With the increasing use of debit cards to pay for goods and services comes risk for businesses who do not routinely process debit card payments. A recent example of this risk is highlighted in Kelsey v Pitsch Companies. Plaintiff Kelsey entered into a contract with Defendant Pitsch for the demolition of a house. Kelsey authorized Pitsch to make an initial debit against Kelsey’s debit card account for the deposit on the demolition services. However, Pitsch subsequently debited Kelsey’s account on four different occasions to recover the balance due for the demolition services.
Kelsey sued Pitsch under the Electronic Funds Transfer Act (“EFTA”), 15 U.S.C. § 1693-1693r. Kelsey alleged that the subsequent debits from Kelsey’s account were charged without his permission and that Pitsch failed to obtain written authorization for these debits as required under the EFTA.
The Court granted summary judgment in favor of Kelsey. Pitsch argued that the EFTA does not apply to credit card transactions, and that it believed it was charging a credit card and not a debit card. The Court acknowledged that credit card transactions are not subject to the EFTA, but held that Pitsch’s “mere belief that it was effectuating a credit card charge does not negate or excuse the violation of the EFTA.” This is particularly the case where Pitsch had already debited Kelsey’s account on a prior occasion with his permission, and therefore should have known that the account was a debit account, not a credit card account.
The case demonstrates an important lesson for companies processing debit card transactions. Each debit transaction needs to be authorized in writing from the payor, either individually or as part of an installment contract agreement. The mere fact that the payor had authorized the debiting of the deposit on the contract did not constitute an implicit authorization that the remaining contract balance could also be debited.