Yuille v. Uphold HQ Inc.: SDNY Concludes EFTA Not Applicable to Digital Asset Accounts Established Primarily for Investment Purposes | Practical Law

Yuille v. Uphold HQ Inc.: SDNY Concludes EFTA Not Applicable to Digital Asset Accounts Established Primarily for Investment Purposes | Practical Law

The US District Court for the Southern District of New York has found that the Electronic Funds Transfer Act (EFTA) does not apply to digital asset accounts established primarily for investment purposes.

Yuille v. Uphold HQ Inc.: SDNY Concludes EFTA Not Applicable to Digital Asset Accounts Established Primarily for Investment Purposes

by Practical Law Finance
Published on 30 Aug 2023 • USA (National/Federal)
The US District Court for the Southern District of New York has found that the Electronic Funds Transfer Act (EFTA) does not apply to digital asset accounts established primarily for investment purposes.
On August 11, 2023, the US District Court for the Southern District of New York determined in the case of Yuille v. Uphold HQ Inc., (S.D.N.Y. Aug. 11, 2023) that the Electronic Funds Transfer Act (EFTA) (15 U.S.C. §§ 1693 to 1693r) does not apply to digital asset accounts established primarily for investment purposes.
In August 2021, plaintiff Bruce Yuille opened an account with defendant Uphold HQ Inc. (Uphold), a cryptocurrency exchange and digital money platform. The stated purpose of the account was "to hold [Bitcoin], to sell [Bitcoin,] and reduce [Bitcoin] to dollars and transfer dollars to [plaintiff's] bank, and to trade crypto coins like those listed on Uphold." Between December 7 and December 11, 2021, plaintiff's account was hacked and approximately 100 Bitcoin (worth roughly $5 million) was transferred out of plaintiff's account.
Plaintiff alleged that Uphold failed to exercise appropriate security over the platform and customer accounts in violation of the EFTA and its implementing Regulation E (12 C.F.R. §§ 205.1 to 205.20), which establishes the rights, liabilities, and responsibilities of participants in electronic fund and remittance transfer systems to protect individual customer rights. According to plaintiff, under the EFTA:
  • Uphold is a financial institution.
  • Plaintiff is a consumer.
  • Plaintiff's account was established for personal, family, or household purposes.
  • The fraudulent transfers were electronic fund transfers ("EFT") and unauthorized.
Plaintiff alleged that Uphold failed to meet its EFTA and Regulation E error resolution obligations, including:
  • To provide various initial disclosures, including a summary of the consumer's rights.
  • After receipt of an oral or written notice of an unauthorized EFT, to:
    • conduct an investigation;
    • complete the investigation within ten business days; and
    • correct any error that it determines was committed within one business day of determining that the error had occurred, including by either correcting the error or provisionally recrediting the account while the investigation is ongoing.
In dismissing plaintiff's EFTA claim against Uphold, the court determined that plaintiff's account was not an "account" within the meaning of the EFTA. The EFTA defines an "account" as "a demand deposit, savings deposit, or other asset account ... established primarily for personal, family, or household purpose." To evaluate whether EFTA governed plaintiff's account, the court reviewed other courts' interpretation of the phrase "established primarily for personal, family, or household purposes" within the context of the Truth in Lending Act (TILA) (15 U.S.C. §§ 1601 to 1667f). According to the court, the relevant question in determining whether the EFTA applies to digital asset accounts is whether such accounts are established primarily for "profit-making purposes." The court concluded that plaintiff opened its account primarily for investment purposes, which has an inherent profit motive. As such, plaintiff's account was not established for personal, family, or household purposes such that the EFTA would apply.
The decision references Rider v. Uphold HQ Inc., (S.D.N.Y. Feb. 22, 2023), the only other case to discuss whether the EFTA applies to cryptocurrency transfers. In Rider, the court looked at the definitions of "funds" and "cryptocurrencies" in Black's Law Dictionary to determine that cryptocurrency is a digital form of liquid, monetary assets that constitute "funds" under the EFTA (see Legal Update, Consumer Finance Roundup for March 2023: New York District Court Rules Cryptocurrencies Constitute Funds Under EFTA).
For more information on the EFTA, see Practice Note, Electronic Fund Transfer Act: Key Provisions.