A bank’s negligence suit against a check-cashing company was dismissed when the district court found that there was no private right of action under which the bank could sue to enforce regulations regarding the safeguarding of personal financial information.
USAA provides banking services to members and veterans of the United States military. PLS Group, Inc. provides payday loan and check cashing services at 300 retail locations in eleven states. PLS charges its customers a fee to cash checks or purchase money orders. PLS often cashes checks drawn on USAA bank accounts. When it cashes a check, PLS obtains information about the drawer of the check, including their name and signature, account and routing numbers, and encoded information used to verify the legitimacy of the checks.
In October 2012, PLS settled a suit brought by the Federal Trade Commission which alleged that PLS did not properly secure its’ customers’ information. Despite making changes to its processes, problems with unauthorized access to customers’ personal information continued. Nine individuals were later indicted by the government for engaging in a check-cashing scheme that used information from PLS employees to create fraudulent checks. Some of these counterfeit checks were drawn on USAA bank accounts. PLS employees involved in the scheme received a portion of the proceeds from the scheme.
USAA was ultimately responsible for the losses, as the checks were unauthorized and the members’ could not be held responsible for them. USAA later sued PLS in federal court, arguing that PLS acted negligently in protecting USAA members’ financial information and that PLS violated the Illinois Consumer Fraud and Deceptive Business Practices Act. PLS moved for summary judgment on USAA’s negligence claim.
The district court agreed with PLS and dismissed USAA’s negligence claim. The court found that USAA relied upon the Graham-Leach-Bliley Act, the Privacy of Consumer Financial Information Rule, and the Standards for Safeguarding Customer Information rule. The court found that it was well settled that the GLBA did not create a private right of action to enforce its rules. The court stated that the lack of a private right of action under the GLBA meant that USAA was also unable to seek relief under the regulations created pursuant to the GLBA. The court stated that PLS had a duty to safeguard personal information under the GLBA and its implementing regulations, but that enforcement of violations of these rules was the responsibility of state and federal regulators.
USAA also argued that the final judgment in the federal case between PLS and the FTC created a duty on the part of PLS because the judgment was designed to protect property. Citing Blue Chip Stamps v. Manor Drug Stores, the court stated that the Supreme Court had held that a consent decree was not enforceable by a non-party, even if the non-party was an intended beneficiary of the consent decree. The court found that USAA could therefore not pursue its negligence claim under obligations created from the judgment in the FTC’s case. The district court, therefore, dismissed USAA’s negligence claim.
You can view the full opinion here.
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