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Consumer Banking and Payments Law: 7.2.3.3 Prepaid Account Agreements

The prepaid rule imposes three requirements upon issuers117 to provide access to their prepaid account agreements.118 The issuer must provide consumers with access to their prepaid account agreements, submit to the CFPB all its prepaid account agreements, and post its agreements on a publicly available website.

Consumer Banking and Payments Law: 7.2.3.4.1 Overview

The prepaid rule outlines a detailed scheme for prepaid account pre-acquisition disclosures,132 which must be provided to consumers before the consumer acquires the prepaid account.133 A disclosure has not been provided before the consumer acquires the prepaid account if the consumer cannot see or access the disclosure before acquiring the prepaid account.134 These disclosures are distinguished from Regulation E’s required initial disclosures,

Consumer Banking and Payments Law: 7.2.3.4.2 Electronic and oral disclosures

As a general rule, Regulation E requires a financial institution to provide disclosures in writing. The financial institution alternatively may make the disclosure electronically subject to compliance with the consumer notice consent and other provisions of the Electronic Signatures in Global and National Commerce (E-Sign) Act.140

Consumer Banking and Payments Law: 7.2.3.4.5 Disclosures required near short form disclosures

Outside but in close proximity to the short form disclosure, a financial institution must disclose its name, the name of the prepaid account program, any purchase price for the prepaid account, and any fee for activating the prepaid account.170 For government benefit accounts, the name of the financial institution that directly holds the account or issues the account’s access device must be disclosed.171

Consumer Banking and Payments Law: 7.2.3.4.7 Disclosures on the prepaid card or other access device

The prepaid rule requires a financial institution to provide two disclosures on the prepaid card or other access device for a prepaid account:185 the financial institution’s name186 and a telephone number and a website URL that the consumer can use to contact the financial institution about the prepaid account.187 If no physical access device is provided, the disclosures must appear on the website, mobile application, or other entry point that a co

Consumer Banking and Payments Law: 7.2.3.5 Initial Disclosures

The prepaid rule extends Regulation E’s initial disclosure requirements189 to prepaid accounts with some differences.190 The financial institution must include all fee information required in the prepaid account long form pre-acquisition disclosures.191 Because a prepaid account consumer’s provisional credit rights are limited if an account is not registered,192 the initial disclosure also must warn c

Consumer Banking and Payments Law: 7.2.3.7 Periodic Statements and the Periodic Statement Alternative

The prepaid rule requires for prepaid accounts that financial institutions follow the standard requirement in Regulation E that periodic statements be sent to the account holder.202 The prepaid rule, however, offers the institution something called the “periodic statement alternative,” which is an alternative to providing periodic statements. The standard provisions in Regulation E for periodic statements require:

Consumer Banking and Payments Law: 7.2.3.8 Error Resolution Procedures

The prepaid rule extends to all prepaid accounts Regulation E’s standard error resolution protections, with some modifications.218 In the rule that was originally issued in 2016, these protections applied even if the financial institution did not require the consumer to register the account or when the institution had not completed its consumer identification and verification proc

Consumer Banking and Payments Law: 7.2.3.9 Limitations on Liability for Unauthorized Charges

Generally, for covered prepaid accounts, financial institutions must comply with Regulation E’s standard provisions that limit the consumer’s liability for unauthorized transfers.229 The final rule as amended in 2018 exempts from the limitation on liability provisions any prepaid account (other than payroll card or government benefit accounts) when the financial institution has not successfully completed its consumer identification and verification process.230

Collection Actions: 3.7.3.1.1 Overview

Surprisingly, the law selected in a credit contract may have a shorter limitations period than that of the forum state. For example, Chase, Bank of America, Discover, and Barclays agreements specify Delaware law, which has a three-year limitations period even for written contracts—a period significantly shorter than many other states. (On the other hand, Citi and Wells Fargo use South Dakota law, which has a six-year limitations period even for non-written contracts.)

