Garnishment of deposit accounts is a timely topic for banks, deposit account holders, and third-party creditors, especially now while successive waves of the Coronavirus pandemic are proving relentless.
Federal benefit payments are protected under federal law from creditors, other than the United States government and certain state agencies, seeking to access the funds by way of a garnishment order issued by a court. These benefits are directly deposited into consumer accounts. Even with the protections afforded by federal law, financial institutions subject to a garnishment order are quick to freeze accounts containing federal benefit payments.
On June 25, 2021, the United States Supreme Court released its opinion in TransUnion LLC v. Ramirez, 2021 U.S. LEXIS 3401 (TransUnion). At issue was whether several thousand putative class members who had information added to their credit report indicating that they might be terrorists, drug traffickers, or other serious criminals, even though they were none of these things, had standing to assert claims for statutory damages under the Fair Credit Reporting Act (FCRA). Building upon and extending the logic of Spokeo, Inc. v. Robins, 578 U.S. 330 (2016) (Spokeo), the Supreme Court held that Article III standing requires a federal court plaintiff to demonstrate that they have suffered a concrete harm: “No concrete harm, no standing.”
Regulation E implements protections for persons who send remittances to individuals and businesses in foreign countries (Remittance Rule). The most recent amendments to the Remittance Rule promulgated by the Consumer Financial Protection Bureau (CFPB or Bureau) raised the safe harbor compliance exemption threshold (2020 Safe Harbor Exemption).The consequences are most important for smaller players in the marketplace.
Legal decisions are legion where the strict application of the standing requirement knocks out a potential litigant’s day in court on what appears to be a technicality. This is the usual outcome in cases where the legal issue is who is the bank’s “customer” for standing purposes.
The Federal Reserve Board is seriously considering creating a new payments system based on a Central Bank Digital Currency (CBDC). CBDC is issued by a nation’s central bank in digital form as a substitute for cash in physical form. Digitizing the U.S. dollar would largely bypass existing electronic payment systems.
On June 30th, President Biden signed into law three joint resolutions under the Congressional Review Act (“CRA”). One of those resolutions, S.J.Res. 15, disapproved of and nullified the Office of the Comptroller of the Currency’s rule titled “National Banks and Federal Savings Associations as Lenders,” more commonly known as the true-lender rule. The resolution passed Congress with essentially unanimous Democratic approval but with only one Republican House member and 3 Republican Senators signing on.
In two recent federal district court decisions, credit unions relied on the statute of limitations to successfully block consumer class action lawsuits challenging allegedly improper overdraft fees under the EFTA and Reg E.
The practice of temporarily covering a payment against insufficient funds in a deposit account used to be a practice banks offered as a courtesy to existing customers in good standing. Today, it is common for banks and credit unions to charge “overdraft fees.” Overdraft fees generate over $34 billion in revenue annually.
A recent Maryland federal court decision interpreting the UCC’s provisions on wrongful dishonor recounts a whopper of a story. The facts read like a bad saga of alleged flip-flopped decisions by the drawee bank compounded by clerical mistakes. At times, the drawee bank even reverses its own reversals, at least as pled in the complaint. The opinion decides a motion to dismiss.
The prior story discusses Titan Custom Cabinets, Inc. v. Truist Bank, 220 U.S. Dist. LEXIS 229713, 103 UCC Rep.2d 653 (D. Md. 2020) (Titan). The facts bring into play the UCC’s provisions on stale check and legends. Near the end of the long saga of dealings between the plaintiffs and the defendant drawee bank in Titan, the complaint charges the drawee bank with wrongfully honoring a check even though it was stale and contained a legend with a condition. The opinion describes the facts in this way: SunTrust honored the check “negotiated more than 180 days after issuance, even though it bore the legend that it would only be good for 90 days.”
The Clearing House (TCH) is on a mission to convince the Board of Governors of the Federal Reserve System (Fed or Board) to even out the regulatory landscape for big banks in regard to the exemption small banks enjoy from limitations on interchange fees.
A basic principle of UCC Article 4A governing funds transfer is known as the “displacement principle.” As a matter of public policy, Article 4A favors the beneficiary bank and disfavors the victim of the wire transfer fraud.
In the March 2021 edition of this newsletter, we reported on the decision of the Southern District of New York in a lawsuit involving a massive wire-transfer mistake. The Second Circuit has entered a briefing schedule, which will see the appeal (Case No. 21-487) fully briefed by late-July, with oral argument set to occur in August or September of 2021. In the meantime, the parties have recently finished briefing in the Southern District related to Citibank’s motion for an injunction that would prohibit the defendants from distributing the erroneously transferred funds in the meantime. The briefing hints at how the issues on appeal may shake out and how the decision is already beginning to impact the wire-transfer industry.
In March, the Second Circuit Court of Appeals heard oral argument in Lacewell v. Office of the Comptroller of the Currency (Case No. 19-04271). This is the appeal from the Southern District of New York lawsuit in which the New York Department of Financial Services challenged the OCC’s decision to begin accepting special purpose national bank charters (“SPNB charters” or “fintech charters”) from financial technology companies that would participate in certain aspects of the business of banking but which would not receive deposits. (S.D.N.Y. Case No. 18 Civ. 8377) The district court sided with DFS, determining that DFS had standing and that the National Bank Act precluded the OCC from issuing charters to entities that do not receive deposits.
Federal legislation giving financial institutions the green light to bank marijuana-related-businesses (MRBs) is once again before the 117th Congress. This time around there seems to be bipartisan support in both the House and Senate for passage.
A blockbuster lawsuit out of the Southern District of New York—involving a nearly $900 million wire-transfer mistake—has raised a host of questions about fairness, equity, and the “discharge for value” affirmative defense. The case, which is already subject to an expedited appeal in the Second Circuit, is certain to be a hot topic for some time to come and promises—one way or another—to have a lasting impact upon the wire transfer industry.
Common sense suggests that account holders will become disgruntled when their money market investment accounts (MMIAs) are converted into money rates savings account (MRSAs) and subsequently, the bank lowers the interest rate from a guaranteed 6.5% to the then variable market rate of 0.01% per year.
For years, the payments giant PayPal wrangled unsuccessfully with the Consumer Financial Protection Bureau (Bureau or CFPB) over its decision to treat certain types of “digital wallets” capable of storing funds as “prepaid accounts” subject to the Bureau’s prepaid accounts rule. After the Bureau finalized its prepaid accounts rule, PayPal brought a lawsuit in the United States District Court for the District of Columbia challenging two key provisions of the final prepaid rulemaking.
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.