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Can I Sue a Money Transfer Service?

If a money transfer service has violated the law or its contract with you, you may be able to sue them. Most of the time, however, you'll be bound by a user agreement that requires you to go to arbitration before you can sue. Sometimes you'll have no lawsuit option other than arbitration, and outside of that, you'll only be able to sue in small claims court.

This article covers lawsuit options outside of arbitration and small claims. To understand what arbitration and small claims court actions are, please refer to our article on alternative dispute resolution options when suing money transfer apps.

Money Transfer Applications

Money transfer apps and payment services like Paypal, Cash App, Venmo App, and Zelle offer purchase protections to their users and even actively try to make their account holders aware of scams and security risks that can cause unauthorized transactions. In general, you — not the payment apps — are responsible if you fall for a scammer's tricks.

For example, if you downloaded a virus posing as a mobile app and all of your account information, such as your social security number, social media, and Visa credit card information was stolen, the most you'll be able to do is to alert law enforcement and try to track down and sue the scammer directly.

On the other hand, what if the money transfer service lost your money or sent it to the wrong recipient without your fault? What if your personal information, such as your bank account, debit card account, driver's license, Mastercard payment method, or phone number was misused or leaked by a money transfer app?

In these situations, you may be able to file a lawsuit against them. To learn whether you have a case against a money transfer service, consult with a consumer protection attorney.

Overcoming Arbitration and Small Claims Requirements

You should remember that your use of a money transfer platform will always be governed by a user agreement. For example, a Venmo account, which is owned by Paypal, Inc., will bind you to Venmo's terms of use contract.

If you're one of the rarer types who actually read these lengthy user agreements (such as the one linked above), you'll see sentences along the lines of “The terms include an agreement to resolve disputes by arbitration on an individual basis." In fact, as of the time of this writing, that's exactly what the Venmo User Agreement says in part.

As mentioned at the outset of this article, we've got a separate article on forced arbitrations and small claims for suing money transfer apps. But there are certain situations in which you can skip arbitration or small claims court:

  • The money transfer service user agreement (or its arbitration clause) is unenforceable.
  • The money transfer service does not show up to arbitration or fails to respond timely to your request for arbitration.
  • A small claims court will not hear the type of case you're bringing.
  • The arbitration clause in the user agreement does not apply to the nature of your dispute with the money transfer business.

In most states, an arbitration clause may be unenforceable if:

  • Its terms are unconscionable — as in very unfair. For example, if you can show that the arbitration agreement is incredibly one-sided or that the money transfer service tricked you into agreeing to arbitration
  • It doesn't adequately warn you that you are giving up your constitutional right to a jury trial
  • You were forced into signing it through fraud or duress.

Government Resources

Companies that offer money transfer services are usually considered financial institutions. The federal government regulates financial institutions in various ways, including through:

Each state also regulates money service businesses (MSBs) directly. State governments require that MSBs register as money transmitters in every state where they do business. Money transmitter licenses are issued by each state's respective financial regulation bureau or department, which will usually allow consumers to file online complaint forms much like the CFPB.

Suing for Unauthorized Transactions

The most likely reason you'll want to sue a money transfer service is that they've mishandled your money — that is, your money went missing or got transferred to the wrong account.

Under the Electronic Fund Transfer Act (EFTA), federal law protects consumers against theft of funds that result from electronic funds transfers. Under the EFTA, a transaction is unauthorized if:

  1. It was made by someone other than you;
  2. The person who made it didn't have permission; and
  3. You did not receive any benefit from the transaction.

If you timely notify the money transfer service of the problem, the service must:

  • Investigate the problem within ten business days; and
  • Report the results to you within three business days; and
  • Correct the problem within one day after confirming that it exists (this usually means transferring the money properly or refunding it)

If a financial institution, such as a bank that provides money transfer services, violates the EFTA, you can sue for your expenses, lost wages, damage to your credit from any missed payments (because your funds were tied up), and even emotional distress. In fact, most actual damages you can prove may be recoverable.

Suing for Credit Reporting Violations

The Fair Credit Reporting Act (FCRA) is a federal law enforced by the U.S. Federal Trade Commission (FTC).

According to the FTC, the FCRA's “Furnisher Rule “may apply to businesses that report consumer information to credit reporting agencies. In providing peer payment functionalities, money transfer services may report your information to credit reporting agencies. This can happen if you have too many "chargebacks" (reversed transactions) on your account or if you overdraft your account.

When a money transfer service reports negative information about you to a credit report agency, the FCRA requires them to make sure that they are:

  • providing accurate and complete information, and
  • investigating complaints from you as a consumer who disputes the accuracy of that information

Therefore, if a money transfer service refuses to cooperate with you in providing accurate information to credit agencies and investigating any disputes you open about that information, you may be able to sue under the FCRA as well as state credit reporting laws (e.g. the New York Fair Credit Reporting Act).

Class Action Lawsuits

You may be able to bring your case as a class action. A class action is a lawsuit in which a group of people collectively bring a case against a defendant.

Depending on whether a class action lawsuit is being filed in state court or federal court, there are different requirements before it can be approved by the judge. A leader or “class representative" — typically someone who has suffered at the hands of a defendant and is intending to sue personally anyway — decides to sue the defendant on behalf of all other similarly injured parties.

The leader of the class generally must show:

  1. There are so many people that making them sue on their own is impracticable and a joint suit is most efficient.
  2. The claims involve common factual or legal issues.
  3. The leader of the class has claims typical of the others and they and their lawyer will do a good job representing everyone

If you're dealing with a money transfer service that has violated the legal rights of many people, such as by failing to properly transfer money or by committing EFTA or FCRA violations, you may be able to lead or join a class action against such a company.

In this situation, since there would be numerous plaintiffs who have common legal claims with you relating to money transfers, a court might find that a class action is the most appropriate way to proceed.

Remedies: What You Can Recover in Court

If you win your lawsuit against the money transfer company, the court may award you any one or more of the following remedies:

  • Compensatory damages —This includes the money you lost as a result of the money transfer service's violations of the law or of its own user agreement with you. It could be anything from lost wages, damage to your credit (and the cost to repair it), and even medical expenses relating to personal injuries like emotional distress.
  • Statutory Damages — These are awards available under specific state and federal laws. For example, consumers can recover between $100 to $1000 per every EFTA and FCRA violation.
  • Liquidated damages — The money transfer service user agreement might provide that any breach will automatically make the at-fault party liable for a certain specified sum, which the parties agree is the fair and reasonable value of damages that would result.
  • Punitive damages — These are intended to punish a defendant that acts with malice or fraud and to deter others from engaging in similar egregious misconduct.
  • Court costs and attorney's fees — Money you spent on court filing fees and attorney billing may be recoverable in some circumstances, especially if the money transfer user agreement states that a winner of any dispute may collect costs and fees.

Ask a Consumer Protection Lawyer

Suing a money transfer app will involve more than just claims for breach of contract, fraud, or negligence. These kinds of lawsuits will usually invoke special laws like the EFTA, FCRA, or other rules that regulate the banking industry.

Therefore, to find out if you can sue a money transfer service, it's best to speak with a lawyer experienced in consumer protection. They will be able to advise you on complicated consumer protection laws and break down complicated money transfer concepts in a way that helps you understand them.

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