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Clarks' Bank Deposits and Payments Monthly

  • June 05, 2023

    Best Practices: A Banker’s Dozen For Reviewing Wire Transfer Agreements

    Article 4A of the Uniform Commercial Code (UCC) sets out a comprehensive set of rules governing funds transfers. Even without a special agreement, parties to a funds transfer may look to Article 4A to understand their rights and obligations. Moreover, unlike the general freedom of contract principle that prevails under Article 4 dealing with checks, Article 4A contains numerous provisions that may not be varied by agreement.

  • June 05, 2023

    Second Circuit Upholds CFPB Funding Structure While Dueling Fifth Circuit Decision Awaits Supreme Court Review

    The Second Circuit Court of Appeals recently jumped into the high stakes legal battle over the constitutionality of the funding structure of the Consumer Financial Protection Bureau. The federal appellate court found the Bureau's funding structure to be constitutionally sound. The case is Consumer Financial Protection Bureau v. Law Offices of Crystal Moroney, P.C., 63 F. 4th 174, 2023 U.S. App. LEXIS 6978 (2nd Cir. Mar. 23, 2023) (Moroney).

  • June 05, 2023

    Tackling Headaches: An Overview Of Deposit Account Garnishment

    Garnishment of deposit accounts remains a timely topic for banks, deposit account holders, and third-party creditors, in the aftermath of the Coronavirus pandemic.

  • May 17, 2023

    Explaining The 2022 UCC Amendments Through Illustrations

    Over the next months and perhaps years, the new 2022 Amendments to the Uniform Commercial Code will come before the legislatures of all fifty states. In fact, they are already enacted in several states. In addition to other significant revisions, the Amendments build into the existing UCC a new comprehensive statutory structure for electronic commerce. We devote this issue of the newsletter to the topic with this article written by Professor Stephen L. Sepinuck, an accomplished UCC scholar and author, who participated in the roughly four-year long drafting process. The article explains some of the more notable changes through the use of illustrations. Future issues of this newsletter will focus heavily on the Amendments themselves and the potential impact (both intended and unintended) the Amendments are likely to have on U.S. commercial law.

  • March 16, 2023

    The Basics: Conversion Actions Against Payor Banks On Paid Checks Based On Missing Indorsements

    If a check payable to X is stolen by a dishonest employee Y and then deposited by Y in a personal bank account without an indorsement from X, X can sue the bank who paid the check on a theory of conversion under the UCC. UCC Article 3’s definition of conversion found in § 3-420(a) includes the situation where a bank pays the check to a person not entitled to enforce the instrument or receive payment.

  • March 16, 2023

    Alert: Upcoming Changes To UCC Payments Law

    This past summer, the American Law Institute and Uniform Law Commission approved some rather extensive amendments to the UCC to address emerging technologies. The most significant amendments are the addition of a new Article 12 governing “controllable electronic records” – a term that includes cryptocurrencies and non-fungible tokens – and a variety of changes to Article 9 to coordinate with new Article 12. Collectively, the amendments reach every Article except Article 6 and include several relating to payments. Here is a catalogue of the changes to Articles 3, 4 and 4A.

  • March 16, 2023

    Advance Notice In Closing Deposit Accounts: Avoid Problems With The Deposit Agreement

    A deposit account can be closed for whatever reason, so long as the customer is given reasonable advance notice. It should not be necessary to show that the decision was based on some egregious behavior of the depositor. By pulling the plug without advance notice, the bank risks a lawsuit by the depositor alleging wrongful dishonor of the check. Under Article 4 of the UCC, a successful wrongful dishonor claim can include consequential damages for killed deals and loss of customer goodwill, and it could even include punitive damages. The best way to handle the matter is to cover it squarely in the deposit agreement. Let’s take a look at the relevant case law and suggested model deposit agreement provisions.

  • February 21, 2023

    The Fed Now Service: Update On Federal Reserve’s Progress Toward A Faster Payments System

    The Federal Reserve’s new “instant” payments system is on track for a phased-in launch between July and August 2023. The initiative is called the FedNow Service and will offer real-time clearing and settlement services. It is roughly ten years since the Federal Reserve began engaging with the financial services industry about initiating its own faster payments rail. The FedNow Service will operate alongside the Clearing House’s real-time payments platform which was introduced roughly five years ago.

  • February 21, 2023

    House Of Cards: Does A Bank Have A Duty To Report A Suspected Check Kite?

    A check kiting scheme is like a house of cards. It takes at least two banks to play. Assume a simple kite structure where the fraudster uses two accounts at separate banks to cover uncollected funds or overdrafts in one bank by writing checks drawn on uncollected funds or overdrafts at the other bank. The fraudster takes advantage of the float period between the moment of deposit at one bank and the moment of payment by the other. The fraudster also takes advantage of both banks’ willingness to pay checks against uncollected funds.

