The latest report released by the Association of Financial Professionals (AFP) on payments fraud is full of bad news. Eighty-one percent (81%) of the companies surveyed were targets or victims of payment fraud in 2019. Despite stepped-up fraud control, bad actors continued to infiltrate payment systems. The same sophisticated fraud prevention systems assisting in the fraud prevention battle are aiding criminals in their efforts to attack payment systems.
Check forgery schemes perpetuated by a fraudster who is an employee of the depository bank’s customer, unfortunately, are commonplace. Usually, there is a trusting employer who entrusts check writing authority to its bookkeeper. Upon discovery of the check forgery scheme, the betrayed employer tries to recoup the stolen funds by shifting the loss to the bank.
Loan forgiveness is one of the driving forces attracting borrowers to the Payroll Protection Program (PPP) passed by Congress under the CARES Act. To date, the rules governing loan forgiveness are murky at best.
Governmental entities, businesses, and consumers are doing their best to stay afloat during the coronavirus pandemic. Before the virus hit, the use of cash as a form of payment was steadily declining in favor of the core noncash payment systems consisting of credit cards, debit cards, the Automated Clearing House System (ACH), and of course, the old standby, checks.
The Board of Governors of the Federal Reserve Board (FRB) will offer up to $500 billion in lending to states and municipalities to help manage cash flow shortfalls created by the coronavirus pandemic. This new credit facility extends and expands the Municipal Liquidity Facility (MLF) announced by the FRB in early April 2020.
A hot topic for financial institutions during the COVID-19 crisis is how to protect their right to insurance payments under business interruption insurance policies. In these COVID-19 times, Financial Institutions (FIs) commonly have relationships on both the depository and lending sides with their commercial customers who may be piling up fees on depository accounts and be in arrears on loan payments. Bank customers, on the other hand, may be looking to shield payments from their creditors.
In a case of first impression, the Supreme Court of Illinois (Illinois Supreme Court) held a Futures Commission Merchant (FCM) to be a “bank” under the wire transfer rules found in Article 4A of the Uniform Commercial Code (UCC). The defendant is Wedbush Securities, Inc. (Wedbush Securities). The fraudsters infiltrated the plaintiffs’ email system and successfully tricked Wedbush Securities into honoring fraudulent payment orders.
Bank of America successfully defeated a series of judicial maneuvers by a putative class of small businesses. The plaintiffs seek an order mandating the bank to open its lending doors under the Payroll Protection Program of the CARES Act to small businesses who lack preexisting depository and credit borrowing relationships with BofA. Significantly, the Maryland federal district declined to read a private right of action into the CARES Act. An appeal is pending before the United States Court of Appeals for the Fourth Circuit.
If a debtor has granted a consensual security interest in the funds in its deposit account to a secured lender, does the lender have priority over the claims of a judgment creditor who later levies against the funds in the deposit account? One leading decision is a 2016 case from a California federal district court. The court gives priority to the judgment creditor under the rules of Article 9. The decision thoughtfully resolves the priority issue based on the language and policies behind UCC 9-332(b). More recent case law stands firmly behind the California case.
CARES ACT stimulus payments from the Treasury are reaching deposit accounts at U.S. financial institutions throughout the country. The $2.2 trillion legislation authorized these payments to help mitigate the economic hardships individuals are facing as a result of the coronavirus crisis.
As part of its toolbox for dealing with the pandemic crisis, NACHA released updated FAQs on April 6, 2020. The FAQs distill key information based upon questions posed to NACHA by industry participants. The FAQs answer questions relating to RDFI’s and ODFIs. We’ve selected several FAQs to discuss and offer several takeaways.
New York state-regulated banking institutions are required to grant financial relief to any individual who can demonstrate financial hardship from COVID-19. The relief includes the elimination of overdraft fees, ATM fees, and credit card late payment fees.
NACHA’s Same Day ACH per-payment dollar limit is now $100,000. NACHA raised the limit from $25,000 to $100,000 effective March 20, 2020.
In a significant payments decision by the California Court of Appeals, Wells Fargo Bank, N.A. avoided taking the hit when its customer’s commercial deposit account was hacked, thanks to solid documentation including an arbitration clause and sound security procedures the bank followed in good faith. The fact that its customer was less than astute when its president turned down dual control authentication also helped.
If a debtor is in default on its obligation to pay the creditor and the debtor files a bankruptcy petition, the creditor’s right to go after the debtor and its assets is automatically stayed by the filing of the bankruptcy petition. But does the automatic stay restrain the beneficiary of a standby letter of credit from drawing on the letter if the applicant files bankruptcy? If it did, the commercial utility of a letter of credit would be greatly compromised.
The fraud risk in wire transfer systems is a serious one for sending and receiving institutions. A wire transfer might be fraudulently initiated or altered in an attempt to misdirect or misappropriate funds. One example is an employee who sends unauthorized wire transfers. Another is an interloper who gains unauthorized access to a wire transfer system. How can these risks be reduced, either by internal procedures or contractual provisions? Set forth below is a menu of compliance strategies to consider.
To what extent can a sender cancel or amend a wire transfer order once it has been transmitted? This problem is analogous to the right of a drawer to stop payment on a check.
As banks and customers have been putting more tools in place to address corporate account takeover, another threat has been developing—so-called “business email compromise” or BEC. According to an April 4, 2016 press release from the FBI’s Phoenix Field Office, BEC involves fraudsters who are able to spoof a company’s email or use social engineering to assume the identity of a high-level company officer. Once they have done that, they then send an email that looks like it is from that high-level company officer to one of the company’s employees who has the ability to initiate wire transfers. That email will request that employee to initiate a wire transfer and will often have an explanation of why the request needs to be treated in a confidential manner. The employee dutifully initiates the wire transfer and the money is gone.
Connecticut: House Bill 5048, 2020 Bill Text CT H.B. 5058 was introduced on 2/11/2020 to require the state to record a lien against the property owned by parents of an aid to dependent children beneficiary for amounts owing under any order for support for the lien to be effective against a bona fide purchaser of such property. The bill was assigned to the Joint Banking Committee.
While efforts continue to eliminate the Consumer Financial Protection Bureau (CFPB), the controversial federal agency has been shifting its enforcement efforts from ruling by individual cases and administrative rule-making to broader supervision of the industry players and a “kinder, gentler” regulatory environment. In December 2019, the CFPB published a white paper entitled “Supervisory Highlights/ Consumer Reporting Special Edition.” The Special Edition sets forth a number of compliance issues that continue to arise, particularly in the home mortgage market, the consumer auto loan market, and the consumer deposit relationship. The purpose of this newsletter story is to summarize the agency’s supervisory findings and serve as a compliance guideline for consumer lenders.