Consumer Banking and Payments Law: 5.17.2a.1 Unintentional, Bona Fide Errors
Section 1693m contains four statutory defenses to EFTA liability.
Section 1693m contains four statutory defenses to EFTA liability.
The second EFTA statutory defense to liability provides that a defendant is not liable for any act done or omitted in good faith that conforms to any rule, regulation or interpretation by the CFPB or in conformity with any interpretation or approval by an official or employee duly authorized to issue interpretations or approvals under prescribed procedures, notwithstanding that the rule, regulation or approval is later invalidated.1536 Several other
The third statutory defense to EFTA liability provides that there is no liability if the person uses the appropriate model clause issued by the CFPB.1550 The Dodd-Frank Act also authorizes the CFPB to create model disclosures and contains a similar safe harbor from liability for use of the model forms.1551
The fourth statutory defense to EFTA liability provides that a person is not liable if, before the consumer filed the lawsuit, the person notified the consumer, complied with the requirements of the EFTA, made an appropriate adjustment to the consumer’s account, and paid actual damages.1555
In addition to the defenses in the EFTA, the Dodd-Frank Act provides a safe harbor related to trial disclosure programs.
The EFTA casts liability on “any person” who violates one of its provisions. Some of the EFTA’s substantive requirements and prohibitions apply only to financial institutions, but certain entities that do not hold consumer accounts but provide electronic fund transfer services are nevertheless subject to the EFTA in almost the same manner.1559 Some Regulation E provisions apply to any “person,” not merely financial institutions.1560
This chapter discusses issues primarily related to the bank-customer relationship and bank accounts.1 The Truth in Savings Act currently applies only to bank accounts, but some of the other topics discussed in this chapter may apply to non-bank financial service providers that hold consumer funds in deposit accounts or very similar types of accounts, like prepaid card accounts or mobile wallets.
Consumers with blemished credit reports may have difficulty opening a bank account. Banks, like other financial service providers, conduct checks with consumer reporting agencies before permitting consumers to open an account. They typically use specialized consumer reporting agencies, like ChexSystems, that focus on the consumer’s history with bank accounts.
State bank supervisors have posted an online interactive map outlining the requirements in each state for opening a bank account for a minor.13 The purpose of this resource is to assist financial institutions in determining whether, and to what extent, they are allowed to provide bank accounts to minors.
When a customer opens a deposit account at a depository institution, the relationship between the bank and the customer is governed by the contract between the customer and the institution and by applicable statutes and regulations. The essence of the bank-customer relationship is that the bank owes the customer the money and is therefore a debtor of the customer.15
Banks have a duty to act in good faith and use ordinary care in their dealings with their customers, arising both under common law and under the Uniform Commercial Code (UCC).18 The UCC does not create a separate duty of fairness and reasonableness that can be independently breached, but the duty to act in good faith and use ordinary care does color the interpretation of—and duties under—the UCC.19 A specific, applicable provision of the UCC may trump a more generalized common law duty.
Prior to the amendment of Regulation D in 2020, the Federal Reserve Act imposed different requirements on checking accounts than on savings accounts, and those rules impacted how consumers could access funds in a savings account.
The Truth in Savings Act (TISA) was passed in 1991 for the purpose of requiring clear and uniform disclosures of interest rates and fees in connection with deposit accounts so that consumers could make meaningful comparisons.28 The TISA also requires disclosure of a number of other aspects of savings and demand deposit accounts, and regulates the calculation of interest payable.
The TISA disclosures must be provided before an account is opened or a service for which a fee is charged is provided, whichever is earlier.35
For any checking or savings account that pays interest, the TISA and Regulation DD require that the rate of interest offered and paid on deposit accounts be displayed as an “annual percentage yield” (APY).39 Regulation DD sets forth the manner of calculating the APY,40 and also requires disclosures about:
TISA requires deposit account disclosures to include information on the minimum balance required to open the account, to avoid the imposition of a fee, or to obtain the APY disclosed—and the disclosure must state how the balance is determined for those purposes.57
Any limitations on the number or dollar amount of withdrawals or deposits must also be disclosed.58
TISA and Regulation DD do not require periodic statements,65 but do dictate information that must be included in statements if provided.
TISA and Regulation DD govern the method of calculating the interest that is payable on an interest bearing account. The regulations detail the permissible methods of calculating interest, how the minimum balance to earn interest is determined, compounding and crediting policies, and when interest begins to accrue.75
Institutions need not pay interest on timed accounts after the account matures, but must pay interest on dormant or inactive accounts.76
The Electronic Fund Transfer Act requires certain initial disclosures at the time a consumer contracts for an electronic fund transfer service or before the first electronic fund transfer, as well as other subsequent disclosures under certain circumstances.
When a consumer has insufficient funds to cover a check or a debit card, ATM, or other electronic transfer (typically an automated clearing house (ACH) transaction), the financial institution can either deny payment or cover the amount of the transaction. This subsection considers fees assessed in situations in which the bank pays the item, and makes an overdraft loan,85 despite the fact that the account does not contain sufficient funds and the account has not been linked to another account that provides a source of funds or credit.
This subsection covers fee-based overdraft programs under which the bank pays certain items, and charges an overdraft fee, despite the account having insufficient funds. Fee-based overdraft programs, sometimes euphemistically called “courtesy” overdraft services or “bounce protection,” extend short-term credit at triple-digit rates88 but exploit legal loopholes to avoid compliance with credit laws.89