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Consumer Banking and Payments Law: Amendment History

[53 Fed. Reg. 19,433 (May 27, 1988), as amended at 53 Fed. Reg. 31,293 (Aug. 18, 1988); Reg. CC, 55 Fed. Reg. 21,855 (May 30, 1990); 55 Fed. Reg. 50,818 (Dec. 11, 1990); 56 Fed. Reg. 7802 (Feb. 26, 1991); 57 Fed. Reg. 3280 (Jan. 29, 1992); 60 Fed. Reg. 51,671 (Oct. 3, 1995); 62 Fed. Reg. 13,811 (Mar. 24, 1997); 62 Fed. Reg. 48,752 (Sept. 17, 1997); 69 Fed. Reg. 47,315, 47,316 (Aug. 4, 2004)]

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Consumer Banking and Payments Law: Amendment History

[53 Fed. Reg. 31,293 (Aug. 18, 1988); 53 Fed. Reg. 44,325 (Nov. 2, 1988); 54 Fed. Reg. 13,851 (Apr. 6, 1989); 54 Fed. Reg. 32,047 (Aug. 4, 1989); 55 Fed. Reg. 21,856 (May 30, 1990); 55 Fed. Reg. 50,818 (Dec. 11, 1990); 56 Fed. Reg. 7802 (Feb. 26, 1991); 57 Fed. Reg. 3280 (Jan. 29, 1992); 57 Fed. Reg. 36,598, 36,601 (Aug. 14, 1992); 57 Fed. Reg. 46,973–46,975 (Oct. 14, 1992); 57 Fed. Reg. 52,719 (Nov. 5, 1992); 60 Fed. Reg. 51,672 (Oct. 3, 1995); 62 Fed. Reg. 13,816–13,818 (Mar. 24, 1997); 64 Fed. Reg. 59,613 (Nov. 3, 1999); 68 Fed. Reg. 52,078 (Sept. 2, 2003); 68 Fed. Reg. 53,672 (Sept.

Consumer Banking and Payments Law: 1.1.2.1 The Chapters

This treatise generally covers laws that affect consumers governing bank checking and savings accounts and other payment systems. This section provides an overview of the treatise and describes issues that are covered by other treatises in this series.

Chapter 1 provides an overview of forms of payment systems and applicable law, including a discussion of preemption issues. It also provides checklists allowing speedy access to appropriate sections throughout the treatise.

Consumer Banking and Payments Law: 1.1.2.3 Pleadings and Primary Sources Found on the Digital Version

The treatise’s digital version, found at www.nclc.org/library, also includes pleadings and discovery, practice tools, and additional primary sources. They are listed at the bottom of the treatise’s table of contents found in the left pane and are also fully searchable. Search filters allow users to search only for pleadings, only for primary sources, or only for practice tools. Searching for pleadings is recommended using the Advanced Pleadings Search tool found above the Search box.

Consumer Banking and Payments Law: 1.1.3 Payment Issues Discussed in Other NCLC Treatises

Some consumer issues relating to payments are discussed in other NCLC treatises.

NCLC’s Collection Actions1 considers bank account garnishments, including the Treasury rule limiting garnishment freezes on certain federal benefits in a bank account. Also covered are criminal and civil collection of dishonored checks.

The Fair Credit Reporting Act’s applicability to bad-check and check approval lists is discussed in NCLC’s Fair Credit Reporting.2

Consumer Banking and Payments Law: 1.1.4 Alphabet Soup and Jargon

What follows are brief descriptions of some important acronyms found in this treatise that may be unfamiliar to the reader and that are often confused with other terms:

ACH is the Automated Clearing House, a major network that facilitates electronic transfers. (See “NACHA” definition, infra.)

Consumer Banking and Payments Law: 1.3.1 Uniform Commercial Code (UCC)

The law of check transactions is governed primarily by Articles 3 and 4 of the Uniform Commercial Code. Article 3 contains provisions governing negotiable instruments in general; checks are one form of negotiable instrument. Article 4 governs bank deposits and collections. The UCC addresses issues such as a bank’s duty of good faith and ordinary care. The UCC has been adopted, with some variations, in every state.

