practice of sending monthly statements to all of its members.” ECF 24-2, ¶ 9; ECF 16-4 (Bank Statements of June 25, 2017, through October 25, 2017). Neal states that PenFed initially sent her “paper copies of [her] monthly statements until later on when [PenFed] stopped sending [her] paper statements via mail.” ECF 29-1, ¶ 6. But, Neal claims that she ...


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