Consumer Banking and Payments Law: 3.7.2.2.2 Consequences if drawer’s signature is missing or forged

In the case of any forgery of the drawer’s signature, the drawee bank must re-credit the account and cannot assert subrogation rights against the drawer whose name was forged.303 Rather, the drawee is stuck with the loss from the improper payment on a forged drawer’s signature, unless a prior party (not including the drawer) breaches a presentment warranty by having “knowledge that the signature of the purported drawer of the draft is unauthorized.”304 However, a forged or unauthorized signature

Consumer Banking and Payments Law: 3.7.2.3 Forgery of the Payee’s Name or a Special Indorsee’s Name

If the payee or a special indorsee signs a check in blank and it is then stolen, the check is still properly payable out of the drawer’s account, since the blank indorsement has turned the check into bearer paper.314 But if the payee’s name is forged, or a special indorsee’s name is forged, the check is not properly payable, and the drawee bank cannot charge the drawer’s account.315 This is because the drawer instructed the bank to follow the instructions of the payee (with “pay to the order of”

Consumer Banking and Payments Law: 3.7.2.4 Stopped Payments

A stop payment order is essentially an order to the drawee bank telling the drawee bank not to honor a specific check when it is presented for payment. The drawee bank cannot charge a customer’s account if a customer has properly stopped payment on a check since, when the customer stops payment, it is a recanting or reversal of the order to pay contained in the check. The key to making the check not properly payable is to follow rules on stop payment orders, which are described here.

Consumer Banking and Payments Law: 3.7.2.5 Closed Accounts

Both the UCC rules on closing bank accounts and the common law of agency give customers the right to close a bank account at any time, and to prevent the bank account from being re-opened without the customer’s consent. The consumer’s right to close the account is discussed in § 2.9.2, supra.

Consumer Banking and Payments Law: 3.7.2.6 Death or Incompetence of the Depositor

A bank may continue making payments on checks drawn on the account of a depositor who has died or been adjudicated incompetent until it knows that the depositor has died or been adjudicated incompetent and has reasonable opportunity to act on that notice.355 Additionally, even if the bank receives notice of the customer’s death, for ten days after the date of death the bank may pay on checks drawn before the death date unless someone claiming an interest in the account orders the bank to stop payment on those checks.

Consumer Banking and Payments Law: 3.7.2.7.2 Obligations of debt collector and other payees regarding post-dated checks and other payment instruments

The fact that a bank may not be liable for cashing a post-dated check prior to the date on the check does not mean that the consumer does not have remedies vis-à-vis the payee for cashing a check early. The UCC rules concerning post-dated checks define the relationship between the consumer and her bank, not between the consumer and the payee on the underlying transaction, including whether the payee agreed to not cash the check before a certain date.

Consumer Banking and Payments Law: 3.7.2.8 Checks Older than Six Months (Stale Checks)

Six months after the date on any check, the check is considered a “stale” check.377 A stale check is properly payable only if the drawee bank pays it in good faith.378 Good faith is defined as “honesty in fact and the observance of reasonable commercial standards of fair dealing.”379 White and Summers have opined that a bank does not act in good faith if it notices the date on the stale check and pays it anyway without checking with the drawer.

Consumer Banking and Payments Law: 3.7.2.9 Insufficient Funds and Overdrafts

When there is not enough money in an account to cover a check that is presented, the check may or may not be properly payable, depending on if the customer has an agreement with the bank requiring the bank to pay checks even if they create an overdraft.385 If the customer has an overdraft agreement, checks creating an overdraft up to the limit of the overdraft agreement are properly payable.386 If there is no such agreement, checks creating an overdraft are not properly payable.

Consumer Banking and Payments Law: 5.17.4 EFTA Statute of Limitations

A consumer must bring an action under 15 U.S.C. § 1693m within one year from the date of the occurrence of the violation.1562 The statute of limitations on a claim based on violation of the error resolution procedure does not begin to run until ten days after the date the consumer gives notice of the alleged error to the financial institution.1563