Clarks' Bank Deposits and Payments Monthly
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May 18, 2020
Challenge To BofA’s Gating Policy On SBA Paycheck Protection Program Pending Before The 4th Circuit
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.
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May 18, 2020
Case Law Stands Firm Granting Priority To Judgment Creditor As “Transferee” Of Funds In The Debtor’s Deposit Account
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.
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May 18, 2020
Set-Off Against Treasury Stimulus Checks Is Lawful But Not All Banks Are Going There: What Are The Basics To Consider?
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.
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May 05, 2020
COVID-19: NACHA’s FAQs Offer Guidance To Industry Participants During The Pandemic
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.
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May 05, 2020
COVID-19: Are Deposit Account And Credit Card Fees Under Scrutiny?
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.
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May 05, 2020
COVID-19: NACHA’S Same Day ACH Transaction Limit Raised To $100,000 Just In Time
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.
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May 05, 2020
Hacked Prima Donna Customer Loses To Wells Fargo After Dissing Dual Control In A Recent California Decision
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.
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March 24, 2020
Standby Letters Of Credit In Bankruptcy
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.
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March 24, 2020
Compliance Strategies For Reducing Fraud Risk In Alternative Payment Systems
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.
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March 24, 2020
Cancelling Or Amending Wire Transfers
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.
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March 24, 2020
Business Email Compromise
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.
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March 24, 2020
Status Report On UCC And Related Legislation
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.
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March 10, 2020
CFPB Publishes “Supervisory Highlights” Of Creditor Compliance With The Fair Credit Reporting Act
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.
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March 10, 2020
Eleventh Circuit Protects Beneficiary’s Bank From Liability For Accepting Wire In Spite Of Discrepancy Between Beneficiary’s Name And Deposit Account Number
If a wire transfer identifies the beneficiary by account number, but the number conflicts with the beneficiary’s name as reflected on the deposit account, the beneficiary’s bank is protected if it credits the funds according to the account number. This is the teaching of UCC 4A-207, which protects the bank in crediting the account “by the numbers,” so long as the bank has no actual knowledge of the discrepancy. Bank negligence in failing to discover the discrepancy between name and number is irrelevant. This UCC rule is intended to promote automation in the handling of wire transfers. This is a heavily litigated issue, and a recent decision from the Eleventh Circuit is a classic example of how the UCC rule works in favor of the beneficiary’s bank.
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March 10, 2020
Status Report: Amending The UCC To Accommodate Emerging Technologies
A study committee, formed by the Uniform Law Commission and the American Law Institute, has embarked on the most ambitious and extensive revision project in the 60-year history of the Uniform Commercial Code. Intended to bring the UCC more fully into the digital age, the scope of the study covers all articles of the Code.
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February 04, 2020
Check Cashers As Holders In Due Course
One of the most important applications of negotiable instruments law is the status of a check-cashing company as a holder in due course, with power to enforce the check free from defenses of the drawer. Two decisions—one from New Jersey and the other from Illinois—illustrate how differently courts can come out on the issue.
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February 04, 2020
UCC Rules Govern Loss Allocation In International Check Scam
Law firms have become a favorite target of international check fraudsters. These scams feature bogus checks deposited by a new “client” of the law firm. When the checks bounce, the bank exercises charge-back against the law firm’s deposit account. In response to the charge-back, the unhappy law firm sues the bank. The bank prevails in most of these cases, based on the loss-allocation rules of the UCC and provisions in the deposit agreement. A good example is a leading case from Illinois, Dixon, Laukitis and Downing, P.C, v. Busey Bank, 993 N.E.2d 580, 81 UCC Rep. 2d 259 (Ill. Ct. App. 2013.).
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February 04, 2020
Signature Issues In Signing Notes And Checks
A problem that periodically raises its head in the realm of negotiable instruments has to do with the signatures on the instrument. Because an item is negotiable only where it is “signed,” the failure to have the correct signature on the instrument may render the instrument nonnegotiable.
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February 04, 2020
Standby Letters Of Credit In Bankruptcy
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.
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February 04, 2020
What Law Governs Unauthorized ACH Debits: The UCC Or The ACH Rules?
A company victimized by unauthorized ACH debit transactions received bad news from a court in Florida. In Industrial Park Dev. Corp. v. American Express Bank, 2013 U.S. Dist. Lexis 13929 (M.D. Fla. 2013), the company (i.e., the “receiver” of the ACH debits) sued the ODFl. The only claim made by the company was for conversion, and the court concluded that allocation of loss was governed exclusively by Article 4A of the UCC, which it felt displaced common-law claims such as conversion. For good measure, the Florida court also found that the complaint did not provide sufficient facts to support a conversion claim. In addition to the Florida case, we also analyze recent cases in this area from Pennsylvania and California.