Clarks' Bank Deposits and Payments Monthly

  • November 20, 2017

    Big Victory For Banks: CFPB Rule Banning Class Action Waivers Dies On 51-50 Vote In The U.S. Senate

    On October 24, 2017, the U.S. Senate voted 51-50 to kill the CFPB rule that would outlaw bank arbitration clauses containing class-action waivers in consumer financial services contracts.  The Senate was proceeding under the Congressional Review Act.  As president of the Senate, Vice President Pence broke a 50-50 tie.  It is clear that President Trump will sign the disapproval resolution.  In the end, it was a highly partisan vote, mirroring the deep divisions in the country as a whole. The demise of the arbitration rule is a big victory for banks.

  • November 20, 2017

    Maryland Court Okays Freeze On Proceeds Of Cashier's Check

    In a recent decision from Maryland, the court ruled that a temporary freeze imposed upon the proceeds of a cashier's check deposited into the customer's account did not violate either the  expedited funds availability rules of Reg. CC or the check collection rules of the UCC.

  • November 20, 2017

    Fourth Circuit: Stop Payment Order Doesn't Require Magic Words

    In a recent unpublished decision applying Virginia law to a marital dispute, the Fourth Circuit has ruled that a stop payment order does not require any special language so long as it unambiguously orders the depository bank to refuse payment of a check, with sufficient lead-time for the bank to act. Rusnack v. Cardinal Bank, N.A., 2017 U.S. App. LEXIS 13409 (4th Cir. Md. 7/25/17).  

  • November 20, 2017

    Stop Payment Orders In A Nutshell

    In our prior story, we considered a Fourth Circuit case on the issue of whether a bank customer seeking to avoid problematic debits can give instructions using the term "account freeze"  rather "stop payment."  In okaying the customer's phrase, the court employed a "functional" rather than a formal test.  Let's now stand back a bit and summarize the rules governing stop payment orders under the UCC.

  • October 19, 2017

    Speedier Payments: NACHA Issues Guidance Ahead Of Second Phase Of Same-Day ACH

    Given the fact that originators and other participants in the ACH networks have built systems and processes over decades that were keyed to the delayed processing that has historically been inherent in the ACH networks, on April 11, 2017, NACHA issued an ACH Operations Bulletin ahead of the second-phase effective date of the rollout of same-day ACH. NACHA ACH Operations Bulletin #2-2017. 

  • October 19, 2017

    Social Engineering Fraud Against Public-Sector And Other Entities

    As reported in prior issues of this newsletter, social engineering often plays a large role in many of the most prevalent forms of payment fraud.  NACHA recognized a growing trend of social engineering by which fraudsters manipulate public-sector employees to redirect legitimate vendor payments to accounts under the control of the fraudsters.  The fact that public-sector entities often must make their contracts a matter of public record appears to make them a favorite target of the fraudsters.  In response, NACHA released its ACH Operations Bulletin #1-2017 in early 2017 to provide relevant information to participating depository financial institutions and their business customers regarding these scams.

  • October 19, 2017

    Maryland Court Rejects Class Action Claims Against ATM Operator Regarding Third-Party Fees

    A recent case from Maryland confirms that an ATM operator is not required to disclose the amount of fees that another party (such as the financial institution at which the cardholder has his or her account) may charge.  The case, Alston v. Wells Fargo Bank, N.A., 2016  U.S. Dist. LEXIS 103026 (D. Md. 8/5/2016), involved a putative class action against Wells Fargo and Capital One.  Alston claimed that he was charged undisclosed fees when making a withdrawal from his Capital One account at a Wells Fargo ATM.

  • October 19, 2017

    Check-Cashing Companies As Holders In Due Course

    The holder in due course rule, which dates back centuries, allows a bona fide purchaser of a negotiable instrument to take the instrument free of claims and defenses.  A common example is a check given for an underlying obligation such as the sale of goods.  The payee of the check deposits it and takes off with the funds before the item has a chance to clear.  When the drawer of the check discovers that the goods are defective, it immediately stops payment on the item.  The check is dishonored and bounces back to the bank of first deposit, which can't charge it back against the payee's account because the payee has taken off for parts unknown. 

  • October 19, 2017

    Courts Continue To Wrestle With The Arcane Subject Of Promissory Note "Allonges"

    Securitized real estate mortgages continue to raise "standing" issues for secured lenders seeking to foreclose.  The cases illustrate how the law of negotiable instruments under the UCC, including the use of allonges to substitute for indorsements on the note itself, is crucial for determining standing.  A recent decision from Ohio illustrates the point.  The court holds that allonges may be paperclipped to the note, without stapling.  Therefore, the securitization trustee could foreclose on the mortgage.  And in a recent case from Connecticut, the court okayed an allonge even though there was space for the indorsement on the note itself. 

  • September 27, 2017

    Limits On Shifting Losses By Deposit Account Agreement

    Although the UCC permits the provisions of Article 4 to be varied by agreement, the parties to the agreement cannot disclaim a bank’s responsibility for its lack of good faith or failure to exercise ordinary care.  UCC 4-103(a).  Even in the context of an agreement between a commercial customer and a bank, the principles underlying this section continue to apply.  A recent decision from the Sixth Circuit, applying Ohio law, highlights these principles.