  • February 21, 2023

    Banks Need To Protect Themselves From Customer Dual-Signature Requirements

    Every banker knows that many business customers have a requirement, on the face of their checks, of two signatures (or more) in some situations. Most typically, the number of required signatures increases with the face amount of the check. In the usual case, a dual-signature requirement is imposed by the customer for its own internal security, and the bank is not involved. Yet the requirement imposes risks on the bank.

  • February 10, 2023

    Federal Reserve Board Views Digitizing The U.S. Dollar As High Priority

    The Federal Reserve is on track to launch its new instant payments service between July and August 2023. The service is called FedNow. The creation of a Central Bank Currency (CDC) would be the logical next step for the Federal Reserve to undertake. Other countries have adopted or are in the process of adopting a CDC. Originally published in an earlier edition of this newsletter, this story on what a digitized U.S. dollar would like look continues to be timely.

  • February 10, 2023

    Protecting The Right To Get Paid: Avoiding Conversion Lawsuits Brought Against Lawyers From Creditors Of The Client

    Timely payment from clients without undue hassle is a universal goal of attorneys engaged in private legal practice. Getting paid oftentimes involves distributing the proceeds of case settlements and court judgements. Along with disbursing the client’s share, it is common practice for lawyers to disburse funds to themselves in payment for legal services and expenses depending on the fee arrangement.

  • February 10, 2023

    Can Check Or Wire Fraud Trigger Bank Liability Under State Deceptive Trade Practices Laws?

    The constitutionality of the Consumer Financial Protection Bureau continues to be challenged in litigation. Whether the funding structure of the CFPB is a violation of the separation of powers doctrine is a hot issue likely to be reviewed by the United States Supreme Court. If the High Court finds the existing structure to be unconstitutional, then the viability of existing rules and regulations promulgated by the CFPB most likely will be addressed. The following story published in a prior issue of this newsletter focuses on state deceptive practices laws. Regardless of how the latest challenges to the constitutionality of the CFPB are resolved, state deceptive practice laws will continue to be relevant and the subject of enforcement. The issue in the two cases discussed in this story is whether state deceptive practices statutes are displaced by the UCC. In both cases, the holding favored UCC displacement. However, note the Takeaways at the end of the story. In some states, deceptive practices statutes do cover financial services.

  • January 30, 2023

    Monumental Mistaken Wire Transfer Case Dismissed After Restitution To Citibank By Revlon Lenders

    In a knockout decision, the United States Court of Appeals for the Second Circuit ordered restitution of roughly $500 million of outstanding principal mistakenly prepaid on a $1.8 billion syndicated seven-year loan to Citibank, N.A., owed by Revlon, N.A., as the borrower, to the participating lenders.

  • January 30, 2023

    Federal Marijuana Banking Safe Act In Limbo; Declining Asset Values Add Risks For Secured Lenders

    Federal legislation giving financial institutions the green light to bank marijuana-related businesses (MRBs) is stymied in Congress. The U.S .House of Representatives did pass the Safe Banking Act (SAFE Act) with bipartisan support, but the Senate failed to act upon the legislation during the 117th Congress.

  • November 30, 2022

    Uncertainty Over The “True Lender” Test Continues: California Court Alarms Fintechs Partnering With State Insured Banks

    The viability of the business model relied on by fintechs offering small dollar loans continues to be under attack. A leading industry defender is the internet lender Opportunity Financial, LLC.

  • November 30, 2022

    Recent Decision: Wells Fargo Battles Victim Of A Wire Fraud Hack

    In a recent decision from a Nevada federal district court, Wells Fargo Bank used the provisions of UCC’s wire transfer rules in order to avoid liability for the losses suffered by the plaintiff, who was the victim of a wire transfer hacking scheme.

  • November 10, 2022

    How Banks Use UCC Preemption Against Plaintiffs Victimized By Wire Fraud Scams

    Fraud in the wire transfer arena is ubiquitous. The case law, particularly on the topic of Article 4A preemption under the Uniform Commercial Code, is growing. It is too early to formulate clear trends away from the majority rule favoring preemption as a tool for knocking out common law claims. Also, there seems to be more of a split in state law as to the existence of a duty of care under common law negligence owed by a bank to a noncustomer. This article offers some preliminary observations.

  • November 10, 2022

    Reporting Suspicious Elder Financial Exploitation by Financial Institutions: An Overview of the Law and Best Practices

    Providing financial services to the elderly carries with it significant legal requirements as well as responsibilities for employing best practices.

  • September 27, 2022

    Bank Of America, U.S. Bank Pay Multimillion Dollar Fines Under Consent Orders With Fed Bank Regulators

    Two of the nation’s Big Banks recently entered into far-reaching Consent Orders with their federal banking regulators. Pursuant to the terms of the Consent Orders, both banks paid large multimillion dollar civil money penalties and agreed to remediation with allegedly harmed consumers.