Article 4A of the Uniform Commercial Code (UCC) does not always occupy the field of loss allocation for wire transfers. When the race to set off is in trouble, common law causes of action such as unjust enrichment, fraud, and conversion may come into play as well. A federal district court order dated March 20, 2020, denying a motion for a judgment on the pleadings, illustrates this point.
The first 100 days are over since Nacha's rule quadrupling the Same Day ACH per transaction entry limit from $25,000 to $100,000 became effective. In keeping with its role as overseer of the ACH network's operating rules and standards, on July 9, 2020, Nacha released "informal" guidance "interpreting" the large-dollar Same Day ACH entry limit. The guidance focuses on evasion.
Depositary banks are often caught between a rock and a hard place when faced with an adverse claim from a third-party fraud victim. Developments in litigation before the California federal court illustrate how adverse claim statutes afford depositary banks a first line of defense, but are often ignored.
The Federal Deposit Insurance Corporation (FDIC) recently issued its Final Rule on the permissibility of interest rate transfers. The Final Rule is the companion rule to the Office of the Comptroller of the Currency's (OCC) rulemaking released a few days earlier. The FDIC's Final Rule is intended to clarify "the law that governs the interest rates State-charted banks and insured branches of foreign banks … may charge."
Since the Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB) in 2008, a shadow has hung over the agency. Dodd-Frank implemented a unique structure for the CFPB consisting of a single director insulated from the executive power of the President because he or she is only removable "for cause." CFPB's critics attacked this single-director structure as unconstitutional. Under the separation of powers doctrine, they argued, the President must retain the unconditional power to remove the director as a matter of discretion, or "at will." For its detractors, disbanding the CFPB became their mission. Under that scenario, the unconstitutional for-cause removal rule for the agency's director would render the whole agency illegitimate.
The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act introduced a consumer protection regime that broadly prohibits unfair, deceptive, and abusive acts by financial institutions and other covered entities or persons in connection with consumer transactions regarding financial products or services. While earlier UDAP statutes, such as Section 5(a) of the FTC Act, prohibit unfair and deceptive acts and practices, Dodd-Frank added the "abusive" piece. In the years since the enactment of Dodd-Frank, the Consumer Financial Protection Bureau, which administers Dodd-Frank UDAAP, has struggled to define what constitutes "abusive" behavior and to differentiate abusive acts from unfair or deceptive acts.
Due to the restrictions on social distancing created by the Coronavirus pandemic, the days when closings on big financial deals occurred in person around the board room table seem to be gone, at least until the spread of COVID-19 is arrested. The customary handshake and pat-on-the-back are no longer socially acceptable. E-signatures are becoming more common than wet ones.
As his first major policy initiative, on the day he assumed office, acting Comptroller of the Currency Brian Brooks spearheaded the release of the OCC’s final rulemaking on permissible interest rate transfers. The Final Rule is intended to offer comfort to national banks and federal savings associations relying on the “valid-when-made” common law principle, which protects the interest rate on a loan after the loan is transferred.
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.