  • September 27, 2017

    CFPB Publishes Report On "Frequent Overdrafters" And Proposes New Overdraft Disclosure Forms

    On August 4, the CFPB published a "data point" report on "frequent overdrafters"—consumers who attempted to overdraw their deposit accounts more than ten times in a 12-month period. Accompanying the report is a new set of overdraft disclosure prototypes designed to improve the model form that banks and credit unions already provide to consumers and have used as part of the opt-in process since 2010. In a comment letter to the CFPB, the American Bankers Association criticizes both the report and the proposed disclosure forms.

  • September 27, 2017

    Bank's Consensual Security Interest In Its Customer's Deposit Account Did Not Give It "Dominion And Control" Sufficient To Trigger Fraudulent Transfer Liability

    A significant recent decision from the Sixth Circuit tests the power of a trustee in bankruptcy to avoid allegedly fraudulent transfers of funds from the now-bankrupt debtor (Teleservices) to its depository/lending bank. Meoli v. The Huntington National Bank, 848 F.3d 716 (6th Cir. 2017).

  • September 27, 2017

    Negotiable Instruments Law: The Mortgage Follows The Note

    One of the enduring principles of negotiable instruments law is that the "mortgage follows the note."  Thus, even though a lender may think it has a perfected security interest in a piece of real estate through a recorded mortgage or deed of trust, failure to perfect against the note itself—by taking possession or filing a UCC financing statement—spells doom for the lender.  That lesson was learned the hard way in a recent bankruptcy case from Oregon.  We think the decision hits the target in the middle.

  • August 23, 2017

    CFPB Issues Final Rule Banning Class Action Waivers In Arbitration Agreements

    On July 10, 2017, the Consumer Financial Protection Bureau (CFPB) released its long-awaited and controversial final rule on arbitration agreements in contracts for consumer financial products and services. The rule, which takes effect 60 days after its release and requires compliance with its terms 180 days after that, prohibits certain financial services companies from relying on arbitration clauses to block class action lawsuits. It will effectively open up the gates to more class action lawsuits relating to consumer financial products such as  installment loans, credit cards and checking accounts, and will have a significant impact on the financial services industry.

  • August 23, 2017

    In Forged Indorsement Case, Kentucky Court Applies Displacement Principle And Rejects Discovery Rule

    In a recent forged indorsement case from Kentucky, the court got the bank off the hook on a motion to dismiss.  The court applied two oft-litigated rules of check-fraud law: (1) the legal framework of Articles 3 and 4 of the UCC displaces the plaintiff's common-law claims and (2) the UCC's three-year statute of limitations governs, without any "discovery rule" to toll it.  On both issues, the Kentucky decision is consistent with the strong weight of authority.

  • August 23, 2017

    South Carolina Court Rules On Liability Of Beneficiary's Bank In Handling Unauthorized Wire

    In a recent case from South Carolina, the apparent originator of an unauthorized $880,000 wire transfer sought to recover its loss from the beneficiary's bank, but was generally unsuccessful.  The case applies the rules of Article 4A governing misdescription of the beneficiary's identity, as well as the rules governing cancellation of payment orders. 

  • August 23, 2017

    Outside Of Bankruptcy, Suing On A Time-Barred Debt Still Violates The Fair Debt Collection Practices Act

    In the May 2017 issue of this newsletter, we reported on the recent Supreme Court decision holding that filing a proof of claim in bankruptcy for time-barred debt does not violate the Fair Debt Collection Practices Act (FDCPA).  Midland Funding, LLC v. Johnson, 137 S. Ct. 1407, 2017 U.S. LEXIS 2949 (U.S. May 15, 2017).  Writing for the majority, Justice Breyer opined that the simple fact of filing a proof of claim for a debt barred by a state statute of limitations is not a "false, deceptive, misleading, unfair or unconscionable" debt collection practice under the FDCPA. 

  • August 1, 2017

    FRB Issues Final Rule Amending Reg. CC To Account For Electronic Check Collection

    On June 1, 2017, after a multi-year delay, the Federal Reserve Board has published its Final Rule amending Regulation CC, effective July 1, 2018.  The FRB summarizes its efforts as follows:

  • August 1, 2017

    CFPB Proposes Fine-Tune Revisions To Prepaid Accounts Rule

    On June 15, 2017, the CFPB released proposed revisions to fine-tune its final Prepaid Accounts Rule that was published in November 2016, with an effective date of April 1, 2018. The proposal can be found at http://files.consumerfinance.gov/f/documents20170615 cfpb NPRM Prepaid-Accounts-Amendments.pdf.  In its press release dated June 15, 2017, the CFPB summarizes the meteoric rise of prepaid accounts/cards and provides a summary of the two most significant proposed amendments, which will be codified as amendments to Regulations E and Z.

  • August 1, 2017

    Debt Purchasers Collecting On Their Own Behalf Are Not “Debt Collectors” Under The FDCPA

    Disruptive dinnertime calls, downright deceit, and more besides drew Congress’s eye to the debt collection industry. From that scrutiny emerged the Fair Debt Collection Practices Act, a statute that authorizes private lawsuits and weighty fines designed to deter wayward collection practices. So perhaps it comes as little surprise that we now face a question about who exactly qualifies as a “debt collector” subject to the Act’s rigors.