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Consumer Banking and Payments Law: 5.17.5 Private Enforceability of NACHA Rule Violations

NACHA rules apply to virtually all ACH entries transmitted through an ACH operator.1573 But they are not a public body of law, and they do not create a right of action for consumers.

Many of the rules do create rights for consumers (such as the right to stop payment, revoke authorization, or receive re-credit for an unauthorized transfer). Because a consumer is an obvious beneficiary of the rules, one might reasonably assume that a consumer may bring a third-party beneficiary contract claim to enforce compliance with the rules.

Consumer Banking and Payments Law: 5.17.6.1 Introduction

Article III, section 2 of the United States Constitution limits the judicial power of federal courts to cases and controversies. Article III standing when seeking statutory damages under a federal consumer protection statute, such as the EFTA, has become an important issue since the Supreme Court’s 2016 decision in Spokeo, Inc. v. Robins1594 and its 2021 decision in TransUnion L.L.C. v.

Consumer Banking and Payments Law: 5.17.6.5.2 Informational injuries

The Spokeo decision also addresses informational injuries to some extent. It cites two earlier decisions with approval in which it had held that the plaintiffs had standing to litigate the denial of information that the law required to be disclosed.1525 The context suggests that the Court was treating these two cases as examples of procedural violations, although the opinion does not give any guidance as to whether the court would consider all informational requirements as procedural.

Consumer Banking and Payments Law: 5.17.6a Actions Brought in Bad Faith or for Harassment

Upon a finding by the court that an unsuccessful action under the EFTA was brought in bad faith or for purposes of harassment, “the court shall award to the defendant attorney’s fees reasonable in relation to the work expended and costs.”1732 Bad faith can arise after the filing of a complaint, and the fact that a claim made it to trial does not automatically mean that it cannot be brought in bad faith.1733

Consumer Banking and Payments Law: 5.17.7 NACHA Enforcement of Consumer Complaints

NACHA rules specify that they do not create rights or remedies for consumers.1734 However, every financial institution participating in the NACHA system agrees to comply with the rules’ enforcement procedure,1735 which provides a method for reporting rules violations and the imposition of fines.1736 Any “ACH participant” who is a party to a transaction may submit to NACHA a rep

Consumer Banking and Payments Law: 6.1 Introduction

This chapter generally discusses the alternative payment systems and devices that are typically not directly connected to bank accounts or prepaid card accounts. These payment devices are often used by people who do not have bank accounts (called the “unbanked”) or who do not use those accounts regularly (the “underbanked”). These consumers often have fewer payment options because they do not have ready access to the banking system.

Consumer Banking and Payments Law: 6.2.1 Overview

Money orders are a crucial type of payment device for consumers who do not have bank accounts.6 In a typical money order transaction, the consumer purchases an order in a one-time transaction. Typically, money orders are sold with one original and two carbonized copies. The issuer keeps a copy of the check. The payee on the check is left blank, and the consumer who purchases the money order fills in the name of the payee.

Consumer Banking and Payments Law: 6.2.2 Distinguishing Bank from Personal Money Orders

There are two types of money orders: bank money orders and personal money orders. Whether a money order is a bank or personal money order depends on how the money order is written. As explained in the commentary to the UCC: “‘Money orders’ are sold both by banks and non-banks. They vary in form and their form determines how they are treated in Article 3.”10

Consumer Banking and Payments Law: 6.2.3.2.1 Forgery of the payee’s name

As described in § 6.1.2, supra, a bank money order is not treated like a personal check. Rather, with a bank money order, the drawer and drawee are both banks, and the purchaser of the money order has the rights of a “remitter.”

If a bank money order is lost or stolen and the payee’s name is forged, the remitter is given the right to bring a conversion action—a right that normally can only be asserted by the payee itself.

Consumer Banking and Payments Law: 6.2.3.2.2 Replacing or getting a refund on a lost or stolen bank money order

When a bank money order is lost or stolen, the purchaser is likely to want a replacement bank money order or a refund from the issuing bank. The problem for the bank is that if the bank money order is presented for payment by someone entitled to enforce the bank money order, the bank will be obligated to pay the bank money order, which has been pre-accepted by the bank. If it refunds the money to the purchaser of the money order, or issues a replacement bank money order, the bank will have paid out the value of the money order twice.

Consumer Banking and Payments Law: 6.2.4.1 Introduction

When a consumer pays for something with a check from the consumer’s bank account, the consumer has a certain period of time between the issuance of that check and the time when the check is presented to stop payment on the check, thereby preventing a defrauding payee from being paid.41 So long as the stop payment order is given before the check is presented, the consumer drawer will not have the money taken out of his/her bank account.