On March 1, 2023, prison financial services profiteer JPay hit a legal wall in a challenge to fee-laden debit cards issued to prisoners on release. As PLN has reported, former California state prisoner Adam Cain — represented by the Seattle law firm of Sirianni Youtz Spoonemore Hamburger PLLC, California attorney John Burton and the Human Rights Defense Center (HRDC), publisher of PLN — filed a class-action lawsuit in September 2021 against JPay, a company that provides money transfer and other financial services at prisons and jails nationwide. [See: PLN, Oct. 2021, p.28].

Cain’s challenge involved one of those services: prepaid debit cards provided to prisoners at release that contain funds from their prison or jail accounts, plus any “gate money” they receive. The debit cards, which JPay contracts with prisons and jails to provide, include numerous fees that quickly reduce the card balances. When Cain was released from the Chuckawalla Valley State Prison, his debit card had a balance of $213.50, including $200 in “gate money” provided by the state Department of Corrections and Rehabilitation (CDCR); however, within months the balance had been reduced by fees to $4.87, without any money released to Cain.

The suit raised claims under the Electronic Fund Transfer Act (EFTA), 15 U.S.C. § 1693, alleging that JPay failed to obtain consent from prisoners to receive release funds on a debit card and also failed to provide a copy of the card’s terms and conditions in advance — both requirements of EFTA. The law also bars debit card providers from assessing maintenance fees within the first year, while JPay’s cards began charging service fees within the first 30 days.

Cain argued he had no other option to receive his release funds except on the JPay debit card – that “take it” without an option to “leave it” is no choice at all. He also claimed the fees amounted to a “taking” without due process under the Fifth Amendment, as well as violating California’s Unfair Competition Law, Cal. Bus. & Prof. Code § 17200, et seq.

On March 1, 2023, the U.S. District Court for the Central District of California denied Defendants’ motion to compel arbitration in the case. JPay’s debit card, like many others, came with an arbitration clause, forbidding plaintiffs from filing lawsuits and requiring instead that they take their complaints to arbitration. A costly process that often favors businesses over consumers, arbitration serves in a case like this to “divide and conquer” a group of harmed customers by preventing them from banding together in a class-action lawsuit.

Cain argued he could not have agreed to the terms since he did not receive the Cardholder Agreement before being issued the debit card. The district court agreed, holding that Cain could not “be bound to terms and conditions of the Cardholder Agreement by merely accepting a card he did not request.” Nor did use of the debit card create an enforceable agreement. Although the Federal Arbitration Act largely favors enforcement of arbitration clauses, the Court noted that arbitration requires a consumer’s contractual agreement. Citing Brown v. Stored Value Cards, Inc., 2021 U.S. Dist. LEXIS 238736 (D. Or.), and Reichert v. Rapid Invs. Inc., 56 F.4th 1220 (9th Cir. 2022), the Court said the mere acceptance or use of a release debit card did not create a contractual agreement between the parties.

Defendants had argued that Cain could have closed the card account within seven days and received a check for the balance without incurring fees, per the terms of the debit card agreement. However, again citing Reichert, the Court found he “was under no obligation to comply with the fine print terms of an agreement to which he did not assent to retrieve and use his own funds.” See: Cain v. JPAY, Inc., 2023 U.S. Dist. LEXIS 34380 (C.D. Cal.).

Florida-based JPay is owned by Texas-based Securus Technologies and its parent, Aventiv Technologies, which in turn is owned by California-based Platinum Equity Partners. That hedge fund, founded by Tom Gores, owner of the NBA’s Detroit Pistons, claims to own a collection of firms with $47 billion in assets and $87 billion in annual revenue – making it larger than banking giant Wells Fargo, which also used arbitration clauses to successfully keep customers it defrauded from taking the firm to court in 2016. Other defendants in Cain’s suit, which remains pending, are debit card manager Praxell, Inc. and underwriter Metropolitan Commercial Bank. See: Cain v. JPay, USDC (C.D. Cal.), Case No. 2:21-cv-07401.  

Additional source: Los Angeles Times

If you were forced to accept a JPay debit card upon your release from prison or jail anywhere

within the U.S. over the past several years, please contact HRDC at PO Box 1151, Lake Worth, FL 33460 or (561) 360-2523 or HRDCLegal@humanrightsdefensecenter.org.