Consumer Banking and Payments Law: 1.3.2 Electronic Fund Transfer Act (EFTA)

The primary objective of the EFTA and its Regulation E is to provide individual consumer rights in connection with electronic fund transfers that authorize a financial institution to debit or credit a consumer’s account.12 Due to the broad definition of “electronic fund transfer” and the spread of electronic technology, EFTA may cover a wide variety of newer payment systems. It is less clear, however, what “accounts” (beyond traditional bank accounts) are covered by EFTA.

Consumer Banking and Payments Law: 1.3.3 NACHA Rules

The Rules of the National Automated Clearing House Association (NACHA rules) and operating guidelines are an important body of contract rules that apply only to Automated Clearing House (ACH) transfers that are processed by ACH Operators. Many, but not all, electronic payments are made over the ACH system. The NACHA rules supplement the EFTA rules and in some cases go beyond them, though the rules do not have the force of statute and may not be privately enforceable.

Consumer Banking and Payments Law: 1.3.5 Truth in Lending Act (TILA)

The Truth in Lending Act (TILA) and its Regulation Z govern disclosures and certain protections for credit cards and nearly every other form of credit. Among other issues, the TILA has provisions applicable to credit cards (and other credit-based payment systems) regarding unauthorized charges, billing errors, merchant disputes, and telemarketing sales.

Consumer Banking and Payments Law: 1.3.6 Other State Laws

In addition to state enactments of the UCC, many other state laws cover particular aspects of banking and payments products or services. For example, many states have laws regulating check cashers,18 remittances and money transmitters,19 gift cards,20 and electronic transactions.21 Those and other state laws are discussed throughout this treatise as applicable.

Consumer Banking and Payments Law: 1.4.1 Overview

Many different entities might be involved in holding consumers’ funds and making payments to and from consumers’ accounts. Financial institutions (banks and credit unions) beyond the consumer’s institution, and a variety of nonbank entities, might be involved in the process, depending on the payment system being used. Some of these entities interface directly with the consumer and some do not, but they can still impact the consumer’s experience and potentially be liable to the consumer, even if their role is behind the scenes.

Consumer Banking and Payments Law: 1.4.2 The Role of Depository Financial Institutions and Payment Processors Beyond the Consumer’s Bank

Consumers are most familiar with the role of their own depository financial institution (bank or credit union26). This treatise primarily focuses on consumers’ rights vis-à-vis their own bank.

However, when a payment is taken from a consumer’s account (whether by check, electronic ACH payment, or debit card), there is almost always a second financial institution (and sometimes more) involved at the other end of the payment. Those institutions may also have duties and responsibilities that impact consumers.

Consumer Banking and Payments Law: 1.4.3.1 Introduction

Merchants often rely on payment processors to handle their payments and give them access to particular payment systems. Payment processors take the relevant information that merchants obtain from consumers (that is, bank account and routing number or credit or debit card number) and submit it in the appropriate form through a financial institution in order to process credit or debit card payments, ACH payments, remotely created checks, or payment orders.

Consumer Banking and Payments Law: 1.4.3.2 The Role of Financial Institutions in Monitoring Payment Processors

While many legitimate merchants use payment processors to manage their payments, putting a third party in between the merchant and the bank that processes the payment can obscure the identity of the merchant or hide any red flags. For that reason, bank regulators have issued guidances about special obligations particular to financial institutions that have payment processor customers.36

Consumer Banking and Payments Law: 1.4.4.2 The ACH Payment System

The ACH (“automated clearinghouse system”) is the system through which direct deposits, many bill payments, and other electronic payments are made. The system is run under rules established by NACHA, a private entity, and payments are cleared through one of two clearinghouses, one run by The Clearing House and the other by the Federal Reserve’s Retail Payments Office.82