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Consumer Banking and Payments Law: 1.5.10.2.2 Affirmative misrepresentations

There is broad agreement that federal law does not preempt claims that banks made affirmative misrepresentations about the operation of their overdraft programs.202 As the Ninth Circuit has stated, “[s]tate laws of general application, which merely require all businesses (including national banks) to refrain from fraudulent, unfair, or illegal behavior, do not necessarily impair a bank’s ability to exercise its . . . powers.”203

Consumer Banking and Payments Law: 1.5.10.2.3 Duty of good faith and unconscionability

A number of courts have held that federal law does not preempt a claim that a bank violated the duty of good faith and fair dealing by measures such as manipulation of posting order.204 Since the duty of good faith and fair dealing is uniformly imposed on all parties as an element of contract law, courts have recognized that compliance with that duty has no more than an incidental effect on a bank’s exercise of its deposit-taking powers, so it falls within the savings clause of the preemption regulation.2

Consumer Banking and Payments Law: 6.7.5.2 Consumer Liability for Unauthorized Transfer If Bound by Agency

A consumer can be liable for an unauthorized funds transfer if the consumer authorized the payment order or if the consumer is otherwise bound by the payment order under applicable laws of agency.458 However, it is highly unlikely that a bank would be able to assert that a consumer is bound under the applicable laws of agency. As the First Circuit explained, “ ‘in a very large percentage of cases covered by Article 4A, . . .

Consumer Banking and Payments Law: 6.7.5.3.1 Transfer deemed authorized if validated by agreed-upon, commercially reasonable security procedure

Article 4A provides a second way for a bank to shift liability to the consumer for unauthorized funds transfers.460 A funds transfer is deemed authorized by the consumer if the bank verified the authenticity of the instruction with a security procedure agreed to by the consumer.461 The bank must verify the authenticity of the payment order in good faith using a commercially reasonable security procedure t

Consumer Banking and Payments Law: 6.7.5.3.2 Consumer must agree to the security procedure

To shift the liability of an unauthorized transfer to a consumer, the security procedure used by the bank must be one “established by agreement of a customer and a receiving bank.”464 The term does not apply to “procedures that the receiving bank may follow unilaterally in processing payment orders.”465 The consumer must agree to a specific security procedure, not merely the fact that the bank will use so

Consumer Banking and Payments Law: 6.7.5.5 Consumer Liability for an Unauthorized Transfer Can Be Limited by Agreement or By Showing That It Was Not Caused Directly or Indirectly by the Consumer

Although an unauthorized funds transfer may be deemed authorized because the consumer’s bank verified the authenticity of the instruction with a security procedure agreed to by the consumer—i.e., the bank validated the funds transfer—Article 4A does provide a mechanism for limiting or eliminating the consumer’s liability.494

Consumer Banking and Payments Law: 6.7.8.2 Common Law Claims That Are Not Preempted by UCC Article 4A

Article 4A is not the “exclusive means by which a plaintiff can seek to redress an alleged harm arising from a funds transfer.”568 A plaintiff may assert a common law claim based upon a funds transfer if the claim “(1) arises from circumstances not contemplated in Article 4A or (2) represents rights and obligations not contrary to those set forth in Article 4A.”569 As the First Circuit put it, “courts hav

Consumer Banking and Payments Law: Introduction and Listing of Provisions

This appendix reprints those selected provisions of the Uniform Commercial Code (UCC) Articles 1, 3, 4, and 4A and their official comments that are most often consulted in consumer cases involving checks and wires. Every state has adopted these four UCC Articles, but not every state has adopted the same version.

Article 1 was revised in 2001 and every state has adopted those amendments.

Consumer Banking and Payments Law: Section 1-103. Construction of [Uniform Commercial Code] to Promote Its Purposes and Policies; Applicability of Supplemental Principles of Law.

(a) [The Uniform Commercial Code] must be liberally construed and applied to promote its underlying purposes and policies, which are:

(1) to simplify, clarify, and modernize the law governing commercial transactions;

(2) to permit the continued expansion of commercial practices through custom, usage, and agreement of the parties; and

(3) to make uniform the law among the various jurisdictions.

Consumer Banking and Payments Law: Section 1-104. Construction Against Implied Repeal.

[The Uniform Commercial Code] being a general act intended as a unified coverage of its subject matter, no part of it shall be deemed to be impliedly repealed by subsequent legislation if such construction can reasonably be avoided.

Official Comments

Source: Former Section 1-104.

Changes from former law: Except for changing the form of reference to the Uniform Commercial Code, this section is identical to former Section 1-104.

Consumer Banking and Payments Law: Section 1-201. General Definitions.

(a) Unless the context otherwise requires, words or phrases defined in this section, or in the additional definitions contained in other articles of [the Uniform Commercial Code] that apply to particular articles or parts thereof, have the meanings stated.

(b) Subject to definitions contained in other articles of [the Uniform Commercial Code] that apply to particular articles or parts thereof:

* * *

(2) “Aggrieved party” means a party entitled to pursue a remedy.

Consumer Banking and Payments Law: Section 1-202. Notice; Knowledge.

(a) Subject to subsection (f), a person has “notice” of a fact if the person:

(1) has actual knowledge of it;

(2) has received a notice or notification of it; or

(3) from all the facts and circumstances known to the person at the time in question, has reason to know that it exists.

(b) “Knowledge” means actual knowledge. “Knows” has a corresponding meaning.

Consumer Banking and Payments Law: Section 1-205. Reasonable Time; Seasonableness.

(a) Whether a time for taking an action required by [the Uniform Commercial Code] is reasonable depends on the nature, purpose, and circumstances of the action.

(b) An action is taken seasonably if it is taken at or within the time agreed or, if no time is agreed, at or within a reasonable time.

Official Comments

Source: Former Section 1-204(2)-(3).

Consumer Banking and Payments Law: Section 1-304. Obligation of Good Faith.

Every contract or duty within [the Uniform Commercial Code] imposes an obligation of good faith in its performance and enforcement.

Official Comments

Source: Former Section 1-203.

Changes from former law: Except for changing the form of reference to the Uniform Commercial Code, this section is identical to former Section 1-203.