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Consumer Banking and Payments Law: 3.12.5.4 Banks Can Require Written Claim Submissions

A bank can accept a claim for a re-credit in any form, but the bank can require the information to be submitted in writing.733 If the bank does require a submission in writing, it must inform the consumer of that requirement and provide a location to which such a written claim should be sent.734 If the consumer has agreed to communicate with the bank electronically, the bank that requires a written submission can permit the consumer to submit the claim electronically.

Consumer Banking and Payments Law: 3.12.5.6 Reversing the Re-Credit

A bank that re-credits the consumer’s account may determine that it wrongly re-credited the account because the substitute check was properly charged to the account. In that situation, the bank may reverse the re-credit if the bank notifies the consumer of the amount of the reversal and the date the re-credit was reversed.749

Consumer Banking and Payments Law: 3.12.6.1 Generally

The Check 21 Act does not provide private remedies for unauthorized check payments or related issues. It only provides remedies when the substitute check process, as opposed to the processing of the underlying original check, causes consumer injury.757 For example, a remedy is provided if conversion of the paper check to an electronic image and back to a substitute check results in the check being paid twice or if the substitute check does not accurately reflect the original check.

Consumer Banking and Payments Law: 3.12.6.2 Damages

A private action under the Check 21 Act can be brought in federal or state court but must be brought within one year of when the consumer first learns or should reasonably have learned of the facts and circumstances giving rise to the cause of action.758 However, even before this one-year period expires, if a consumer who is aware or should be aware of a claim delays in giving notice of a claim, the bank may not be liable for additional losses caused by that delay.759 A bank cannot ask the consu

Consumer Banking and Payments Law: 3.12.6.3.1 Generally

When a paper check is converted and a substitute check is provided, the banks involved make two types of warranties: the warranty of legal equivalency and the warranty regarding duplicative payment. Breach of these warranties can lead to a claim for consequential damages and also allow the consumer to require the bank to investigate the consumer’s claim and provide an expedited credit.764 The first bank that gives the warranties is the reconverting bank, the bank that creates the substitute check.

Consumer Banking and Payments Law: 3.12.6.3.2 The legal equivalence warranty

The “legal equivalence” warranty770 provides that any bank that transfers, presents, or returns a substitute check warrants that the substitute check meets all the requirements for legal equivalence.771 This warranty protects against the risk of errors occurring in encoding the amount of the check and account numbers and against a substitute check’s blurry image resulting in the consumer suffering loss because the consumer needed an accurate copy to determine the validity of a claim.

Consumer Banking and Payments Law: 3.12.6.3.3 The duplicative payment warranty

The “duplicative payment” warranty776 warrants that no other party will be asked to make a payment based on a check that the bank, drawee, drawer, or endorser has already paid.777 This warranty protects against the possibility that the original check will be processed and presented for payment as well as the substitute check, resulting in a double debit.

Consumer Banking and Payments Law: 3.12.6.5 Certain Banks Have Limited Liability to Certain Parties Even When No Warranty Is Breached

Certain parties can recover any loss related to a substitute check from certain banks—but only up to the amount of the substitute check—even if the Act is not violated and no warranty is breached.789 The parties liable under this provision are the reconverting bank and subsequent banks. Parties that can pursue such a claim are limited to the drawer, payee, endorser, depositor, and various banks and transferees. The parties can also recover interest and expenses, plus costs and reasonable attorney fees and other expenses of representation.

Consumer Banking and Payments Law: 7.1 Overview of Types of Stored Value Systems

The term “stored value card” or “stored value system” is a generic term that covers a wide variety of payment devices. In general, the term refers to funds that are not held in an individual bank account and that may be redeemed for goods or services or sometimes for cash. Most stored value systems are referred to by their function—such as “gift card,” “prepaid card,” “payroll card,” or “prepaid phone card.” Many stored value systems are reloadable accounts that are bank accounts in all but name.

Consumer Banking and Payments Law: 7.2.1 What Is a Prepaid Card or Prepaid Account?

The term “prepaid card” does not have a clear, uniform meaning. Specific regulatory definitions are discussed in the context of the relevant regulation. The CFPB’s prepaid accounts rule (hereafter “the prepaid rule”), effective April 1, 2019, uses the term “prepaid account” and has a precise definition of accounts covered by that rule. The Regulation II rules governing interchange fees use the term “prepaid card” and cover a narrower set of devices.5

Consumer Banking and Payments Law: 7.2.2 Parties Involved in a Prepaid Card

Prepaid cards are often very complex products with a number of different parties involved behind the scenes. Understanding the different players can be important in determining who is responsible to the consumer, what laws apply, and who regulates the party.13

Several distinct functions are often performed by different parties:14

Consumer Banking and Payments Law: 7.2.3.1.1 Overview; fee limits

The Consumer Financial Protection Bureau (CFPB) has issued a final rule, the prepaid accounts rule (hereafter “the prepaid rule”), effective April 1, 2019.20 The prepaid rule amends Regulations E and Z to provide consumer protections for prepaid cards and other prepaid accounts.21 This section examines Rule provisions amending Regulation E.

Consumer Banking and Payments Law: 7.2.3.1.2 Effective date of Prepaid Rule

The prepaid rule’s general effective date is April 1, 2019.43 However, some provisions have different effective dates. When the general effective date was to be April 1, 2018, the CFPB published a fact sheet on the rule’s different effective dates.44 Although the dates have been pushed back, this may prove helpful in determining which provisions go into effect on April 1, 2019, and which go into effect on a later date.

Consumer Banking and Payments Law: 7.2.3.2.1 Financial institutions covered and overview of prepaid accounts covered

The prepaid rule applies to financial institutions, as defined in Regulation E.57 That definition includes not only depository financial institutions, like banks and credit unions, but also “any other person that directly or indirectly holds an account belonging to a consumer, or that issues an access device and agrees with a consumer to provide electronic fund transfer services,” with certain exclusions.”58 Thus, Regulation E’s definition of “account” effectively expands the definition of “financia

Consumer Banking and Payments Law: 7.2.3.2.2 Payroll card accounts

The prepaid rule applies to payroll card accounts, defined as an account that is established directly or indirectly through an employer,68 and to which electronic fund transfers of the consumer’s wages, salary, or other employee compensation (such as commissions) are made on a recurring basis.69 This is the same definition of payroll card accounts under the payroll card rule.70 Employer disbursements to the account includ

Consumer Banking and Payments Law: 7.2.3.2.6 Exclusions

Several exclusions to coverage apply only to the third and fourth definitions of a prepaid account—marketed or labeled as “prepaid”101 and issued or loaded with the proper primary function.102 The exclusions do not apply to the first and second definitions concerning payroll and government benefit accounts.103 An account that would otherwise satisfy the third or fourth definition is not a covered prepaid account if it is any of th

Consumer Banking and Payments Law: 7.2.3.2.7 Relation to state law

Regulation E and the Electronic Fund Transfer Act preempt state law covering prepaid products only to the extent they are inconsistent with state law, and only to the extent of the inconsistency.114 State law is not inconsistent if it provides consumers greater protection than they have under federal law.115 Thus, state laws that provide greater protection for prepaid, payroll, or government benefits accounts are not preempted by Regulation E, though they may be preempted by federal banking regu